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Mayer HoffMan Mccann P.c. – an IndePendenT cPa fIrM

a publication of the Professional Standards Group

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eligible participants must include an audited financial statement along with the Form 5500.

Subsequent accounting standards updates have changed, and in many cases, added to the Form 5500 reporting requirements. FASB stakeholders raised concerns that the additional requirements did not take employee benefit plans into consideration. Of particular interest to the EITF working group addressing EBPs are the following disclosure and measurement requirements.

Disclosure Requirements

The EITF working group identified three areas within the disclosure requirements where an accounting standard update may be needed:

Directed vs. Nondirected Investments — Employee benefit plan financial statements separate assets based on their nature, characteristics and risks under Topic 820, Fair Value Measurement. Plan accounting topics also require assets to be separated into participant-directed investments and nonparticipant-directed investments. Stakeholders asked FASB to consider whether participant-directed and nonparticipant-directed investments should be subject to the same accounting treatment.

The 5-percent Rule — Plan accounting topics require a plan to disclose all plan investments that are equal to or greater than 5 percent of the plan’s net assets that are available for benefits at the end of the plan

The Financial Accounting Standards Board (FASB) is examining options to simplify employee benefit plan (EBP) accounting standards.

EBP financial reporting has historically been complex. During the 2014 fiscal year, the Employee Benefits Security Administration (EBSA) processed 26,665 applications from plan sponsors seeking to voluntarily correct mistakes in their benefit plan reporting.

Prompted by the AICPA’s EBP Expert Panel, FASB’s Emerging Issues Task Force (EITF) added Issue No. 15-c, Accounting Issues in Employee Benefit Plan Financial Statements to its agenda in November 2014. A proposed agenda for employee benefit plan simplifications will be made available prior to the March 19, 2015, EITF meeting.

Overview

Qualified plans, which include defined benefit plans subject to ASC Topic 960, defined contribution plans subject to Topic 962 and health and welfare plans subject to Topic 965, must comply with the Employee Retirement Investment Security Act (ERISA) of 1974. Under ERISA, qualified plans are generally required to file the Form 5500. Plans with more than 100

February 2015

Project Aims to Simplify Employee Benefit Plan Reporting

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The information in this MHM Messenger is a brief summary and may not include all the details relevant to your situation. Please contact your MHM auditor to further discuss the impact on your audit or audit report.

year. Stakeholders said the 5 percent disclosure is not useful to users of EBP financial statements, and FASB should reconsider the requirement.

Roll-forward Level 3 Investments — Topic 820 requires an entity to disclose roll-forward investments at Level 3 of the fair value measurement hierarchy. Disclosures include a breakout of realized gains or losses, unrealized gains or losses, sales, purchases and transfers of the roll-forward investments. Plan accounting topics require net appreciation or depreciation disclosures for all plan assets, regardless of where the assets fall on the fair value measurement hierarchy. The EITF workgroup asked FASB to reconsider the plan topics’ net appreciation or depreciation disclosure.

Though not specifically mentioned by the EITF workgroup, another issue that might affect Form 5500 disclosures is FASB’s proposed accounting standard update, Fair Value Measurement (Topic 820): Disclosures for Investment in Certain Entities that Calculate Net Asset Value per Share (or its Equivalent). Comment letters for the proposed update were due January 15, 2015. Plan sponsors should monitor the issue closely and consider the effect the proposed update could have on financial reporting.

Measurement Simplification

An investment contract is considered fully benefit-responsive if plan participants’ realization of the plan’s contract value is probable in addition to meeting other conditions.

Financial statement preparers measure fully benefit-responsive investment contracts at fair value as required under Topic 820. If the fair value is different from the contract value, the reconciliation of the two values must be presented in the financial statement. Plan accounting topics require additional disclosures for these scenarios, including a description of the underlying event that caused the discrepancy between the two values.

The EITF working group asked FASB if the measurement of fully benefit-responsive investments should be a contract value instead of fair value, because plans do not typically conduct transactions (e.g., withdrawals) at fair value. Furthermore, the insurance companies that often provide the investments frequently say that the contract’s value equals fair value. Financial statement preparers might find testing whether that is true challenging.

Proposed Timeline for Change

FASB plans to issue an exposure draft of proposed accounting changes for EBPs in mid-April with a comment letter deadline of mid-June. Ideally, FASB will issue a final accounting standards update for EBP simplification in the third quarter of 2015.

For More Information

If you have any specific questions, comments or concerns, please share them with Hal Hunt or your MHM service professional. You can reach Hal at hhunt@cbiz.com or 913.234.1012.