April 27, 2015
- FASB Proposes Updates to Accounting Standards for Retirement, Health Plans
- American Benefits Council IN THE NEWS
FASB Proposes Updates to Accounting Standards for Retirement, Health Plans
The Financial Accounting Standards Board (FASB) – the independent organization tasked with establishing generally accepted accounting principles (GAAP) within the United States –proposed three updated employee benefit plan accounting standards on April 23. FASB is accepting comments on the proposal through May 18.
The proposal, developed by FASB’s Emerging Issues Task Force, addresses defined benefit pension plans, defined contribution retirement savings plans, particularly as regards the use of benefit-responsive investment contracts. (Fully benefit responsive investment contracts are those that ensure that participants can take distributions from the investment - such as a stable value fund – at the “book” value, regardless of short-term fluctuations in the market value of the investment.) The proposal also has implications for health and welfare plans.
The stated goal of the proposal is “to reduce complexity in employee benefit plan accounting” consistent with FASB’s Simplification Initiative, the objective of which is to identify, evaluate, and improve areas of generally accepted accounting principles (GAAP) for which cost and complexity can be reduced without adversely affecting the usefulness of the information to the users of financial statements.
Very generally, the proposed update would:
- designate contract value as the only required measure for fully benefit-responsive investments contracts.
- eliminate the requirement to disclose individual investments that represent five percent or more of net assets and the net appreciation or depreciation by general type (net appreciation or depreciation would be reported in aggregate).
- allow use of a month-end data that is closest to the plan’s fiscal year end (when the fiscal period does not coincide with month-end) to measure investments and investment-related accounts.
According to the first part of the proposal, “Although contract value is used to measure fully benefit-responsive investment contracts for purposes of determining the net assets of an employee benefit plan, GAAP also requires fully benefit-responsive investment contracts to be measured at fair value for purposes of presentation and disclosure, including, when these measures differ, a reconciliation of contract value to fair value on the face of the plan financial statements. Under the proposed amendments, fully benefit-responsive investment contracts would be measured, presented, and disclosed only at contract value. A plan would continue to provide disclosures that help users understand the nature and risks of fully benefit-responsive investment contracts.” FASB indicated that “contract value is considered the relevant measurement attribute because it is the amount participants normally receive if they were to initiate permitted transactions (for example, withdrawals) under the terms of the underlying plan.”
In the second part of the proposal, detailed reporting of assets consisting of five percent or more of net assets, split out by general types of assets, would be eliminated for both participant-directed and nonparticipant-directed investments. “The net appreciation or depreciation in investments for the period still would be required to be presented in the aggregate, but would no longer be required to be disaggregated and disclosed by general type.”
The third part of the proposal would simply allow plans with fiscal year-ends that do not coincide with month-end to use a month-end date that is closest to the plan’s fiscal year-end for purposes of measuring investments and investment-related accounts (for example, liability for a pending trade with a broker).
If finalized, the updates would be applied retrospectively to all periods presented beginning in a plan’s fiscal year of adoption. The effective date will not be determined until after the Emerging Issues Task Force has reviewed stakeholder comments.
FASB is specifically requesting detailed feedback on specific questions in each portion of the proposal. The Council is reviewing the proposal to determine whether to file a comment letter. To provide input for a possible comment letter or for more information on retirement plan accounting matters, contact Jan Jacobson, senior counsel, retirement policy. To provide input or for more information on health plan accounting matters, contact Kathryn Wilber, senior counsel, health policy. Both can be reached at (202) 289-6700.
American Benefits Council IN THE NEWS
The Council continues to be a reliable resource for the news media on employee benefits topics, contributing commentary and analysis on news as it arises.
As we reported in the April 15 Benefits Byte, several congressional subcommittees in the U.S. House of Representatives recently held hearings on the Patient Protection and Affordable Care Act (PPACA), focusing on its impact on employers. The Council released a statement in conjunction with the hearings and was widely quoted in the media:
- An April 14 article in Employee Benefit News (“Employers to Congress: Five years in, the ACA is a burden”) covered Council concerns on the impending 40 percent excise tax on high cost health plans. “The American Benefits Council also supports repealing the tax, but says absent that, ‘modifications could include more realistic indexing of the thresholds, only applying the cost of major medical coverage in determining whether thresholds are exceeded and establishing a safe harbor that excludes any plan below a certain actuarial level.’”
- An April 14 article in PlanSponsor (“Lawmakers Urged to ‘Adjust’ Health Care Law”) cited the Council’s recommendation from our recent strategic plan A 2020 Vision that “lawmakers permit employers to establish stand-alone health reimbursement arrangements—or similar accounts—that can be used to purchase individual coverage.”
- An April 15 article in Business Insurance (“Benefits lobbying group targets health care law's excise tax, work week rule”) covered other recommendations the Council proposed in addition to the stand-alone health reimbursement arrangements, such as providing greater flexibility in defining “full-time,” not requiring mandatory auto-enrollment for employees and repealing or modifying the 40 percent excise tax.
Also on health care issues, Katy Spangler, senior vice president, health policy for the Council, was quoted in a CNBC article on April 26 discussing the recent proposed rules from the Equal Employment Opportunity Commission (EEOC) that amend Americans with Disabilities Act (ADA) regulations and interpretive guidance relating to employer wellness programs (see the April 16 Benefits Byte). Spangler noted the importance of flexible rules for wellness programs, “particularly as [employers] look to change their benefit design in anticipation of the 40 percent excise tax on high-cost plans.”
The Council also recently submitted a statement to the Senate Finance Committee's Tax Reform Working Group on Savings and Investment and published a press release on April 15, urging the preservation of the current tax incentives for retirement savings. The statement was quoted in a Bloomberg BNA article (“Senate Finance Working Group Urged To Preserve Retirement Plan Tax Incentives” – subscription required), noting that “‘retirement tax incentives continue to be successful in encouraging plan participation and sponsorship.’”