Memo No. Issue Summary, Supplement No. 1. Issue Date June 4, Meeting Date EITF June 18, 2015

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1 Memo No. Issue Summary, Supplement No. 1 Memo Issue Date June 4, 2015 Meeting Date EITF June 18, 2015 Contact(s) Lisa Muehlbauer Lead Author Ext. (203) Peter Proestakes Assistant Director Ext. (203) Jennifer Hillenmeyer EITF Coordinator Ext. (203) Jackson Day EITF Liaison - Project Project Stage Dates previously discussed by EITF Previously distributed Memo Numbers EITF Issue No. 15-C, "Employee Benefit Plan Simplifications" Redeliberations March 19, 2015 Issue Summary No. 1, dated March 5, 2015 Purpose or Objective of This Memo 1. At the March 19, 2015 EITF meeting, the Task Force reached consensuses-for-exposure on three issues intended to reduce complexity in employee benefit plan accounting. The first consensus-for-exposure designates contract value as the only required measure for fully benefit-responsive investment contracts (FBRICs). The second consensus-for-exposure focuses on simplifying and making more effective the plan investment disclosures under Topic 820 and the plan accounting Topics (Topics 960, 962, and 965). The third consensusfor-exposure provides a measurement date practical expedient for employee benefit plans that is similar to the practical expedient for employers under Topic 715. The alternative views presented in this Issue Summary Supplement are for purposes of discussion by the EITF. No individual views are to be presumed to be acceptable or unacceptable applications of Generally Accepted Accounting Principles until the Task Force makes such a determination, exposes it for public comment, and it is ratified by the Board. Page 1 of 27

2 2. The proposed Updates were issued on April 23, 2015, with a May 18, 2015 comment letter deadline. 3. At the June 18, 2015 EITF meeting, the Task Force will have the opportunity to consider the feedback received from respondents and the FASB staff s outreach as it redeliberates the consensus-for-exposures. The Task Force will then be asked whether it wishes to affirm its consensus-for-exposure on Issue 15-C as a final consensus. Summary of Comment Letters 4. The breakout of respondents by stakeholder type is as follows: Issue I Fully Benefit-Responsive Investment Contracts Stakeholder Type Number of Comment Letters Accounting Firms / Auditors 14 Professional Accounting Associations and Other Organizations 6 Preparers 12 Other/None 1 Total 33 Issue II Plan Investment Disclosures Stakeholder Type Number of Comment Letters Accounting Firms / Auditors 14 Professional Accounting Associations and Other Organizations 6 Page 2 of 27

3 Preparers 11 Total 31 Issue III Measurement Date Practical Expedient Stakeholder Type Number of Comment Letters Accounting Firms / Auditors 13 Professional Accounting Associations and Other Organizations 4 Preparers 2 Total In addition to the feedback received from the comment letters, the staff has also included feedback received from additional outreach performed relating to the proposed Updates with the primary regulatory user (the Department of Labor (DOL)) and the AICPA Expert Panel on employee benefit plans (including several members who are also members of this Issue s Working Group) in the summary below. 6. In Appendix A, the staff has provided a brief summary of the changes to current guidance based on the proposed Updates as well as the staff recommendations for any changes to each proposed Update resulting from feedback received. High-level Summary of Responses 7. All respondents commended the Task Force and Board for continuing to work to simplify and improve GAAP. Overall, respondents supported the proposed Updates. Many respondents said that the proposed Updates would be an improvement to financial reporting for employee benefit plans while reducing cost and complexity, as the Task Force and the Page 3 of 27

