FASB Updates Guidance on Employee Benefit Plansby
The Financial Accounting Standards Board (FASB) issued a three-part Accounting Standards Update on July 31, which aims to make employee benefit plan accounting less complex for users of financial statements.
The document the board issued on Friday is Accounting Standards Update No. 2015-12, Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965): (Part I) Fully Benefit-Responsive Investment Contracts, (Part II) Plan Investment Disclosures, (Part III) Measurement Date Practical Expedient (consensuses of the FASB Emerging Issues Task Force).
Topic 962, Plan AccountingâDefined Contribution Pension Plans, and Topic 965, Plan AccountingâHealth and Welfare Benefit Plans, require fully benefit-responsive investment contracts to be measured at contract value. The guidance also requires an adjustment to reconcile contract value to fair value, when these measures differ, on the face of the plan financial statements, according to the FASB.
The standard-setting board had received feedback from stakeholders who suggested that requiring, for purposes of presentation and disclosure, fully benefit-responsive investment contracts to be measured at fair value does not provide decision-useful information when fair value differs from contract value.
Under Part 1 of the new Accounting Standards Update, fully benefit-responsive investment contracts are to be measured, presented, and disclosed at contract value only, which the FASB said maintains the relevant information while reducing the cost and complexity of reporting.
The amendments in Part 1 apply only to reporting entities within the scope of topics 962 and 965 that classify investments as fully benefit-responsive investment contracts as defined in the Master Glossary.
In Part II of the Accounting Standards Update, the FASB eliminated two disclosure requirements in US Generally Accepted Accounting Principles (GAAP) for both participant-directed investments and nonparticipant-directed investments:
- Individual investments that represent 5 percent or more of net assets available for benefits.
- The net appreciation or depreciation for investments by general type.
Stakeholders told the FASB that while less costly to prepare, those disclosures do not provide decision-useful information.
However, the net appreciation or depreciation in investments will still be required to be presented in the aggregate, but will no longer be required to be disaggregated and disclosed by general type.
The amendments in Part II apply only to reporting entities that follow the requirements in topics 960, 962, and 965.
Under Part III of the Accounting Standards Update, defined benefit pension plans, defined contribution pension plans, and health and welfare benefit plans are permitted to elect a practical expedient to measure investments and investment-related accounts (for example, a liability for a pending trade with a broker) as of a month-end date that is closest to the plan's fiscal year-end, when the fiscal period does not coincide with a month-end.
If a plan applies the practical expedient and a contribution, distribution, and/or significant event occurs between the alternative measurement date and the plan's fiscal year-end, the plan should disclose the amount of the contribution, distribution, and/or significant event. The plan also should disclose the accounting policy election and the date used to measure investments and investment-related accounts.
The amendments in all three parts of the Accounting Standards Update take effect for fiscal years beginning after Dec. 15, 2015. Earlier application is permitted. The amendments in parts I and II should be applied retrospectively for all financial statements presented. The amendments in Part III should be applied prospectively, according to the FASB.
This project was part of FASB's simplification initiative, which was launched in June 2014 to identify, evaluate, and improve areas of US GAAP for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to financial statement users.