Perspectives

FASB issues ASU on employee benefit plan accounting

On July 31, 2015, the FASB issued ASU 2015-12, a three-part standard that provides guidance on certain aspects of the accounting by employee benefit plans. The ASU, which is being released in response to consensuses reached by the EITF, (1) requires an employee benefit plan to use contract value as the only measurement amount for fully benefit-responsive investment contracts (FBRICs), (2) simplifies and increases the effectiveness of plan investment disclosure requirements for employee benefit plans, and (3) provides employee benefit plans with a measurement-date practical expedient similar to the practical expedient provided to employers in ASU 2015-04.

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Part I — Fully Benefit-Responsive Investment Contracts

Under the new standard, plan reporting entities within the scope of ASC 962 and ASC 965 no longer need to measure FBRICs at fair value and would only measure them at contract value. Consequently, plan reporting entities should no longer present a reconciliation of a FBRIC’s fair value to its contract value (if different) on the face of the plan financial statements. The amendments also remove the fair-value-related disclosure requirements for FBRICs in ASC 962 and ASC 965. However, the following disclosures describing the nature and risks of FBRICs are still required:

  • “A description of the nature of those investment contracts (including how they operate) by the type of investment contract.“ 
  • “A description of the events that limit the ability of the plan to transact at contract value with the issuer, including a statement that the occurrence of each of those events . . . is not probable of occurring.“
  • “A description of the events and circumstances that would allow issuers to terminate [the contracts] with the plan and settle at an amount different from contract value.“

Further, plans are required to disclose the contract value for each type of FBRIC (e.g., synthetic investment contracts or traditional investment contracts). See the appendix in the PDF for an example illustrating the presentation and disclosure requirements for investments in FBRICs.

Investments in FBRICs held in a master trust are subject to the same presentation and disclosure requirements as FBRICs held directly by the plan. 

The guidance is effective for fiscal years beginning after December 15, 2015, and must be applied retrospectively to all periods presented in the financial statements for the fiscal year of adoption. Early adoption is permitted.

Volume 22, Issue 28 | August 14, 2015

Part II — Plan Investment Disclosures

The ASU’s amendments to the plan investment disclosure requirements for employee benefit plans, including disclosure requirements for investments in master trusts, within the scope of ASC 960, ASC 962, and ASC 965 (for both participant-directed and nonparticipant-directed investments) include the following:

  • Plan investments need to be disaggregated only by general type within the statement of net assets available for benefits or within the footnotes. Plans are no longer required to provide the disclosures by investment class in accordance with ASC 820-10-50 but must instead provide such disclosures by general type.
  • Participant self-directed brokerage accounts are disclosed in the aggregate as a single “general type“ of plan investment.
  • Plan investments representing 5 percent or more of net assets available for benefits no longer need to be listed individually.
  • Presentation of net appreciation or depreciation for each general type of plan investment is no longer required; however, plan investment appreciation or depreciation must still be presented in the aggregate.
  • Employee benefit plans are not required to disclose the investment strategies of plan investments that are (1) measured at fair value by using the NAV practical expedient permitted by ASC 820-10 and (2) in a fund entity that directly files Form 5500 with the U.S. Department of Labor. 

The guidance is effective for fiscal years beginning after December 15, 2015, and must be applied retrospectively to all periods presented in the financial statements for the fiscal year of adoption. Early adoption is permitted. 

Part III — Measurement-Date Practical Expedient

ASU 2015-12 permits employee benefit plans that are within the scope of ASC 960, ASC 962, and ASC 965 to elect a practical expedient of using, as an alternative measurement date for plan investments (and investment-related accounts such as a liability for a pending trade with a broker), the month-end date closest to the plan’s fiscal year-end when the fiscal year-end does not coincide with a month-end. Any contributions, distributions, or other significant events occurring between the employee benefit plan’s fiscal year-end and the alternative measurement date should be disclosed.

If the practical expedient is elected, a plan must apply the guidance consistently from one year to the next. In addition, the plan must provide the following disclosures:

  • The accounting policy elected to measure investments and investment-related accounts by using the practical expedient for the measurement date.
  • The practical expedient month-end measurement date.
  • Contributions, distributions, and significant events that occur between the practical-expedient month-end measurement date and the plan’s fiscal year-end.

The guidance is effective for fiscal years beginning after December 15, 2015, and must be applied prospectively. Early adoption is permitted.

 

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Heads Up newsletters, published as warranted, analyze important accounting developments, such as new FASB and IASB pronouncements or exposure drafts. Concise examples and answers to frequently asked questions assist readers in understanding and implementing the critical guidance.

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