On July 31, 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2015-12 (ASU). The ASU consists of three parts, with the goal of simplifying the financial statement presentation and disclosure requirements for employee benefit plans.
Part I of the ASU eliminates the requirement to present fully benefit-responsive investment contracts at fair value, as measured under the requirements of Accounting Standards Codification Topic 820 (ASC 820), with a corresponding adjustment to contract value, on the face of the statement of net assets available for benefits. A fully benefit-responsive investment contract is one which provides guaranteed investment return under a contract between the issuer of the investment vehicle and the plan. The contract is required to permit all participant-initiated transactions within the plan to occur at contract value with no conditions, limits or restrictions. Plans typically encounter fully benefit-responsive contracts in guaranteed investment contracts or common-collective trusts that hold such contracts. As a result of the amendments, fully benefit-responsive contracts are to be measured, presented and disclosed only at contract value for financial reporting purposes. As a result of measuring these contracts at contract value, there will be a significant reduction in the fair value disclosures under ASC 820 related to these investments, including exclusion of them from fair value hierarchy levels, elimination of valuation techniques and inputs and removal of the rollforward of activity for Level 3 investments.
Part II of the ASU eliminates certain disclosures related to investments held by an employee benefit plan that have been deemed to provide little to no decision-useful information to users of the financial statements. Many disclosures pertaining to investments have been seen as duplicative and costly to prepare under ASC 820. Part II eliminates the following investment-related disclosures:
Earlier this year, the FASB issued ASU No. 2015-04, Compensation – Retirement Benefits (Topic 715): Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets, which provides a practical expedient allowing employers to measure defined benefit plan assets on the month-end date that is closest to the employer’s fiscal year-end when the employer’s fiscal year-end does not coincide with a month-end date. Part III of this ASU was included to provide a similar measurement date-practical expedient for employee benefit plans. The amendments provide a practical expedient for the plan to measure investments as of the month-end date that is closest to the plan’s fiscal year-end date. Part III only applies to employee benefit plans that have fiscal year-end dates that do not coincide with a month-end date. The plan will be required to disclose the accounting policy election to measure the investments and investment-related accounts using the month-end date that is closest to the plan’s fiscal year-end. In addition, if any contributions, distributions or other significant events occur between the month-end date used and the plan’s fiscal year-end, the plan is required to disclose the amounts related to those significant items.
The amendments contained in all three parts of the ASU are effective for fiscal years beginning after December 15, 2015. Early adoption is permitted. The amendments in Parts I and II are to be applied retrospectively. The amendments in Part III are to be applied prospectively.