Simple is Always Better: Accounting Standards Update (ASU) 2015-12 Plan Accounting

Our profession is not always known for its ability to take complex accounting rules and state those rules in simple terms. Nor are we known for removing overly complex financial statement disclosures when the value of those disclosures is in question, yet that is precisely what the Financial Accounting Standards Board (FASB) accomplished with ASU 2015-12, a simplification of the Accounting Standards Codification (ASC) (commonly referred to as generally accepted accounting principles, or GAAP) for defined benefit plans (Topic 960), defined contributions plans (Topic 962) and health and welfare plans (Topic 965), collectively referred to as employee benefit plans (or EBP) for this article, and the simplification of EBP disclosures.

Although ASU 2015-12 was issued in July 2015, most plan administrators did not early adopt its provisions for their 2014 plan audits, so hopefully this article will provide you with the necessary information to consider early adoption of ASU 2015-12 for your upcoming plan year 2015 audit (effective for plan years beginning after December 15, 2015, with early adoption permitted). You should consider early adopting ASU 2015-12 as it should save both you and your plan auditors a significant amount of time associated with the preparation of plan financial statements. ASU 2015-12 was issued in three parts. You have the option to early adopt one, two or all of these parts as long as you implement all of the provisions of each part that you early adopt. Also, the provisions of ASU 2015-12 should be adopted retrospectively; when presenting comparative financial statements, you will need to update the prior year information to be comparable under ASU 2015-12.

The following summarizes the key provisions of ASU 2015-12 by part:

Part I

Fully Benefit-Responsive Investment Contracts: Plans with fully benefit-responsive investment contracts in their plan assets will no longer need to be presented at fair value; nor will a reconciliation to contract value be required on the statement of net assets available for plan benefits. Instead these investment contracts will be presented at contract value, which will also excluding these investments from the fair value disclosures, including those disclosures about the average yield rates and the interest crediting rate methodology.

Part II

Plan Investment Disclosures (primarily the investment and fair value disclosures) will be simplified as follows:

• Net appreciation in fair value of plan assets, which includes both realized and unrealized gains and losses, will no longer need to be disclosed as segregated between significant classes of assets (nor between Levels 1, 2, and 3 assets).
• Investments that represent 5% or more of net assets available for benefits will no longer need to be disclosed.
• Fair value disclosures will be allowed to be disaggregated by type (not class); plans will be exempt from the requirement to disaggregate by nature, characteristics and risks. Examples of types would be stocks, bonds, mutual funds, etc.
• For investments fair valued using net asset value (NAV) as a practical expedient, if the investment fund is a direct filing entity with the Department of Labor (DOL), then the disclosure for investment strategy will also no longer be required (presumably because the DOL should already have access to this information).

Part III

Measurement Date Practical Expedient: If an EBP has a financial statement date that is not at month end, the plan may use a practical expedient to measure its plan assets at the date closest to the financial statement date. If there are significant transactions between the month end date and the reporting date, the entity will be able to provide a reconciliation in the fair value disclosure. As almost every EBP has a financial statement reporting date that coincides with a monthly reporting date, this provision is extremely unlikely to have an impact on your plan.