FASB to tackle market-return cash balance plans

The Financial Accounting Standards Board has voted to add a project to its technical agenda on market-return cash balance plans.

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During a meeting on Jan. 14, FASB decided to add the project based on the recommendation of its Emerging Issues Task Force. The project will address the discount rate used to measure the projected benefit obligation under Topic 715, Compensation — Retirement Benefits, for market-return cash balance plans.

FASB agreed with the EITF’s recommendation to apply amendments under the project to market-return cash balance plans as long as they meet the following conditions:

1. Pension benefits are communicated to employees in the form of a current account balance that comprises principal credits and interest credits based on an investable market return in any of the following forms:               

   1. The return on plans’ assets;
   2. The return on a subset of plans’ assets that approximates the associated cash balance liabilities; and,
   3. The return on a regulated investment company.
2. Participants have the option to elect lump-sum payments.

FASB plans to measure the benefit obligation for in-scope plans under the existing defined benefit accounting model in Subtopic 715-30, Compensation — Retirement Benefits — Defined Benefit Plans — Pension, by setting the discount rate equal to the assumed interest crediting rate.

FASB also decided to clarify that an entity would be required to use the assumed interest crediting rate as the discount rate in all circumstances for in-scope plans.

In addition, FASB decided to make amendments to the guidance on cash balance plans and the guidance on the measurement of accumulated benefit obligations. FASB agreed with the EITF’s recommendation that the amendments should apply to all entities.

FASB agreed with the EITF’s recommendation to not require additional disclosures beyond those currently required under Topic 715, Compensation — Retirement Benefits.

FASB also agreed with the EITF’s recommendation that early adoption should be permitted. And it decided that entities should apply the amendments under this project prospectively at the next pension remeasurement date under Subtopic 715-30 and disclose the nature of and reason for the change in accounting principle. The board believes the expected benefits and costs of the amendments and will justify the expected costs. Members of the board directed the staff to draft a proposed accounting standards update for vote by written ballot. It also decided on a 60-day comment period for the proposed update.

At a later meeting on Jan. 28, FASB also decided to add a project to its technical agenda to clarify GAAP by providing a definition of the term “common control” based on existing practice for certain areas of the Accounting Standards Codification.

However, it decided not to add a project to its technical agenda on the interaction of the consolidation guidance in Topic 810 and the derecognition of nonfinancial assets in Subtopic 610-20, Gains and Losses from the Derecognition of Nonfinancial Assets. It also decided not to add a project to its technical agenda related to Subtopic 410-20, Asset Retirement Obligations and Environmental Obligations — Asset Retirement Obligations. Nor will it add a project on the accounting for asset retirement obligations and environmental obligations.