New Reporting Guidance
Contributed by Darlene Bayardo and Chelsea Smith Brantley
Plan sponsors should be aware of the following guidance that impacts reporting and disclosures for EBPs:
Accounting Standards Update (ASU) 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or its Equivalent), removes the requirement to categorize investments for which fair values are measured using Net Asset Value (NAV) as a practical expedient in the fair value hierarchy. However, it is required to disclose the amount measured using NAV as a practical expedient so that financial statement users can reconcile the fair value of investments included in the fair value hierarchy to total investments measured at fair value on the statement of net assets available for benefits. The ASU is effective for fiscal years beginning after December 15, 2016, with early adoption permitted and should be applied retrospectively for all periods presented.
ASU 2015-10, Technical Corrections and Improvements, includes a change in the definition of “Readily Determinable Fair Value” (RDFV) that has the potential to change previously reported fair value hierarchy levels for many investments that previously used the NAV as a practical expedient in both retirement accounts in plan sponsor financials as well as investments reported in EBP financial statements. Based on the revised definition of RDFV, investments such as pooled separate accounts (PSAs) and common/collective trusts (CCTs) may no longer qualify to use NAV as the practical expedient.
ASU 2015-12, Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965): (Part I) Fully Benefit-Responsive Investment Contracts, (Part II) Plan Investment Disclosures, (Part III) Measurement Date Practical Expedient, reduces the complexity in EBP plan accounting. The guidance in each part of the ASU is effective for fiscal years beginning after December 15, 2015. Early adoption was permitted for all three parts individually or in aggregate. Parts I and II of the ASU should be applied retrospectively, while Part III should be applied prospectively. Refer to the Winter 2016 edition of “EBP Commentator” for more details on the plan financial reporting simplification and for practical considerations in the implementation.
This article originally appeared in BDO USA, LLP’s “EBP Commentator” blog (Fall 2016). Copyright © 2016 BDO USA, LLP. All rights reserved. www.bdo.com