As part of its Simplification Initiative, the Financial Accounting Standards Board (FASB) has issued Accounting Standards Update (ASU) No. 2015-12 to reduce complexity in employee benefit plan accounting. We view this as a welcome change, as it eliminates certain disclosure elements not viewed as useful and reduces the cost and complexity of financial reporting. Here is a brief overview of some of the most significant changes:
- Fully benefit-responsive investment contracts should now be reported at contract value and no adjustment from fair value to contract value is necessary. Previously, these investments were required to be reported at fair value with an adjustment from fair value to contract value. In addition, certain disclosures (such as those related to average yield) are no longer required.
- Plans are no longer required to disclose investments that represent 5% or more of total net assets.
- Plans are no longer required to disclose the net appreciation or depreciation in the investments of the plan by type of investment. The net appreciation or depreciation in investments still is required to be presented in the aggregate on the Statement of Changes in Net Assets Available for Benefits.
- Plans are not required to break out Level 1 and Level 2 investments by strategy or asset allocation (i.e. large cap, international, fixed income, etc.). Plans are now only required to show these in total at the asset type-level (i.e. mutual funds, common collective trusts, pooled separate accounts).
- Self-directed brokerage accounts should now be reported as a single line item in the fair value hierarchy table instead of the underlying investments being disaggregated by general type.
This update is effective for all employee benefit plans with fiscal years beginning after December 15, 2015. Earlier application is permitted.