Accounting Standards Update for Benefit Plans | Part III
by Eric Ernest, ERISA Compliance Partner
Part III – Measurement Date Practical Expedient
Accounting Standards Update No. 2015-04, Compensation—Retirement Benefits (Topic 715): Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets, provides a practical expedient that allows employers to measure defined benefit plan assets on a month-end date that is nearest to the employer’s fiscal year-end (“alternative measurement date”), when the fiscal period does not coincide with a month-end. If that practical expedient is elected, employers are required to apply it consistently from year to year, adjust the measurement of defined benefit plan assets and obligations to reflect contributions and significant events made between the alternative measurement date and the employer’s fiscal year-end, and disclose the use of the practical expedient and the alternative measurement date.
The amendments in Part III of this Update provide a similar measurement date practical expedient for employee benefit plans.
Who Is Affected by the Amendments in This Update?
The amendments in Part III of this Update apply only to entities that have a fiscal year-end that does not coincide with a month-end and follow the requirements in Topics 960, Defined Benefit Pension Plans, 962, Defined Contribution Pension Plans, and 965, Health and Welfare Benefit Plans.
What Are the Main Provisions and Why Are They an Improvement to Current GAAP?
The amendments in Part III of this Update provide a practical expedient to permit plans to measure investments and investment-related accounts (for example, a liability for a pending trade with a broker) 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 plan should 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 amendments simplify the measurement of investments and investment related accounts while not significantly reducing the relevance of the information to users. Furthermore, the disclosures increase the transparency of the measurement date used and events that occur between the measurement date and the plan’s fiscal year-end.
When Will the Amendments Be Effective?
The amendments in Part III 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 III of this Update prospectively.