If your company has an employee benefit plan, you may have found yourself wondering where the benefit is when faced with the complex investment accounting that comes alongside it. Beginning in December 2015, the Financial Accounting Standards Board (“FASB”) issued a new accounting standards update regarding employee benefit plans with the intention of simplifying the accounting procedures and reporting. This three-part update, known as ASU 2015-12, will give financial statements users the information they need without the costly complexity.
The new standards update, effective December 15, 2015, with early adoption permitted, allows for fully benefit-responsive investment contracts to be reported at contract value, investments to be classified solely by general type, and the last month-end of the fiscal year to serve as the final investment measurement date if the fiscal year-end does not align with the month-end. Each segment of the update is outlined below.
Part 1. Reporting fully benefit-responsive investment contracts at contract value:
Prior to this update, fully benefit-responsive investment contracts were required to be recorded at contract value with an adjustment to fair market value if a difference existed. As reporting at fair market value was no longer deemed useful, fully benefit-responsive investment contracts for defined contribution plans and health and welfare benefit plans are now to be reported solely at contract value. New disclosure requirements in accordance with this include a description of how each type of investment contract operates as well as the total contract value of each type of investment contact. Once applied, the update must be applied retrospectively to all prior financial statements, though the new disclosure requirements only need to be applied in the first annual period of adoption.
Part 2. Classes of assets disclosed and grouped by general type:
Grouping classes of assets by nature, characteristics, and risks, as well as by general type led to confusing and redundant disclosures. Classes of assets, under the new standard, are now only required to be classified by general type. Further, the following disclosures are no longer required:
- Individual investments that represent 5% or more of net assets available for benefits
- The net appreciation or depreciation for investments by general type
- Investments measured at net asset value per share (if in a fund that files as a direct filing entity)
Once applied, the update must be applied retrospectively to all periods presented.
Note: Although the net appreciation or depreciation for investments by general type is no longer required as a disclosure, the net appreciation or depreciation will still be required in the aggregate.
Part 3. Use the final month-end of the fiscal year for investment measurement:
For plans that have a fiscal year-end that does not coincide with a month-end, investments may now be measured using the month-end date. If a significant event, such as a contribution or distribution, occurs between the two dates, the amount must be disclosed. The accounting policy election date as well as the date used to measure the investments should also be disclosed. This amendment should be applied prospectively.
Although these changes will simplify employee benefit plan investment accounting and reporting, preparing to implement the changes will take planning. For additional support in integrating these updates, feel free to Kristi Yanover and she will be happy to assist you.