EBPAQC Alert No. 340 


EBPAQC Alert
 
FASB Issues Exposure Draft Accounting Standards Updates; Proposal on Definition of "Affiliate"; FASB Issues Practical Expedient; AICPA Asks for Pension Simplification
       
  AICPA
April 28, 2015
EBPAQC Alert #340
 
In this Alert
FASB Issues Exposure Draft Accounting Standards Updates
Proposal on Definition of "Affiliate"
FASB Issues Practical Expedient
AICPA Asks for Pension Simplification
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Dear Center Members
FASB Issues Exposure Draft Accounting Standards Updates on EBP Disclosure Simplification
On April 23, 2015, the FASB issued an Exposure Draft of three proposed Accounting Standards Updates (ASUs) to solicit public comment on proposed changes to Accounting Standards Codification® (ASC) Topics 960—Defined Benefit Pension Plans, 962—Defined Contribution Plans, and 965—Health and Welfare Benefit Plans. The proposed ASUs are intended to reduce complexity in employee benefit plan accounting as follows:
Fully Benefit-Responsive Investment Contracts (EITF-15C-I). This proposed ASU would allow fully benefit-responsive investment contracts to be measured, presented, and disclosed only at contract value. A plan would continue to provide disclosures that help users understand the nature and risks of fully benefit responsive investment contracts. Currently, FASB ASC 962 and 965 require fully benefit responsive investment contracts to be measured at contract value, and also require an adjustment to reconcile contract value to fair value, when these measures differ, on the face of the plan financial statements.
Plan Investment Disclosures (EITF-15C-II). This proposed ASU would eliminate the current GAAP requirements for plans to disclose (a) individual investments that represent 5 percent or more of net assets available for benefits and (b) the net appreciation or depreciation for investments by general type for both participant-directed investments and nonparticipant-directed investments. The net appreciation or depreciation in investments for the period still would be required to be presented in the aggregate, but would no longer be required to be disaggregated and disclosed by general type.

The proposed ASU also would require that investments (both participant-directed and nonparticipant-directed investments) of employee benefit plans be grouped only by general type, eliminating the need to disaggregate the investments in multiple ways. Currently under ASC 820, classes of assets are grouped and disclosed on the basis of nature, characteristics, and risks, and under FASB ASC 960, 962, and 965, classes of assets are grouped and disclosed on the basis of general type.

In addition, if an investment is measured using the net asset value per share (or its equivalent) practical expedient in FASB ASC 820 and that investment is in a fund that files a U.S. Department of Labor Form 5500, Annual Return/Report of Employee Benefit Plan, as a direct filing entity, disclosure of that investment's strategy would no longer be required.
Measurement Date Practical Expedient (EITF-15C-III). This proposed ASU would provide a practical expedient to permit plans to measure investments and investment-related accounts (for example, a liability for a pending trade with a broker) as of a month-end date that is closest to the plan's fiscal year-end, when the fiscal period does not coincide with the month-end. If a plan applies the practical expedient and a contribution, distribution, and/or significant event occurs between the alternative measurement date and the plan's fiscal year-end, the plan would be required to disclose the amount of the contribution, distribution, and/or significant event. The plan also is required to disclose the accounting policy election and the date used to measure investments and investment-related accounts.
Comments are due by May 18. Click here to read the proposed ASUs.
Definition of "Affiliate" Guidance for Multiemployer Plans Exposed for Comment
The AICPA's Professional Ethics Division has exposed for comment revisions to the definition of "affiliate" in AICPA, Professional Standards, ET sec. 0.400.02, to provide guidance on how to treat multiemployer employee benefit plans under the definition. Comments on the exposure draft can be sent to Lisa Snyder and will be accepted until May 18.

The exposure draft proposes the following:
When the financial statement attest client is a multiemployer plan, entities such as the union, participating employers, and group associations will be considered an affiliate of the plan when (1) the plan is material to that entity, and (2) that entity has significant influence over the plan through its participation in the plan's governing board.
When the financial statement attest client is a participating employer, multiemployer plans in which its employees participate will be considered an affiliate of the participating employer if (1) the plan is material to the participating employer, and (2) the participating employer has significant influence over the plan through its participation in the plan's governing board.
Click here to read the proposal in its entirety.
FASB Issues Practical Expedient for the Measurement Date of an Employer's DB Obligation and Plan Assets
On April 15, 2015, the FASB issued 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.

The amendments in the Update provide a practical expedient that permits a reporting entity with a fiscal year-end that does not coincide with a month-end to measure defined benefit plan assets and obligations using the month-end that is closest to the entity's fiscal year-end and apply that practical expedient consistently from year to year. This practical expedient addresses the concern that such entities 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 as third party information is typically reported as of month-end and must be adjusted to reflect the fair value of the plan assets as of the fiscal year-end.

For public business entities, the amendments in the Update are effective 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 in this Update 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.

Click here to read the entire FASB Update.
AICPA Asks Congress for Pension Simplification
The AICPA recently sent a comment letter to the Senate Finance Committee Tax Reform Working Group on Savings and Investment regarding simplification of employer-sponsored retirement plans and individual retirement accounts. The AICPA's suggestions would encourage the operation of qualified retirement plans by small business, expanding retirement savings for all employees, by simplifying federal tax laws and regulations governing retirement plans that are overly complex. The AICPA encouraged Congress to consider the following measures for simplifying the operation of retirement plans:
Create a Uniform Employee Contributory Deferral Plan –Currently, there are four employee contributory deferral plans: 401(k), 03(b), 457(b), and SIMPLE plans. Having four variations of the same plan type causes confusion for many plan participants and employers.
Eliminate Certain Nondiscrimination Tests on Employee Pre-tax and Roth Deferrals for 401(k) Plans, Matching Contributions – Nondiscrimination tests artificially restrict the amount higher-paid employees are entitled to save for retirement on a tax preferred basis. The actual deferral percentage (ADP) test for 401(k) plans; and the actual contribution percentage (ACP) test for 401(k) and 403(b) plans should be eliminated.
Eliminate the Top-Heavy Rules – Top-heavy rules constrain the adoption of 401(k) and other qualified retirement plans by small employers.
Create a Uniform Rule Regarding the Determination of Basis in Distributions – Currently, depending on the plan type, there are different methodologies used to determine basis in a distribution. Many employees have very little basis in employer provided retirement plans and a rule allowing the immediate recovery of that amount would simplify income taxes for years after this basis has been recovered.
Create a Uniform Attribution Rule – Currently, the rules of attribution are governed by different sections of the IRC and each have slight subtleties that are used for different purposes. AICPA encourages Congress to use IRC section 267(c) as the rule of attribution for qualified retirement plans since it is easier to apply and in many cases broader than the more complicated IRC section 318 rules.
Create a Uniform Definition of Owners – Currently, there are different definitions for the terms "highly compensated employee" and "key employee."
Change the Required Minimum Distribution Rules During Life and Remove Half-Year Age References – AICPA recommends that Congress increase the age at which plan participants and IRA account holders must begin taking distributions from their retirement plan accounts from 70 ½ to 80, or changing the age at which participants are required to begin taking distributions from 70 ½ to 80 and only if the account balance exceeds $500,000. At a minimum, the rules should be modified to tie initial distributions to a specific birthday as opposed to the current regulations which utilize a "half-year birthday" convention.
Create Uniform Rules for Early Withdrawal Penalties – There are currently different rules governing penalties depending on whether an account is an IRA or a qualified plan.
Click here to read the comment letter.
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Sincerely,

AICPA Employee Benefit Plan Audit Quality Center
     
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