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FASB Updates Measurement Date for DB Plans

The Financial Accounting Standards Board (FASB) has updated its treatment of the measurement date of an employer’s defined benefit obligation and plan assets. The FASB issued the update in Accounting Standards Update 2015-04, “Compensation — Retirement Benefits” (Topic 715). The proposals apply to reporting entities, not employee benefit plans themselves.

The update allows a reporting entity with a fiscal year end that does not coincide with a month end to measure DB plan assets and obligations using the month end closest to the entity’s fiscal year end. It also allows such an entity to apply a practical expedient consistently from year to year to all plans.

The FASB expects that these changes will reduce the costs of measuring — and remeasuring —the fair value of DB plan assets, as well as reduce complexity in employee benefit plan accounting.

Circumstances that the update addresses include the following:

  • if a contribution or a 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 DB plan assets and obligations and an entity’s fiscal year end;

  • if an entity has a significant event in an interim period that calls for a remeasurement of DB plan assets and obligations (for example, a partial settlement); and

  • if an entity applies the practical expedient and a contribution between the month end date used to measure DB plan assets and obligations and the entity’s fiscal year end.

The update says that the month-end remeasurement of DB plan assets and obligations that is closest to the date of the significant event that necessitated it should be adjusted for the event’s effects.

The update is effective for public business entities for financial statements issued for fiscal years beginning after Dec. 15, 2015. For all other entities, the update is effective for financial statements issued for fiscal years beginning after Dec. 15, 2016, and interim periods within fiscal years beginning after Dec. 15, 2017. The FASB allows reporting entities to apply the update before those deadlines.