FASB update aims to simplify employee benefit plan accounting

FASB provided guidance designed to simplify accounting for employee benefit plans in a three-part document issued Friday.

The guidance is contained in Accounting Standards Update (ASU) 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 Emerging Issues Task Force).

Part I of the ASU designates contract value as the only required measure for fully benefit-responsive investment contracts. Under the amendments, a plan will continue to provide disclosures that help users understand the nature and risks of fully benefit-responsive investment contracts.

The amendments in Part I 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 FASB Master Glossary.

In Part II of the ASU, FASB has eliminated the requirements for participant-directed investments and nonparticipant-directed investments to disclose:

• Individual investments that represent 5% or more of net assets available for benefits.
• The net appreciation or depreciation for investments by general type.

FASB still will require the net appreciation or depreciation in investments to be presented in the aggregate, but it will no longer require the amounts to be disaggregated and disclosed by general type.

Part II of the ASU applies only to reporting entities that follow the requirements in Topic 960, 962, or 965.

In Part III of the ASU, FASB has established a practical expedient to permit plans to measure investments and investment-related accounts 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 ASU requires the plan to 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 guidance in Part III applies only to entities that have a fiscal year end that does not coincide with a month end and that follow the requirements in Topic 960, 962, or 965.

The amendments in each part of the ASU take effect for fiscal years beginning after Dec. 15, 2015, with earlier application 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.

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