4 Board intended. Additional considerations and requests for clarification are discussed below and are organized by individual consensuses-for-exposures. Issue 1 Fully Benefit-Responsive Investment Contracts Scope 8. The proposed Update included the following question for respondents about FBRICs: Question 1: Should the requirements to present and disclose FBRICs at fair value be eliminated? If not, please explain why. 9. All 33 respondents and the regulatory user in the staff s outreach agreed with eliminating the requirements to present and disclose FBRICs at fair value. Many noted that fair value (when it differs from contract value) does not provide decision-useful information and can be costly to compile. Furthermore, they said that contract value is the relevant measure for FBRICs because it is the amount received by participants if they were to initiate permitted transactions (for example, withdrawals) under the terms of the underlying plan and because it is the amount reported for regulatory purposes. 10. In addition, respondents raised two questions about the scope of the proposed Update: a. Twelve respondents requested clarification about whether synthetic guaranteed investment contracts (GICs) are FBRICs. In addition, some asked the Task Force to clarify how the presentation and disclosure requirements would be applied for synthetic GICs. b. Thirteen respondents questioned whether the scope of the proposed Update should be expanded. Of those respondents, two questioned whether the definition of FBRICs should be amended to include investment contracts that are effected indirectly between the plan and the issuer of the investment contract. The current criteria in the definition states that the investment contract is effected directly between the plan and the issuer and prohibits the plan from assigning or selling the contract or its proceeds to another party without the consent of the issuer. Investment contracts held indirectly by the plan may include certain stable value Page 4 of 27

5 funds held in common or collective trusts. The other 11 respondents recommended that the scope of the proposed Update include certain entities that report under Topic 946, Financial Services Investment Companies. 11. In addition, some members of this Issue s Working Group requested further clarification in paragraphs and , which require investments to be detailed by general type either on the face of the financial statements or in the notes. Those paragraphs are amended in the proposed Update for Plan Investment Disclosures (Issue 2), but some individuals noted that without further clarification, the amendments may be interpreted to mean that FBRICs should be disaggregated by general type. Question 1 for the Task Force 1. Does the Task Force want to affirm the consensus-for-exposure to eliminate the requirements to present and disclose FBRICs at fair value? 1a. Does the Task Force want to amend the scope of the consensus-for-exposure by doing any or all of the following: (a) amending the definition to include indirect investment contracts, (b) amending the scope to include certain investments that report under Topic 946, or (c) providing clarification relating to synthetic GICs? 1b. Does the Task Force want to clarify that FBRICs are not required to be disaggregated by general type either on the face of the financial statements or in the notes? Staff Analysis and Recommendation 12. The staff recommends that the Task Force affirm the consensus-for-exposure. 13. The staff believes it is clear that synthetic GICs meet the definition of a FBRIC and notes that there are currently two illustrative examples in GAAP (paragraphs through 55-15) demonstrating that synthetic GICs are FBRICS measured at contract value. Furthermore, certain members of the Working Group confirmed that synthetic GICS are treated as FBRICs in practice today. Lastly, language was included in the basis for conclusions that indicates that synthetic GICs are within the scope of the proposed Update. While the staff does not believe additional guidance is necessary, given the volume of questions about synthetic GICS in the comment letters, the staff believes that further clarification could be helpful. The staff thinks that clarification could be achieved by Page 5 of 27

6 amending the illustrative example that is already provided in the proposed Update for Plan Investment Disclosures to include a synthetic GIC. The staff believes that updating that illustration, in combination with the comment in the basis of the proposed Update and the existing guidance on synthetic GICs in the Codification, should sufficiently demonstrate that these contracts meet the definition of a FBRIC and would be measured, presented and disclosed consistent with all other FBRICs. The staff spoke with certain members of the Working Group who agreed that such an addition would adequately address the concerns of comment letter respondents. 14. The staff also recommends that the guidance be amended to clarify that FBRICs would not be required to be disaggregated by general type either on the face of the financial statements or in the notes. The staff believes that the decision to eliminate the requirements to present and disclose FBRICs at fair value included no further disaggregation of those investments than is currently required. While that disaggregation typically occurs in the plan s fair value disclosures, paragraphs and , which state that investments should be disaggregated by general type either on the face of the financial statements or in the notes, apply to all investments, not just those measured at fair value. Without clarification, some Working Group members were concerned that stakeholders may conclude that those paragraphs would indicate FBRICs should be broken out by general type. Because the disaggregation of investments by general type is typically done within the fair value disclosures, those Working Group members also were concerned that stakeholders may believe that some of the fair value disclosures are still required for FBRICs. 15. The staff does not recommend amending the scope of the proposed Update to include indirect holdings or certain entities that report under Topic 946. While some respondents questioned whether the definition of FBRICs should be amended to include indirect holdings, in addition to direct holdings, and a number of respondents thought the requirements in Topic 946 should include amendments similar to those proposed for Topics 962 and 965, the staff believes that those changes are beyond the scope of this Issue. The staff thinks that the definition within Topics 962 and 965 is clear. In addition, the staff is concerned that using language such as indirect is too broad and could have unintended consequences. The staff notes that the amendments to Topic 946 would affect different Page 6 of 27

