FASB issues proposed ASU to provide practical expedient for measurement date of retirement benefits

Published on: 15 Oct 2014

Yesterday, the FASB issued a proposed ASU1 as part of its simplification initiative.2 Under current U.S. GAAP, an employer that sponsors a defined benefit retirement plan (for pension or other postretirement benefits) is required to measure its retirement benefit obligations and plan assets as of its fiscal year-end (with the exception of plans sponsored by a consolidated subsidiary or equity method investee that has a fiscal year-end different from that of the parent or investor).3 The proposed ASU contains a practical expedient that would allow an employer whose fiscal year-end does not fall on a calendar month-end (e.g., an entity that has a 52- or 53-week fiscal year), to measure retirement benefit obligations and related plan assets as of the month-end that is closest to the employer’s fiscal year-end. The expedient would need to be elected as an accounting policy and be consistently applied. Because third-party plan asset custodians often provide information about fair value and classes of assets only as of the month-end, such an accounting policy would relieve the employer from adjusting the asset information to the appropriate fair values as of its fiscal year-end.

Editor’s Note: In practice, some employers with fiscal year-ends that do not fall on a month-end have nevertheless used measurements of the fair value of plan assets as of the nearest month-end as a reasonable approximation of the fiscal-year-end asset values. In such situations, the employer has needed to support its assertion that those amounts were “reasonably expected not to be materially different”4 from the results of a more precise measurement as of the fiscal-year-end measurement date.

The proposed ASU also provides guidance on accounting for contributions to the plan made during the period between a month-end measurement date and the employer’s fiscal year-end. The funded status would be adjusted to reflect (1) an addition to plan assets for a contribution made after the measurement date but before the fiscal year-end or (2) a deduction from plan assets for a contribution made after the fiscal year-end but before the measurement date. Employers would not be required to adjust the fair value hierarchy of plan assets for a contribution made between the measurement date and fiscal year-end. Instead, the contribution amount would be disclosed separately to reconcile to the fair value of plan assets reflected in the fiscal-year-end balance sheet.

In addition, an employer would be required to disclose, if applicable, its accounting policy election to use the practical expedient and the resulting alternative measurement date used for its retirement benefit obligations and plan assets.

The proposed ASU would be applied prospectively. However, the FASB has not decided on the effective date or whether early adoption would be permitted. Comments on the proposed ASU are due by December 15, 2014.


1 FASB Proposed Accounting Standards Update, Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets.

2 Launched in June 2014, the FASB’s simplification initiative is intended to reduce the cost and complexity of current U.S. GAAP while maintaining or enhancing the usefulness of the related financial statement information. The initiative focuses on narrow-scope projects that involve limited changes to guidance.

3 ASC 715-30-35-62 and ASC 715-60-35-121.

4 ASC 715-30-35-1 and ASC 715-60-35-1.

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