On Friday, July 31st, the Financial Accounting Standards Board (FASB) provided guidance designed to help in simplifying the accounting of employee benefit plans in a three-part document included in Accounting Standard Update (ASU) No. 2015-12, Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plan (Topic 962, Health and Welfare Benefit Plans (Topic 965).
Part I of the update assigns contract value as the only required measure for fully benefit-responsive investment contracts. This part will reduce the complexity of reporting for fully benefit-responsive investment contracts while still requiring disclosures helping users understand these investment contract types.
Part II, of the update eliminates requirements for participant-directed investments and nonparticipant-directed investments to disclose:
• The net appreciation or depreciation for investments by general type.
• Individual investments representing five percent or more of net assets available for benefits.
Stakeholders informed FASB that disclosing similar investment information in multiple ways is costly for preparers and makes the financial statements more difficult to use. It is important to note that FASB will still require net appreciation or depreciation in investments to be presented in the aggregate, but it will no longer require amounts to be disaggregated and disclosed by general type.
Finally, Part III relates to an area of several potential simplifications submitted by stakeholders. It provides a practical expedient allowing the employer to measure and define 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.
These amendments in each part of the ASU will be effective for fiscal years beginning after December 15, 2015. Earlier application is permitted, and the amendments in Parts I and II should be applied retrospectively for all financial statements presented. Part III should be applied prospectively.