Employee benefit plan financial reporting simplification

In an effort to simplify financial reporting for employee benefit plans, the Financial Accounting Standards Board has issued two new Accounting Standards Updates (ASUs) and provided clarifications on existing guidance.

• ASU 2015-07 — Fair value measurement (topic 820): Disclosures for investments in certain entities that calculate net asset value per share (or its equivalent)¹
  • Key Points:
    • Removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share (NAV) practical expedient.
    • Requires information to allow for the reconciliation of fair value of investments from the hierarchy disclosure to the line item presented on the statement of financial position.

• ASU 2015-12 — Plan accounting: Defined benefit pension plans (topic 960), Defined contribution pension plans (topic 962), Health and welfare benefit plans (topic 965)²
  • ASU 2015-12 — Part I: Fully Benefit-Responsive Investment Contracts (FBRICs)
    • Key Points:
      • Designates contract value as the only required measure for FBRICs (including unallocated contracts and synthetic guaranteed investment contracts)
        • Eliminates the requirement to report direct holdings in FBRICs at fair value and thus the need to categorize/include in the fair value hierarchy
      • Reduces disclosures related to interest crediting rate and average yield disclosures

• ASU 2015-12 — Part II: Plan investment disclosures
  • Key Points:
    • Simplifies the accounting for benefit plans by considering the requirements of the Plan Accounting guidance in ASC 960, 962, and 965 and ASC 820, Fair Value Measurement, and reduces the cost and complexity while maintaining or improving the usefulness of the information provided
      • Eliminates the requirement to disclose individual investments > 5% of net assets
      • Eliminates the requirement to disclose net appreciation/depreciation for investment by general type
      • Removes the requirement to disclose investments by nature, risks, and characteristics in the fair value hierarchy if the investment is measured using the NAV practical expedient and the investment files as a direct filing entity with the Department of Labor
    • Investments need to be disclosed by general type
    • Provides for self-directed brokerage accounts to be shown as a single type of investment

• ASU 2015-12 — Part III: Measurement date practical expedient
  •  Key Points:
    • For fiscal year-end plans with year ends that do not coincide with a month end, this update permits plans to measure investments at the month end that is closest to the plan’s fiscal year end

• FASB Clarification: Uncertain tax positions³ (March 2015)
  • Key Points:
    • For plans that do not have material uncertain tax positions, this update eliminates the uncertain tax position disclosures, including the requirement to disclose open tax years

• FASB Clarification: Stable value funds³ (July 2015)
  • Key Points:
    • Allows stable value funds (generally common collective trust funds, pooled separate accounts, and registered investment company investments) to be valued using the NAV practical expedient
    • This change would eliminate the fair value to contract value adjustment for stable value funds that are recorded at NAV

Download the PDF of the 30,000 foot view (from above) as well as the executive summary providing more information on these changes >>