7 entities (that is, investment companies rather than employee benefit plans) that have not been considered throughout the research, outreach, and deliberations relating to this Issue. 16. However, based on outreach performed, the staff understands that not expanding the scope to include indirect holdings may result in a change from current practice for certain indirect holdings often held by employee benefit plans (such as some stable value funds held in common or collective trusts). While those holdings do not meet the definition of a FBRIC (because they are indirect), the staff has been told that those holdings have sometimes been presented and disclosed using the FBRIC requirements when their underlying investments are in FBRICs. Because those indirect holdings of FBRICs are in investment companies that report net asset value using the requirements of Topic 946, the staff believes the appropriate disclosures in that circumstance are the net-asset-value-related disclosures (assuming they are using the net asset value practical expedient to estimate fair value for those investments). Some members of the Working Group suggested that it would be helpful to note that the investment in a collective trust fund in the existing illustrative example in the proposed Update holds FBRICs (as opposed to other types of contracts) to demonstrate that the disclosures relating to net asset value apply to those investments, even if its underlying investments are in FBRICs. The staff agrees with the suggestion from those members of the Working Group. Disclosures 17. The proposed Update included the following questions for respondents on the disclosures for FBRICs: Question 2: Should the disclosure requirements for FBRICs included in paragraphs and be reduced to eliminate disclosures relating to fair value measurements? If not, please explain why. Question 3: Should any other disclosures be required for FBRICs? 18. All respondents and the regulatory user agreed that the disclosure requirements for FBRICs should be reduced to eliminate disclosures relating to fair value measurements. Many commented that any benefits to users from disclosures pertaining to fair value do not justify the costs of preparing such disclosures. Page 7 of 27

8 19. While most respondents thought no additional disclosures should be required, 7 stakeholders (out of 34, including the 33 respondents and the regulatory user) thought that the Task Force should consider various additional disclosures. The additional disclosures recommended by those stakeholders include: a. Restrictions on the termination of the investment (two respondents) b. The nature of guarantees and options in the contract (one respondent) c. Guaranteed interest rate (three respondents) d. Methodology for determining interest rate (one respondent) e. Range of actual interest rates (one respondent) f. Credit rating of the issuer (one respondent) g. Contractual formula that determines the amount if other than contract value (the regulatory user). Question 2 for the Task Force 2. Does the Task Force want to affirm the consensus-for-exposure to eliminate the disclosure requirements relating to fair value measurements for FBRICs in paragraphs and ? 2a. Does the Task Force want to require any additional disclosures for FBRICs? Staff Analysis and Recommendation 20. The staff recommends that the Task Force affirm the consensus-for-exposure. 21. Paragraphs and as amended in the proposed Update require FBRICs to disclose a general description of the contracts, including how they operate, possible events that limit the ability of plans to transact at contract value, and a description of events and circumstances that allow issuers to terminate contracts with the plan and settle at an amount different from contract value. 22. The staff recommends no additional disclosures be added for the following reasons: a. The most common disclosure request, which was noted by three respondents, relates to disclosing the guaranteed interest rate. While the staff understands the Page 8 of 27

