A Summary of Recent Standards Update (ASU 2015-12)
On July 31, 2015, the Financial Accounting Standards Board (FASB) announced an accounting standards update (ASU 2015-12) which directly addressed some disclosures normally required as part of the Plan’s financial statements. Normally, these pronouncements add disclosure requirements. But in much-heralded and much-appreciated turn, the new update reduces some of the more cumbersome and least informative of these disclosures.
The effective date of the ASU is for plan years starting after December 15, 2015 (so, effectively, 2016 calendar plan years). However, early adoption is permitted.
Here is a summary of some of the most relevant provisions of ASU 2015-12:
Benefit-Responsive Investment Contracts
Prior to ASU: Plans that invested in those funds considered to be fully benefit-responsive (BRICs) were required to show these investments at “fair value” on the financial statements and then show an adjustment from “fair value to contract value”.
After ASU: Now, these BRICs are to be reported at contract value and shown as a separate line item on the Statement of Net Assets Available for Benefits and no adjustment from fair value to contract value is necessary.
Prior to ASU: In the footnotes to the financial statements, it was required to disclose the Average Yield rate of the underlying investments to the funds and the Crediting Interest Rate actually allocated to participants holding these assets.
After ASU: The disclosure of these rates in the footnotes is no longer required.
Prior to ASU: Plans were required to disclose those investments that represented 5% or more of total net assets.
After ASU: Plans are no longer required to disclose this information
Prior to ASU: Plans were required to disclose the net appreciation/depreciation in the investments of the Plan by type of investment.
After ASU: Plans are no longer required to disclose this information. The net appreciation/depreciation already shown on the Statement of Changes in Net Assets Available for Benefits is deemed sufficient.
Fair Value Disclosures (Levels)
Prior to ASU: Plans were required to break Level 1 and Level 2 assets out by strategy, asset allocation, etc. (i.e. balanced, lifestyle, growth, income, international, etc.).
After ASU: Plans are now only required to show these in total at the asset type-level (i.e. mutual funds, common collective trusts, pooled separate accounts).
This is exciting news in the accounting and benefits world as we have now received some relief from some of these disclosures that did not appear to provide any valuable information to users of the financial statements, including participants and their beneficiaries.
There are some additional nuances to these involving master trusts, other investment disclosures, etc. For additional information on these and other items included in the ASU, contact your Meaden & Moore professional.