FASB Proposes Targeted Simplifications To Employee Benefit Plan Accounting Rules

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By Denise Lugo

April 24 — The Financial Accounting Standards Board issued three proposed accounting standards updates aimed at simplifying financial reporting for employee benefit plans in three targeted areas.

The exposure documents, issued under one wrap-around proposal April 24, propose simplifications for reporting fully benefit-responsive investment contracts; disclosures for plan investments, and a measurement-date exception.

Respondents have until May 18 to comment on the proposal: Three Proposed Accounting Standard Updates—Plan Accounting (Topic 960, 962, and 965)—(I) Fully Benefit-Responsive Investment Contracts, (II) Plan Investment Disclosures, and (III) Measurement Date Practical Expedient (A consensus of the FASB Emerging Issues Task Force).

The changes are part of the FASB's simplification initiative, which focuses on reducing cost and complexity in financial reporting, while maintaining the usefulness of information to financial statement users.

Use Contract Value, Not Fair Value

FASB proposes that fully benefit-responsive investment contracts should be measured, presented, and disclosed only at contract value as is done for regulatory reporting. 

This would provide financial statement users with information more useful for making decisions than what is required under current accounting rules, said FASB.

Under current accounting rules, contract value is used to measure such investment contracts for purposes of determining the net assets of an employee benefit plan.

For purposes of presentation and disclosure, however, they are required to be measured at fair value. When these measures differ, a reconciliation of contract value to fair value is required on the face of the plan financial statements.

If finalized, the rules would require retrospective application to all periods presented beginning in a plan's fiscal year of adoption, said FASB. Furthermore, disclosures about the nature and risks of fully benefit-responsive investment contracts would continue to be required.

Simplifying Investment Disclosures

The second proposed simplifications relate to the investment disclosure requirements under ASC 820, Fair Value Measurement, and employee benefit plan rules under Topics 960, 962, and 965 to make them more effective, said FASB.

The board proposes to eliminate the requirement that the net appreciation or depreciation for participant-directed investments or nonparticipant-directed investments be disclosed by general type.

While less costly to prepare, those disclosures don't provide information useful for making decisions, according to a summary of the main accounting provisions.

The amendments would also eliminate the need for entities to disclose their investment strategy if an investment is measured using the net asset value per share or its equivalent practical expedient in ASC 820. That investment must also be 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.

If finalized, the amendments would be require retrospective application to all periods presented beginning in a plan's fiscal year of adoption, said FASB.

Measurement-Date Exception

The third issue proposed is aimed at simplifying the measurement of investments and investment-related accounts, said FASB. This would also increase transparency of the measurement date plans use as well as changes that occur between the measurement date and the plan's fiscal year end.

To that aim, FASB proposes that a practical expedient —that is an exception to a general rule—be allowed to enable plans to measure investments and investment-related accounts as of a month-end date that is closest to the plans fiscal year end, when the fiscal period doesn't coincide with month-end.

If a contribution, distribution, and/or significant event occurs between the alternative measurement date and the plan's fiscal year-end, the plan would be required to disclose the amounts, said FASB.

Additionally, the plan would disclose the accounting policy election and the date used to measure investments and investment-related accounts.

The amendments would require prospective application, said FASB.

To contact the reporter on this story go to: Denise Lugo in Norwalk, Conn., dlugo@bna.com

To contact the editor responsible for this story: Steven Marcy at smarcy@bna.com

For a copy of the proposal, including how to comment go to http://www.fasb.org/cs/ContentServer?c=Document_C&pagename=FASB%2FDocument_C%2FDocumentPage&cid=1176165956032.

For a discussion of pension accounting, see 5108-2nd, Pension Accounting, at 5108.