9 desire to provide information that may help depict the quality, or even the prudence, of the investment contract, it is not clear exactly what would be disclosed. For instance, would that rate be based on a weighted-average for the entire plan? Would individual contract rates need to be disclosed? While a weighted-average rate could perhaps be provided without adding significant costs for preparers, the staff questions whether the disclosure would provide sufficient insight for users. The disclosure would not provide participants with their individual guaranteed rate. It would also not likely help the regulatory user, as they look to understand the prudence of contracts (that is, whether the participant has entered into a valid contract), which might be shown through the outliers (such as an unrealistically high rate), not the average. Furthermore, participants already have access to this information through alternative sources (such as participant statements) and the regulatory user in our outreach has not noted a need for this information. b. The staff believes that many of the recommendations suggested may already be provided by many plans based on the guidance in paragraphs and For example, the staff believes that the first stakeholder recommendation above, relating to termination restrictions, would be included in the disclosure of events that limit the ability to transact at contract value. The staff also notes that the stakeholder recommendations above, relating to the nature of guarantees and options in the contract and some of the information about interest rates, are often disclosed under the general description of the contract. Finally, the staff believes that the last recommendation, relating to the contractual formula, also may be disclosed as part of the general description of the contract or in the description of events that allow the contract to be settled at something other than contract value. While the staff understands that these suggestions may be more prescriptive than the current disclosures, the staff also does not believe that the Task Force should be overly prescriptive in the disclosure requirements consistent with the focus of the FASB s Disclosure Framework Project (specifically relating to the entity s decision process). Page 9 of 27

10 c. Adding disclosures, as opposed to retaining or improving current disclosures, can contradict the objective of a simplification initiative when the benefits do not justify the costs. The staff continues to believe that the definition of FBRICs effectively, and appropriately, limits the application of contract value and minimizes the need for disclosures beyond what is currently required. d. The majority of respondents thought that no additional disclosures were needed. Transition, Implementation, and Effective Date 23. The proposed Update included the following questions for respondents on the transition and implementation for FBRICs: Question 4: Should the proposed amendments be applied retrospectively to all periods presented? If not, please explain why. Question 5: How much time would be needed to implement the proposed amendments? Should early adoption be permitted? The majority of respondents and the regulatory user agreed with the retrospective approach required in the proposed Update. Those respondents noted that it would provide consistent and comparable information while the cost would be minimal since no new presentation or disclosure requirements are proposed. 25. Two respondents recommended a prospective approach, both noting that the cost of a retrospective approach would outweigh the benefits. For similar reasons, one respondent thought a retrospective approach should be permitted, but not required. 26. In addition, many respondents commented that minimal time would be needed to implement the proposals, and recommendations for effective date ranged from six months to one year after the issuance of the Update with the majority recommending one year. All respondents thought early adoption should be permitted. Question 3 for the Task Force 1 No questions for respondents were asked relating to private company transition in any of the proposed Updates because employee benefit plans are considered to be their own unique and separate type of entity (along with public entities, private entities, and not-for-profit entities). Page 10 of 27

