by Eric Ernest, ERISA Compliance Partner
On July 31, 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2015-12, a three-part standard that provides guidance on certain aspects of the accounting by employee benefit plans. The ASU was released in response to consensus reached by the Emerging Issues Task Force (EITF).
Part I – Fully Benefit-Responsive Investment Contracts
Part I of this Update designates contract value as the only required measure for fully benefit-responsive investment contracts, which maintains the relevant information while reducing the cost and complexity of reporting for fully benefit-responsive investment contracts.
Who is Affected by the Amendments in This Update?
The amendments in Part I of this Update apply only to reporting entities within the scope of Topic 962 – Defined Contribution Pension Plans and Topic 965 – Health and Welfare Benefit Plans that classify investments as fully benefit-responsive investment contracts.
What Are the Main Provisions and How Do They Differ from Current Generally Accepted Accounting Principles (GAAP) and Why Are They an Improvement?
Although contract value is used to measure fully benefit-responsive investment contracts for purposes of determining the net assets of an employee benefit plan, GAAP also requires fully benefit-responsive investment contracts to be measured at fair value for purposes of presentation and disclosure. This includes providing a reconciliation of contract value to fair value, when those measures differ, on the face of the plan financial statements.
Under the amendments, fully benefit-responsive investment contracts are measured, presented, and disclosed only at contract value. A plan, however, will continue to provide disclosures that help users understand the nature and risks of fully benefit-responsive investment contracts.
When Will the Amendment Be Effective?
The amendments in Part I of this Update are effective for fiscal years beginning after December 15, 2015. Earlier application is permitted. An entity should apply the amendments in Part I of this Update retrospectively for all financial statements presented.