Good news for financial statement preparers—Accounting Standards Update (ASU) 2015-12 spells less complex preparation! And, good news for those who use financial statements—the value of those statements is increasing. It’s all an effort the Financial Accounting Standards Board (FASB) has been involved in to simplify standards and disclosure requirements for employee benefit plan accounting. The ASU is a three-part update addressing Fully Benefit-Responsive Investment Contracts (Part I), Plan Investment Disclosures (Part II), and Measurement Date Practical Expedient (Part III).
Part I: Fully Benefit-Responsive Investment Contracts
Part I of the ASU states that contract value is now the only required measurement for the value of fully benefit-responsive investment contracts. Unlike the current standards, entities will no longer be required to determine the fair value of the fully benefit-responsive investment contract or reconcile the fair value to the contract value on the face of the financial statements, if these amounts vary. The ASU will reduce the cost and difficulty of reporting for fully benefit-responsive investment contracts. The Plan must continue to disclose the nature and risks of fully benefit-responsive investment contracts in the financial statement notes.
Part II: Plan Investment Disclosures
Part II of the ASU will eliminate the current requirements to disclose (1) individual investments that represent 5% or more of net assets available for benefits and (2) the net appreciation or depreciation for investments by general type for both participant-directed investments and nonparticipant-directed investments. The net appreciation or depreciation in investments for the period still must be presented in the aggregate on the face of the financial statements, but no longer must be disaggregated and disclosed by general type.
Under current fair value disclosure requirements, classes of investments are grouped and disclosed on the basis of nature, characteristics, and risks. Under current disclosure requirements for various employee benefit plans, classes of assets are grouped and disclosed on the basis of general type. The amendments in Part II of this Update will require that investments (both participant-directed and nonparticipant-directed) of employee benefit plans be grouped only by general type, eliminating the need to disaggregate the investments in multiple methods.
Part III: Measurement Date Practical Expedient
The amendments in Part III provide a “measurement date practical expedient” for employee benefit plans by permitting plans to record the value of investments and investment-related accounts as of a month-end date that is closest to the plan’s fiscal year-end, when the plan’s fiscal period does not coincide with a month-end. The plan must disclose the accounting policy election and the date used to measure investments and investment-related accounts, as well as any contributions, distributions, or other significant events occurring between the alternative measurement date and the plan’s fiscal year-end. This will simplify the measurement of investments and related accounts, while not significantly reducing the relevance of the information to users.
Part I of the ASU applies to defined contribution pension plans and health and welfare benefit plans that classify investments as fully benefit-responsive investment contracts. The amendments in Parts II and III of this Update apply to defined benefit pension plans, defined contribution pension plans, or health and welfare benefit plans that have a fiscal year-end that does not coincide with a month-end. The amendments in this ASU are effective for fiscal years beginning after December 15, 2015. Earlier application is permitted. The amendments in Parts I and II of this Update should be applied retrospectively for all financial statements presented. The amendments in Part III of this Update should be applied prospectively.
If you have questions about this ASU or what it means for your business, or would like to request a speaker on this topic for your organization or event, contact the expert listed below at PYA at (800) 270-9629.
