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U.S. GAAP Amendments Offer Simplified Method for Measuring Retirement Plan Assets

The FASB published an update to U.S. GAAP to make it easier for employers to measure the value of their defined benefit plans. The update allows companies and other organizations to measure their defined benefit plans as of the last day of the month closest to the end of their fiscal year, as opposed to the end of the fiscal year.

The FASB on April 15, 2015, published Accounting Standards Update (ASU) No. 2015-04, Compensation—Retirement Benefits (Topic 715) Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets , to make it easier for employers to measure the value of their defined benefit pension plans and other retirement plans.

The update is effective for public companies for fiscal years beginning after December 15, 2015. The companies will have to apply the changes in their first-quarter reports for 2016. Private companies and other organizations have an extra year to adopt them for their annual reports. The amendments don’t have to be adopted for quarterly reports and other reports for periods of less than a year until 2018.

The FASB said it will permit adoption of the amendments ahead of the effective date. The board said the amendments should be adopted without revising financial results from previous periods, a transition method the accounting board calls prospective application.

The amendments allow companies and other organizations with fiscal years that don’t end on the last day of a month to measure their defined benefit plans assets and liabilities as of the last day of the month closest to the end of the fiscal year.

The amendments were published in a draft version in 2014 in Proposed 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.

ASU No. 2015-04 revises some of the subsequent measurement guidance and disclosure requirements in FASB ASC 715, Compensation—Retirement Benefits , which require employers to measure the fair value of the assets and liabilities in a defined benefit plan as of the end of the fiscal year.

“A reporting entity with a fiscal year-end that does not coincide with 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,” the FASB said in an explanation of its decision to issue the amendments. “This is because information about the fair value of plan assets obtained from a third-party service provider typically is reported as of the month-end. That information then is adjusted to reflect the fair value of plan assets as of the fiscal year-end.”

The update is part of the FASB’s “simplification initiative,” which aims to identify small problems in U.S. GAAP and issue relatively quick solutions.

Employee benefit plans are not addressed by ASU No. 2015-04. On April 7, the FASB endorsed a decision by its Emerging Issues Task Force (EITF) to issue a proposal to extend the revised valuation method to employee benefit plans.

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