11 3. Does the Task Force want to affirm that the proposed amendments should be applied retrospectively? 3a. What should the effective date be? 3b. Should early adoption be permitted? Staff Analysis and Recommendation 27. The staff recommends that the Task Force affirm the consensus-for-exposure that the proposed amendments be applied retrospectively. 28. Based on the outreach performed and the majority of the feedback received, the cost to implement the proposed amendments is minimal particularly because there are no new presentation or disclosure requirements. While there are no new requirements, the removal of certain presentation and disclosure requirements will significantly affect the face of the financial statements and the notes. For example, the adjustment to reconcile contract value to fair value on the face of the financial statements and all of the fair value disclosures (such as the fair value hierarchy) will no longer be relevant for FBRICs. The staff believes that since the presentation and disclosure relating to FBRICs will change significantly, it could be confusing to users if the amendments were not made retrospectively. Furthermore, most respondents agreed that the cost of retrospective application would be minimal. As such, the staff continues to believe that a retrospective approach is appropriate. 29. Because the staff believes that the time needed for implementation would be minimal, the staff also recommends that the proposed amendments be effective for financial statements issued for fiscal years beginning after December 15, 2015 (that is, for calendar year plans the amendments would be effective for the 2016 financial statements, which are typically prepared in the spring or summer of 2017). That effective date would provide entities with over a year to comply with the proposed amendments, which the staff believes is a sufficient amount of time based on the comment letter responses. 30. The staff also recommends that early adoption be permitted. Allowing early adoption would provide preparers with the opportunity to reduce cost and complexity while maintaining or improving the usefulness of the information provided to users of financial statements. Page 11 of 27

12 Issue 2 Plan Investment Disclosures Disaggregation of Investments 31. The proposed Update included the following questions for respondents on disaggregation of investments: Question 1: Should investments be disaggregated only by general type, as required under Topics 960, 962, and 965 (that is, not by both general type and nature, characteristics, and risks)? If not, please explain why. Question 2: Should self-directed brokerage accounts be classified as one general type of investment? If not, please explain why. 32. Thirty respondents and the regulatory user in the staff s outreach agreed with the proposed amendments to disaggregate only by general type. Many noted that the proposed amendments eliminated the need for plans to group their investments in two different ways, which is time consuming, costly, and results in minimal benefit for users of financial statements. 33. One respondent disagreed, noting that nature, characteristics, and risks might provide useful information to trustees and plan sponsors. 34. All respondents thought that self-directed brokerage accounts should be classified as one general type of investment with many noting the cost of compiling the information to disaggregate these accounts by general type is very time consuming and costly. One respondent, who agreed with the proposal to classify self-directed brokerage accounts as one general type, also thought that there should be an additional disclosure that provides a description of the types of investments allowed within the self-directed brokerage accounts. Question 4 for the Task Force 4. Does the Task Force want to affirm the consensus-for-exposure that plan investments should be disaggregated only by general type as required under Topics 960, 962, and 965? 4a. Does the Task Force want to affirm that self-directed brokerage accounts should be classified as one general type of investment? Page 12 of 27

13 Staff Analysis and Recommendation 35. The staff recommends that the Task Force affirm its consensus-for-exposure that plan investments should be disaggregated only by general type. 36. The staff continues to believe, and most respondents agreed, that classifying investments by general type reduces preparation costs because it more closely aligns with the format under which plans receive investment information from third-party service providers and it also closely aligns to the regulatory reporting requirements. 37. The staff also continues to recommend that self-directed brokerage accounts be classified as one general type of investment, which is consistent with regulatory reporting. 38. While all respondents agreed that self-directed brokerage accounts should be classified as one general type of investment, one respondent noted that more detailed descriptions of the general types of investments allowed within the self-directed brokerage account would be helpful. The staff believes that the cost of gathering the information for that disclosure, even if the information is more qualitative, (a) would be high for preparers because the information comes from multiple sources that are outside the control of the plan and (b) would not be justified by the benefits based on the nature of a self-directed investment in which the participant is taking on the risk of selecting their own investment. Disclosure of Investments That Represent 5 Percent of More of Net Assets 39. The proposed Update included the following question for respondents on the plan investment disclosures: Question 3: Should the requirements in Topics 960, 962, and 965 to disclose investments that represent 5 percent of more of net assets available for benefits be eliminated? If not, please explain why. 40. Twenty-eight respondents and the regulatory user agreed with eliminating the disclosure of investments that represent 5 percent or more of net assets available for benefits. Many of those respondents thought that the disclosure did not provide useful information and others noted that the information is publicly available in the Form 5500 filing. Page 13 of 27

