The Road to Simpler EBP Disclosures

Have you forgotten about the three Accounting Standards Updates (ASU) issued last year that could impact your employee benefit plan (EBP) financial statement disclosures? In case you’re a little rusty, the following is a brief summary of the ASUs.

ASU 2015-07 Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) is effective for fiscal years beginning after December 15, 2016, but can be early adopted. Under the current standard, there is diversity in practice regarding the placement of certain investments valued using the net asset value (NAV) practical expedient (ex. common collective trusts or pooled separate accounts) in the fair value (FV) hierarchy. Upon adoption, investments valued using the NAV practical expedient are removed from the FV hierarchy disclosures, and the change is applied retrospectively for all periods presented.

ASU 2015-10 Technical Corrections and Improvements was effective upon issuance and applied retrospectively. The definition of readily determinable fair value (RDFV) investments was expanded to explain that the FV of an equity security that is an investment in a mutual fund or similar structure is readily determinable if the FV per share is determined, published and the basis for current transactions. Although ASU 2015-07 removes NAV practical expedient investments from the FV hierarchy table, this ASU puts investments that fall under the new RDFV definition back in (without any impact on the face of the financial statements). The industry is concerned that the revised definition means that many investments currently disclosed as NAV practical expedient investments will no longer qualify if they “publish” their NAV and transact at it. The meaning of “publish” is still up for interpretation. Further guidance is expected on this matter soon.

ASU 2015-12 Plan Accounting is effective for years beginning after December 15, 2015.  This ASU simplifies accounting and disclosure for EBPs and has three parts:

• (Part I) Fully Benefit-Responsive Investment Contracts (FBRICs) – This update applies to only defined contribution and health and welfare plans, and specifies that contract value is the only required measurement for FBRICs, which were previously presented at fair value with a reconciliation to contract value on the financial statements. The update also clarifies that investments in stable value funds, which may represent indirect investments in FBRICs, are to be carried at FV.
• (Part II) Plan Investment Disclosures – This update eliminates the requirement to show investment detail by nature or risk and eliminates disclosure of investments greater than 5% of net assets available for benefits. Net appreciation or depreciation in investments may be presented in the aggregate.
• (Part III) Measurement Date Practical Expedient – If a plan’s fiscal year-end does not coincide with a month-end, the plan may measure investments and investment-related accounts using the month-end closest to the plan’s fiscal year-end. This election shall be applied consistently from year to year.

Parts I and II are applied retrospectively, and Part III prospectively.

Johnson Lambert recently presented Navigating the Road to Simpler EBP Disclosures, which dug deeper into the complexity and applicability of these ASUs for EBPs.  If you weren’t able to attend the live webinar, we encourage you to view it. The application of these ASUs will be very specific to each EBP, so we encourage you to discuss their implementation with your auditor and expect some changes this year.