No. 2015-26
24 April 2015
To the Point
FASB — proposed guidance
FASB proposes simplifying
financial reporting by employee
benefit plans
The proposal would
simplify employee
benefit plan
accounting while
also satisfying
users’ needs.
What you need to know
• The FASB proposed eliminating requirements that employee benefit plans measure the
fair value of fully benefit-responsive investment contracts and provide the related fair
value disclosures.
• The proposal would require plans to disaggregate their investments by general type
either on the face of the financial statements or in the notes to the financial statements,
and self-directed brokerage accounts would be one general type.
• Plans would no longer be required to disclose the net appreciation/depreciation in fair
value of investments by general type or individual investments equal to or greater than
5% of net assets available for benefits.
• A plan with a fiscal year end that doesn’t coincide with the end of a calendar month
would be allowed to measure its investments and investment-related accounts using the
month end closest to its fiscal year end.
• Comments are due by 18 May 2015.
Overview
The Financial Accounting Standards Board (FASB or Board) issued a proposal1 that would
simplify certain aspects of employee benefit plan (EBP) accounting while satisfying the needs
of users of financial statements, including plan participants and the Department of Labor.
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The proposal, which was developed by the Emerging Issues Task Force (EITF), would simplify
the measurement of fully benefit-responsive investment contracts (FBRICs) and disclosures
about plan investments. It also would allow EBPs with fiscal years that don’t end at the end
of a calendar month to choose a simpler way of measuring their investments and
investment-related accounts.
Key considerations
Fully benefit-responsive investment contracts
Current guidance 2 requires plans to measure FBRICs at both fair value (in accordance
with Accounting Standards Codification (ASC) 820 3) and contract value and to present an
adjustment on the face of the financial statements to reconcile the two amounts. Plans also
must make disclosures about FBRICs that are required by the guidance in ASC 820 and the
guidance for employee benefit plans in ASC 962 and ASC 965.
The proposal would eliminate the requirements to measure the fair value of FBRICs and provide
the related disclosures about fair value. Certain disclosures required by ASC 962 and ASC 965
also would be eliminated, including the average yield earned by the plan and the methodology
for calculating the interest crediting rate.
EBPs would have
to disaggregate
their investments
only by general
type, not by class.
The proposal responds to concerns about the cost and effort required to measure the fair
value of FBRICs because contract value is the relevant measure for an investment that meets
the definition of a FBRIC.4 That is, any investment contract for which the realization of the
full contract value is no longer probable would not qualify as “fully benefit-responsive” and
would have to be measured at fair value.
How we see it
We support this change because plan participants’ transactions involving FBRICs occur at
contract value, not at fair value.
Plan investment disclosures
The plan accounting guidance in ASC 960, 5 ASC 962 and ASC 965 and the fair value
guidance in ASC 820 require disclosures about financial assets to be disaggregated in
different ways. Under ASC 820, investments are disaggregated “by class” (i.e., the nature,
characteristics and risks of the investment). Under the plan accounting guidance, investments
are disaggregated by “general type” (e.g., common stocks, corporate bonds, mutual funds).
Because employee benefit plans are subject to both the plan accounting guidance and the fair
value guidance, they currently are required to provide disclosures about investments using
both levels of disaggregation.
Under the proposal, an EBP would disaggregate its investments only by general type, either
on the face of the financial statements or in the notes to the financial statements. In addition,
self-directed brokerage accounts would be considered one general type of investment. EBPs
would no longer be required to disclose the net appreciation/depreciation in fair value of
investments by general type. Instead, they would only need to disclose this amount in the
aggregate. EBPs also would no longer be required to disclose individual investments with a
value equal to or greater than 5% of net assets available for benefits.
While an EBP would continue to disclose other information about the fair value of its
investments, it would not be required to disclose information about significant investment
strategies for an investment in a fund that files an annual report on Form 5500 as a direct
filing entity when the EBP measures that investment using the net asset value per share
practical expedient.
2 | To the Point FASB proposes simplifying financial reporting by employee benefit plans 24 April 2015
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How we see it
• We support these proposed changes to the disclosure requirements. Disaggregating
investments by general type would be consistent with the level of disaggregation
provided by most trustees, custodians and insurance companies and with the
information required in Form 5500.
Alternative measurement date practical expedient
A plan with a fiscal year end that doesn’t end at the end of a calendar month would be allowed
to measure its investments and investment-related accounts using the month end closest to its
fiscal year end (i.e., an alternative measurement date). EBPs that elect to apply this practical
expedient would be required to disclose the alternative measurement date and the financial
effects of contributions, distributions and/or significant events that occur between the
alternative measurement date and the EBP’s fiscal year end.
This proposed practical expedient is similar to one the FASB recently provided for employers
with fiscal year ends that don’t end at the end of a calendar month to measure defined benefit
plan assets and obligations as of the month end closest to their fiscal year end. 6
How we see it
We support this practical expedient because trust statements used to prepare EBP
financial statements are generally provided as of a month end.
Effective date and transition
The proposed changes on the measurement of FBRICs and disclosure of investments would
be applied retrospectively. The proposed practical expedient on the alternative measurement
date would be applied prospectively. The EITF and the FASB will discuss an effective date after
the comment period ends.
Endnotes:
1
2
3
4
5
6
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SCORE No. BB2974
ey.com/us/accountinglink
Proposed Accounting Standards Updates, Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined
Contribution Pension Plans (Topic 962), and Health and Welfare Benefit Plans (Topic 965).
ASC 962, Plan Accounting: Defined Contribution Pension Plans, and ASC 965, Plan Accounting: Health and Welfare
Benefit Plans.
ASC 820, Fair Value Measurement.
As defined in ASC 962-325-20.
ASC 960, Plan Accounting: Defined Benefit Pension Plans.
ASU 2015-04, Compensation — Retirement Benefits (Topic 715): Practical Expedient for the Measurement Date of
an Employer’s Defined Benefit Obligation and Plan Assets.
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3 | To the Point FASB proposes simplifying financial reporting by employee benefit plans 24 April 2015