14 41. Three respondents disagreed with the proposed amendments to eliminate the disclosure. Those individuals said that information about the plan s significant holdings is helpful to users because it emphasizes concentration. Question 5 for the Task Force 5. Does the Task Force want to affirm the consensus-for-exposure that the requirements in Topics 960, 962, and 965 to disclose investments that represent 5 percent of more of net assets available for benefits be eliminated? Staff Analysis and Recommendation 42. The staff recommends that the Task Force affirm its consensus-for-exposure that the requirements in Topics 960, 962, and 965 to disclose investments that represent 5 percent or more of net assets available for benefits be eliminated. 43. The staff continues to believe that the disclosure of investments that represent 5 percent or more of net assets available for benefits does not provide decision useful information. This view is consistent with the majority of the feedback received, both from respondents and from outreach discussions with the primary regulatory user of plan financial statements. The staff understands that the disclosure may provide a user with an understanding of significant holdings and concentration, but also notes that information that permits a user to identify significant concentrations of investments is provided in the plan s regulatory filings, which are publicly available in Form Disclosures for Investments Measured at Net Asset Value (NAV) 44. The proposed Update included the following question for respondents on the plan investment disclosures: Question 4: If an investment is measured using the NAV per share (or its equivalent) practical expedient in paragraph and that investment is in a fund that files a Form 5500 as a direct filing entity, should the disclosure of that investment s significant investment strategy be required? If so, please explain why. 45. Thirty respondents agreed with the proposed amendments that would not require the disclosure of the investment s significant investment strategy when an investment is Page 14 of 27

15 measured using the NAV practical expedient if that investment is in a fund that files a Form 5500 as a direct filing entity. Those individuals noted that the information was available elsewhere and not necessary to require here. 46. One respondent disagreed with the proposed amendments, noting that the disclosures should be provided with all other disclosures relating to the NAV practical expedient. The respondent noted that the disclosures are a package and, therefore, should be provided consistently with the requirements for all entities that elect the use of the practical expedient. 47. Another respondent, who agreed with the relief provided, said that the relief should be extended to all plan investments measured using the NAV practical expedient, regardless of whether the investment is in a fund that files Form 5500 as a direct filing entity. This respondent considers employee benefit plans to be such unique entities that different disclosure requirements are justified. Question 6 for the Task Force 6. Does the Task Force want to affirm the consensus-for-exposure that if an investment is measured using the NAV practical expedient, and that investment is in a fund that files a Form 5500 as a direct filing entity, the disclosure of that investment s significant investment strategy should not be required? Staff Analysis and Recommendation 48. The staff recommends that the Task Force affirm its consensus-for-exposure that if an investment is measured using the NAV practical expedient, and that investment is in a fund that files a Form 5500 as a direct filing entity, the disclosure of that investment s significant investment strategy is not required. 49. The staff continues to support the exception for an investment in a fund that files a Form 5500 on the basis that users can get the investment strategy information elsewhere for those investments and notes that the proposals were supposed by the majority of respondents and by the regulatory user. Furthermore, the staff does not recommend expanding the exception beyond those funds because the strategy information is not otherwise available for other funds. Page 15 of 27

16 Disclosure of Net Appreciation or Depreciation 50. The proposed Update included the following question for respondents on the plan investment disclosures: Question 5: Should the requirements in Topics 960, 962, and 965 to disclose the net appreciation or depreciation for investments by general type be eliminated? If not, please explain why. 51. Thirty respondents agreed with the proposed amendments to eliminate the net appreciation or depreciation disclosure. One respondent was neutral. 52. During outreach, the regulatory user indicated that it can be helpful to see net appreciation or depreciation by general type of asset because that disaggregation can help identify types of investments that are not performing well. While this information is available in Form 5500, that user highlighted that the amounts in the regulatory filings are not audited. Question 7 for the Task Force 7. Does the Task Force want to affirm the consensus-for-exposure that the requirements in Topics 960, 962, and 965 to disclose the net appreciation or depreciation for investments by general type should be eliminated? Staff Analysis and Recommendation 53. The staff recommends that the Task Force affirm its consensus-for-exposure that the requirements in Topics 960, 962, and 965 to disclose the net appreciation or depreciation for investments by general type be eliminated. 54. The staff continues to believe that the benefits received from the disclosure of net appreciation or depreciation for investments by general type do not outweigh the costs to provide the disclosure. Furthermore, if desired, the information can be found elsewhere, although it may be unaudited. This view is consistent with the majority of the feedback received. Page 16 of 27

