United States

Retirement benefits: Practical expedient permitted for measurement date

FINANCIAL REPORTING INSIGHTS  | 

Reporting entities with fiscal year-ends that do not fall on a month-end may incur more costs than other entities when measuring the fair value of plan assets of a defined benefit pension or other postretirement benefit plan. This is because information about the fair value of plan assets obtained from third-party service providers typically is reported as of the month-end. Therefore, those entities must adjust that information so that it reflects the fair value of plan assets as of their fiscal year-end. 

As part of its initiative to reduce complexity in accounting standards, the Financial Accounting Standards Board recently issued Accounting Standards Update (ASU) 2015-04, Compensation - Retirement Benefits (Topic 715): Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets. This ASU provides a practical expedient for entities with fiscal year-ends that do not fall on a month-end by permitting those entities to measure defined benefit plan assets and obligations as of the month-end that is closest to the entity’s fiscal year-end and to apply that practical expedient consistently from year to year. The practical expedient should be applied consistently to all plans if an entity has more than one plan. 

If a contribution or significant event (such as a plan amendment, settlement or curtailment that calls for a remeasurement in accordance with existing requirements) occurs between the month-end date used to measure defined benefit plan assets and obligations and an entity’s fiscal year-end, the entity should adjust the measurement of defined benefit plan assets and obligations to reflect the effects of those contributions or significant events. However, an entity should not adjust the measurement of defined benefit plan assets and obligations for other events that occur between the month-end measurement and the entity’s fiscal year-end that are not caused by the entity (for example, changes in market prices or interest rates).

The amendments should be applied prospectively. The ASU is effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. Earlier application is permitted.