At a meeting of the Financial Accounting Standards Board (FASB) in November 2014, the FASB discussed three areas that are in need of simplification for financial reporting of Employee Benefit Plans (EBPs). The topics identified include: (1) fair value hierarchy, (2) classes of assets, and (3) fully benefit-responsive investment contracts. The Emerging Issues Task Force (EITF) held an education session on January 22, 2015, where the working group charged with reviewing these issues in further detail presented its feedback.
The group divided the matters into two categories: disclosure simplifications and measurement simplification. The issues that were raised related to disclosure simplifications included: (1) disaggregation of classes of assets, (2) details about plan assets, and (3) disclosures of changes in plan assets. The feedback presented by the working group related to disclosure simplification was as follows:
Classes of assets should be disaggregated based on general type
Self-directed brokerage accounts should be treated as one type of investment
Fair value disclosures should be provided by general type
Disclosure of investments greater than 5% is not useful
The benefit of the rollforward of Level 3 investments was questioned
Disclosure of net appreciation/depreciation is not useful
The measurement simplification issue is related to accounting for fully benefit-responsive investment contracts. Currently, these contracts are measured at fair value in accordance with Accounting Standards Codification Topic 820, Fair Value Measurement; therefore, a reconciliation of contract value and fair value is presented on the face of the financial statements and additional disclosures are required. Most fully benefit-responsive investment contracts are reported on the Form 5500 at contract value, and insurance companies frequently state that fair value equals contract value. The working group determined that the relevant measurement is contract value and that, if the contract is measured at contract value, it should not be included in the fair value hierarchy table.
The EITF will continue deliberations at its next meeting on March 19, 2015 and is aiming to issue an exposure draft in mid-April with a comment letter deadline in mid-June. The EITF will then discuss the comment letters and target a final consensus at a meeting on July 9, 2015. The final accounting standards update is anticipated to be issued in the early third quarter of 2015 in order to make simplifications available for 2014 EBP’s financial statements.
You’ve heard our thoughts… We’d like to hear yours
The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at [email protected].
Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.