by Michelle Brumfield, Director of ERISA Compliance
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). This post covers details of Part II – plan investment disclosures.
The objective of Part II of this Update is to simplify and make more effective the investment disclosure requirements under Topic 820 – Fair Value Measurements and under Topics 960 – Defined Benefit Pension Plans, 962 – Defined Contribution Pension Plans, and 965 – Health and Welfare Benefit Plans for employee benefit plans
Who Is Affected by the Amendments in This Update?
The amendments in Part II of this Update apply only to reporting entities that follow the requirements in Topics 960, 962, and 965.
What Are the Main Provisions and Why Are They an Improvement?
GAAP requires plans to disclose:
1.Individual investments that represent 5 percent or more of net assets available for benefits and
2.The net appreciation or depreciation for investments by general type.
Stakeholders said that while less costly to prepare, those disclosures do not provide decision-useful information.
The amendments in Part II of this Update will eliminate those requirements for both participant-directed investments and nonparticipant-directed investments. The net appreciation or depreciation in investments for the period still will be required to be presented in the aggregate, but will no longer be required to be disaggregated and disclosed by general type.
The amendments in Part II of this Update will require that investments (both 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.
In addition, if an investment is measured using the net asset value per share (or its equivalent) practical expedient in Topic 820 and 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, disclosure of that investment’s strategy will no longer be required.
When Will the Amendments Be Effective?
The amendments in Part II 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 II of this Update retrospectively for all financial statements presented.