FASB proposals address plan accounting, certain electricity contracts

FASB proposed three Accounting Standards Updates (ASUs) on Thursday aimed at simplifying accounting for employee benefit plans. Another proposal is designed to clarify whether certain electricity contracts in nodal energy markets qualify for a scope exception to derivative accounting rules.

All four updates were the result of consensuses of FASB’s Emerging Issues Task Force. The three proposed ASUs for plan accounting were included in one exposure draft: Proposed ASU, Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965): I. Fully Benefit-Responsive Investment Contracts, II. Plan Investment Disclosures, and III. Measurement Date Practical Expedient. 

Those proposals are part of FASB’s simplification initiative:

• The first proposal would designate contract value as the only required measure for fully benefit-responsive investment contracts. It would apply to defined contribution pension plans and health and welfare benefit plans that classify investments and fully benefit-responsive investment contracts. A plan would continue to provide disclosures that help users understand the nature and risks of fully benefit-responsive investment contracts.
• The second proposal would require that participant-directed and nonparticipant-directed investments of employee benefit plans be grouped only by general type, eliminating the need to disaggregate the investments in multiple ways. For investments measured using the net asset value per share (or its equivalent) expedient in Topic 820, Fair Value Measurement, disclosure of that investment’s strategy would no longer be required if that investment is in a fund that files a U.S. Department of Labor Form 5500, Annual Return/Report of Employee Benefit Plan, as a direct filing entity. This proposal would apply to defined benefit pension plans, defined contribution pension plans, and health and welfare benefit plans.
• The third proposal also would apply to those three types of plans, providing a practical expedient allowing employers to measure defined benefit plan assets on a month-end date nearest to the employer’s fiscal year end when the fiscal period does not coincide with a month end. Employee benefit plans were excluded from a standard FASB issued earlier this month allowing this practical expedient for other entities.

Electricity contracts

The fourth proposal is described in the proposed ASU, Derivatives and Hedging (Topic 815), Application of the Normal Purchases and Normal Sales Scope Exception to Certain Electricity Contracts Within Nodal Energy Markets.

This proposal is designed to eliminate diversity in practice resulting from differing opinions on whether certain contracts for the purchase or sale of electricity on a forward basis should be eligible for a scope exception from guidance that requires that a derivative contract be recorded at fair value.

Comments are due May 18 on the proposals and can be submitted at FASB’s website.

—Ken Tysiac (ktysiac@aicpa.org) is a JofA editorial director.