The Financial Accounting Standards Board (FASB) adopted standards to simplify several areas of financial reporting for employee benefit plans. These changes respond to concerns about the cost and effort to prepare plan financial statements. The standards were developed by the Emerging Issues Task Force (EITF) with input from preparers and users of plan financial statements as well as the Department of Labor.
Fully-Benefit Responsive Investment Contracts (FBRIC)
Current guidance required plans to measure FBRICs at both fair and contract values and effectively present both of these amounts in the financial statements. Additionally, disclosures were required regarding average yield earned and the interest crediting rate for FBRICs.
The new guidance requires disclosures of only total contract value for each type of FBRIC, which is the relevant measure of the amount participants would receive in a transaction. Indirect investments in FBRICs though investment companies (i.e. stable value funds) will report these investments at fair value. Fair value will likely be based on the net asset value (NAV) per share, and these investments will likely qualify for exclusion from the fair value hierarchy when NAV is used as a practical expedient. The additional yield and interest rate disclosures were also eliminated.
Plan Investment Disclosures
Current guidance requires disclosure of plan investments be disaggregated both by class (i.e. nature, characteristics and risk of the investment) and general type (i.e. common stocks, corporate bonds and mutual funds).
Under the new guidance, investment disclosure will only be required by general type, with self-directed brokerage accounts considered one general type. This disclosure is consistent with the level of disaggregation provided by most trustees and custodians for inclusion in Form 5500.
The new standard also eliminates the requirement to disclose the net appreciation or depreciation by general type of investment, requiring only aggregate disclosures. Additionally, disclosure of individual investments with a value greater than 5% of plan assets has been eliminated.
The new guidance is effective for plan years beginning after December 15, 2015. Plans can adopt these changes early. Upon adoption, prior financial statements will be reclassified to conform to the new presentation.
Carl Kampel, CPA is the director in charge of professional standards at Ellin & Tucker, an advisory role that ensures all aspects of client accounting, regardless of the complexity, are conducted with the highest level of service and accuracy. His rich career spanning more than 30 years and personal contributions to financial and special reporting services standards of the audit and accounting profession have rippled internationally. He is a member of the FASB Emerging Issues Task Force and past vice chair of the AICPA Financial Reporting Executive Committee.