FinREC Weighs in on Revenue Recognition for EBPs

In November 2021, the AICPA Financial Reporting Executive Committee (FinREC) issued guidance on the applicability of FASB Topic 606, Revenue from Contracts with Customers, to employee benefit plans (EBPs) with the release of the 2021 AICPA EBP Audit and Accounting Guide (Guide). The Guide includes a summary of typical cash inflows for an EBP and whether those streams are within the scope of Topic 606. Key considerations from this guidance include:

• Employee and employer contributions are NOT considered revenue to a plan, as employees and employers are not considered to be customers and contributions are similar to deposits held for the benefit of a participant and the plan acts as a vehicle for participants’ investments.
• When “revenue sharing” arrangements exist, any amounts paid to the plan under such arrangements should be reported as a reduction of fees paid by the plan and are also NOT considered revenue.
• Investment income is outside the scope of Topic 606.
• In multiemployer plans, a collective bargaining agreement is not considered a contract between the plan and the plan participants, rather a contract between the employer and the union. However there may be situations when multiemployer plans enter into contracts with plan participants. For instance, if a plan participant receives goods or services from the plan, such as books or tuition, and the participant pays the plan for those goods or services, the transaction would be considered a contract with the customer between the plan and the participant, to the extent that the criteria in Topic 606-10-25-1 and 25-4 have been met.

Refer to Topic 606 for further information on revenue from contracts with customers.

The illustrative financial statements in the Guide include cash inflows under the Additions header in the statement of changes in net assets available for benefits.

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