17 Transition, Implementation, and Effective Date 55. The proposed Update included the following questions for respondents on the transition and implementation for plan investment disclosures: Question 6: Should the proposed amendments be applied retrospectively? If not, please explain why. Question 7: How much time would be needed to implement the proposed amendments? Should early adoption be permitted? 56. The majority of respondents and the regulatory user agreed with the retrospective approach required in the proposed Update. Those respondents noted that it would provide consistent and comparable information while the cost would be minimal because no new presentation or disclosure requirements are proposed. 57. One respondent recommended a prospective approach, noting that the cost of a retrospective approach would outweigh the benefits. For similar reasons, another respondent thought a retrospective approach should be permitted, but not required. 58. In addition, many respondents commented that minimal time would be needed to implement the proposals, and recommendations for effective date ranged from six months to one year after the issuance of the Update with the majority recommending one year. All respondents thought early adoption should be permitted. Question 8 for the Task Force 8. Does the Task Force want to affirm that the proposed amendments should be applied retrospectively? 8a. What should the effective date be? 8b. Should early adoption be permitted? Staff Analysis and Recommendation 59. The staff recommends that the Task Force affirm its consensus-for-exposure that the proposed amendments be applied retrospectively. Page 17 of 27

18 60. Based on the outreach performed and the majority of the feedback received, the cost to implement the proposed amendments would be minimal particularly because there are no new presentation or disclosure requirements. However, while there are no new requirements, the removal of certain presentation and disclosure requirements will result in significant changes within the notes to the financial statements. The staff believes that it will be challenging for a user to understand the amendments if a prospective approach is applied because the disclosures would not be shown in a consistent fashion in all periods presented (for example, the fair value hierarchy would be disaggregated based on nature, characteristics, and risks for the previous year and by general type for the current year). The staff believes that because the proposed changes reduce and remove disclosures, the cost to apply a retrospective approach is minimal. Therefore, it is appropriate to provide consistent and comparable financial information. 61. Because the staff believes that the time needed for implementation would be minimal, the staff also recommends that the proposed amendments be effective for financial statements issued for fiscal years beginning after December 15, As that effective date would give entities over a year to implement the changes, the staff believes that such an effective date would provide entities with sufficient time to comply with the proposed amendments. Furthermore, because there is some overlap and interaction between Issues 1 and 2, the staff believes that requiring the same effective date would be helpful to both preparers and users. 62. The staff also recommends that early adoption be permitted. Allowing early adoption will provide preparers with the opportunity to reduce cost and complexity while maintaining or improving the usefulness of the information provided to users of financial statements. Other Improvements Applicable for Employee Benefit Plans 63. The proposed Update included the following question for respondents on additional improvements for employee benefit plans: Question 8: Are there any other improvements applicable to employee benefit plan accounting that should be considered for purposes of further simplifying financial reporting for employee benefit plans (for example, are there other disclosures that should be eliminated, amended, or added)? Page 18 of 27

