On July 31, 2015, the Financial Accounting Standards Board (“FASB”) issued ASU 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. The ASU was in response to consistent feedback received from employee benefit plan financial statement users. The ASU covers three areas for entities that follow the requirements in FASB Accounting Standards Codification (“ASC”) Topics 960, 962 and 965:
I. Fully Benefit-Responsive Investment Contracts
Part I of the ASU applies to applicable entities that hold investments in fully benefit responsive investment contracts (“FBRICs”), as defined by the FASB ASC Master Glossary. This update redefines a FBRIC and requires that FBRICs be measured, presented and disclosed at contract value, as contract value is the relevant measure of the portion of the net assets available for benefits of a defined contribution plan for a FBRIC. This update eliminates the need for a plan to calculate the fair value and present a reconciliation from contract value to fair value as the employee benefit plan financial statement users consider this to not be decision-useful information, as contract value is the amount participants would normally receive if they were to initiate permitted transactions.
II. Plan Investment Disclosures
Part II of the ASU is to reduce the complexity in the employee benefit plan financial statement in line with the FASB’s overall Simplification Initiative as minimal changes have been made to pension plan accounting since 1980 (release of FASB Statement No. 35, Accounting and Reporting by Defined Benefit Pension Plans) while other portions of FASB were updated and were applicable to employee benefit plan financial statements which resulted in increased disclosures and accounting requirements.
- Elimination of investments that represent more than 5% of net assets available for benefits
- Elimination of the disclosure of net appreciation/depreciation by investment type
- Elimination of the need to disaggregate investments by nature, characteristics, and risks within the fair value hierarchy
- Elimination of the need to disclose an investment’s strategy if the investment is a fund that files a Form 5000 as a direct filing entity
III. Measurement Date Practical Expedient
FASB ASU 2015-04 Compensation—Retirement Benefits (Topic 715): Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets, was issued in April 2015, which provided a practical expedient that allows employers to measure defined benefit plan assets on a month-end date that is nearest to the employer’s fiscal year-end, when the fiscal period does not coincide with a month-end. Thus, part III of this update provides a similar measurement date practical expedient for employee benefit plans. If a plan applies the practical expedient and a contribution, distribution, and/or a 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 should also disclose the accounting policy election and the date used to measure investments and investment-related accounts.
The ASU is effective for fiscal years beginning after December 15, 2015 and early application is permitted. Entities can separately adopt each part of the ASU, but must implement all components within each part. For more information read the ASU at www.fasb.org.
By Kevin C. Bach, CPA, CVA