FASB Looks to Defer Certain Disclosures for Benefit Plans

By Jason Bramwell

As a result of concerns from stakeholders, the Financial Accounting Standards Board (FASB) has issued a proposal to defer indefinitely the effective date for certain disclosure requirements for nonpublic employee benefit plans in the plan sponsor's own equity securities. Individuals or organizations can comment on the proposal until May 31.
The proposal focuses on certain disclosure requirements in paragraph 820-10-50-2 of the FASB Accounting Standards Codification that bothered stakeholders. They believed that the disclosure requirements could potentially provide proprietary information about private companies through the dissemination of their employee benefit plans' financial statements on the regulator's website.
"The amendments in [FASB Accounting Standards Update No. 2011-04] would address those concerns by permitting an indefinite deferral of certain quantitative disclosure requirements in paragraph 820-10-50-2(bbb) for investments held by a nonpublic employee benefit plan in its plan sponsor's own nonpublic entity equity securities," the FASB states in an exposure draft on the proposal.
For example, if ABC company has a 401(k) plan, that 401(k) plan holds an investment of ABC company. The 401(k) plan would have to make disclosures that were specific about ABC company – the plan's sponsor – and that information would be proprietary.

Questions for Respondents

The FASB has posed four questions for public comment on its proposal to defer certain disclosures for nonpublic employee benefit plans. The public comment period ends May 31.

1. Do you agree with the indefinite deferral, as well as the board's decision to defer for investments held by nonpublic employee benefit plans, only the quantitative information about the significant unobservable inputs used in Level 3 fair value measurement of its plan sponsor's own nonpublic entity equity securities, and not the qualitative information, required by paragraph 820-10-50-2(bbb)? Why or why not?
2. Do you agree with the limited scope of plan sponsor's own nonpublic entity equity securities covered by the proposed update? If not, what other investments should be included or excluded from the guidance in the proposed update and why?
3. Do you agree with the scope of the employee benefit plans in this proposed update? If not, which other employee benefit plans should be included or excluded from the guidance in the proposed update and why?
4. Do you agree with the definition of "nonpublic employee benefit plan?" Is it understandable and operable?
The deferral would allow time for discussions between the regulator(s) and stakeholders about the specific quantitative disclosures and their potential effect on the plan sponsor as a result of making that information public, the FASB states.
The Department of Labor makes all financial statements for employee benefit plans public on its website, and because this proprietary information would be disclosed, anyone with an Internet connection could access it, Jenifer Wyss, FASB project manager, told AccountingWEB. She adds there could be unintended consequences resulting from an unknown person accessing the regulator's website and seeing this information.
For example, if a buyer wanted to purchase a private company, the buyer would have access to this proprietary information – essentially about the value of the company. The private company would likely lose a lot of its leverage in trying to negotiate a sale because the buyer would already have information about the private company's worth, Wyss says.
Benefits and Cost
According to the FASB, the amendments in this proposal would not create new accounting guidance; therefore, entities would likely not incur significant costs as a result of the proposed update.
"The board believes that the deferral provided by this proposed update may lower costs of complying with the disclosure requirements in Update 2011-04 by avoiding the costs of potentially broadly disseminating proprietary information about the key inputs used by a nonpublic entity to value its own stock, by virtue of the nonpublic employee benefit plan financial statements being posted on the Internet," the FASB states.
Comments Welcomed
In the next thirty days, the FASB is hoping to receive comments from private Employee Stock Ownership Plan (ESOP) companies or any private company that holds stock in its employee benefit plan's sponsor, Wyss says.
Public accounting firms also are being asked to comment on the proposal and make their clients aware of how it may affect their employee benefit plan financial statements, she adds.
There are three ways individuals or organizations can comment on the proposal.
  1. Using the electronic feedback form available on the FASB website.
  2. e-mailing a written letter to director@fasb.org, which should include File Reference No. 2013-260.
  3. Sending written comments to: Technical Director, File Reference No. 2013-260, FASB, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116
The proposed deferral would be effective upon issuance of the final update, which is expected in June 2013.

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