On July 31, 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-12, Plan Accounting (Topics 960, 962, and 965) — (Part I) Fully Benefit-Responsive Investment Contracts, (Part II) Plan Investment Disclosures, (Part III) Measurement Date Practical Expedient. This update is designed to provide guidance on the simplification of accounting and financial statement disclosures for employee benefit plans.
ASU No. 2015-12 takes effect for plans with fiscal years beginning after December 15, 2015. Earlier adoption is permitted.
Part I: Fully Benefit-Responsive Investment Contracts
Part I simplifies the reporting of plan investments that are reported as fully benefit-responsive contracts (FBRIC). The ASU now permits FBRIC, including those investment contracts held in master trusts, to be measured, presented and disclosed at contract value.
Historically, investment contracts have been measured at fair value for presentation and disclosure purposes while acknowledging contract value as the relevant measure. As a result, financial statements required an adjustment from fair value to contract value. The amendment also eliminated previously required disclosure information on the crediting rate and average yield for the investment contracts.
Part I should be applied retrospectively for all financial statements presented.
Part II: Plan Investment Disclosures
Part II eliminates the requirement for plans to disclose investments that represent 5 percent or more of net assets available for plan benefits and the net appreciation or depreciation for investments by type related to both nonparticipant-directed investments and participant-directed investments. The net appreciation or depreciation in investments will still be required to be separately presented in the aggregate in the statement of changes in net assets available for plan benefits. This reporting requirement includes self-directed brokerage accounts, which are also required to be reported as a single line item.
Also, it removes the requirement to include the plans investment strategy disclosure for funds that file Form 5500, Annual Return/Report of Employee Benefit Plan as direct filing entities when the plan measures those investments using net asset value (NAV), or an equivalent measure, as a practical expedient.
Part II should be applied retrospectively for all financial statements presented.
Part III: Measurement Date Practical Expedient
Part III only applies to plans that have a fiscal year-end that does not coincide with a month-end. The plan is allowed to measure investments and investment-related accounts (i.e. a liability for a pending trade with a broker) for the month-end date that is closest to the plan’s fiscal year-end. If there is a significant event that occurs in the plan (i.e. plan amendment, merger, or termination) between the month-end date used to measure investments and investment-related accounts and the plan’s fiscal year-end, the plan is required to disclose the amounts of those contributions, distributions, and/or significant events.
Part III should be applied prospectively for all financial statements presented.
For questions on ASU 2015-12 impacts financial reporting of your company’s employee benefit plan, contact Henry Martin at [email protected].
