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Amendment to Simplify Measurements of Retirement Benefits Moves Forward

The FASB confirmed a simplification it outlined in an October proposal that will make it easier to measure the assets and liabilities in some defined benefit plans. Employers that have adopted fiscal years that don’t coincide with a month-end will be able to measure the plan assets and liabilities as of the last day of the month that’s closest to the end of their fiscal year.

The FASB decided on January 28, 2015, to finalize an amendment to U.S. GAAP to make it easier for employers to measure their defined benefit plans.

The amendment stems from Proposed Accounting Standards Update (ASU) No. 2014-260, Compensation—Retirement Benefits (Topic 715): Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets, which was issued in October as part of the initiative to identify narrow areas of U.S. GAAP that need simplification.

FASB ASC 715, Compensation—Retirement Benefits, requires most employers to measure the fair value of the assets and liabilities in a defined benefit plan as of the end of the fiscal year. But some companies have fiscal years that don’t coincide with the last day of a month. The amendment, which received support from companies and auditors, lets these companies measure their defined benefit plan assets and liabilities as of the last day of the month closest to the end of their fiscal year.

The FASB affirmed the bulk of the proposal and added that employers would have to use the same measurement date consistently from year to year. They also would have to adjust the funded status for significant events and contributions that could alter the obligations in the plans.

If a significant event occurs during a fiscal quarter, the FASB agreed that companies measure the assets and liabilities on the last day of the month that’s closest to the end of the quarter. Some businesses and auditors asked the FASB to permit the adjustment for quarterly statements because some employers “face the same issues with measuring plan assets when a significant event does not fall on a month-end,” according to a FASB memo prepared for the meeting.

The FASB also decided its Emerging Issues Task Force (EITF) should consider extending the measurement date simplification to other types of retirement benefits.

Once the FASB publishes the accounting standards update, it wants it to be effective for fiscal years beginning after December 15, 2015, and quarterly periods within those fiscal years. The board said the amendment can be adopted ahead of the effective date.

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