19 64. Additional recommendations for improvements include reviewing disclosures applicable for plans relating to: a. Balance Sheet Offsetting b. Derivatives and Hedging c. Master Trusts d. Participant Loans e. 401(h) disclosures in the health and welfare benefit plans f. Remaining Category B items on the AICPA list. 65. Further details about those additional recommendations are in Appendix B. The staff has not addressed those additional recommendations in this Issue Summary Supplement because they are not within the scope of this Issue. However, during the agenda prioritization meeting when the Issue was added to the EITF agenda, there were other issues (beyond those added) that were raised to be researched and discussed with the Board at a later date. At that point in time, the Board and staff purposely scoped this project to first focus on issues affecting a large number of plans with the goal of completing a project within a short period of time. The remaining issues not included in the initial agenda prioritization meeting and the issues raised through comment letters on this proposed Update, will be researched and brought to an agenda prioritization meeting at a later date. Issue 3 Measurement Date Practical Expedient Allowing a Practical Expedient 66. The proposed Update included the following question for respondents on allowing the measurement date practical expedient: Question 1: Should employee benefit plans be allowed to apply a measurement date practical expedient to measure investments and investment-related accounts using the month-end that is closest to the plan s fiscal year-end when the fiscal period does not coincide with a month-end? If not, please explain why. Page 19 of 27

20 67. All 19 respondents and the regulatory user agreed with providing a measurement date practical expedient for employee benefit plans with some noting that the amendments are important with respect to reducing financial statement preparation costs for certain plans and creating consistency in reporting. 68. One of the 19 respondents partially supported the proposed Update, but recommended changes in the language to more clearly align the regulatory filing and the financial reporting requirements. The constituent is concerned that the plan may need to file its Form 5500 based on the measurement date and not the fiscal year-end (which could be earlier), and recommends that the practical expedient only be applicable when the measurement date is after the fiscal year-end to avoid any accelerated regulatory filing. 69. Another respondent noted their concern about whether the practical expedient would be acceptable for regulatory reporting purposes. Question 9 for the Task Force 9. Does the Task Force want to affirm the consensus-for-exposure that employee benefit plans should be allowed to apply a measurement date practical expedient to measure investments and investment-related accounts using the month-end that is closest to the plan s fiscal year-end when the fiscal period does not coincide with a month-end? Staff Analysis and Recommendation 70. The staff recommends that the Task Force affirm that employee benefit plans be allowed to apply the measurement date practical expedient. 71. The staff continues to believe, consistent with feedback received, that there is a need for the practical expedient and that allowing this election will reduce the cost and complexity of reporting while maintaining, and in some cases improving (as a result of additional disclosures), the usefulness of information provided to users of financial statements. 72. With regards to concerns about affecting the timing of regulatory filings, the staff understands that regulatory filings relate to a plan s fiscal year-end. As such the staff does not believe that the timing of regulatory filings would be affected by the proposed amendments. Page 20 of 27

21 73. As for the concerns raised about whether the regulators will find the approach to be acceptable in Form 5500, the staff notes that during its outreach effort the regulatory user was supportive, overall, of the practical expedient. While, the appropriateness of the practical expedient in regulatory filings is not something that the FASB has the ability to provide guidance on, the staff understands that many plans currently use a month-end date in both the financial statements and Form 5500 without prominently disclosing that a different date is used. Thus, in those cases, the disclosures required would result in additional information for the regulatory user beyond what they receive today. If an entity is concerned that the use of the alternative date is not appropriate in Form 5500 and that it would complicate the financial reporting process to use different dates, that entity has the ability to not elect the practical expedient. Disclosures 74. The proposed Update included the following questions for respondents on the applicable disclosures: Question 2: Should plans only disclose (rather than recognize) contributions, distributions, and significant events that occur between the alternative measurement date and the plan s fiscal year-end? If not, please explain why. Question 3: Should any other disclosures be required for plans that elect the practical expedient? 75. All 19 respondents agreed that plans should be allowed to disclose (rather than adjust for) contributions, distributions, and significant events that occur between the alternative measurement date and the plan s fiscal year-end. 76. The regulatory user noted a preference for recognizing contributions, distributions, and significant events, as opposed to disclosing, but acknowledged the challenges and costs that may result from requiring recognition. The main concern with disclosure, as opposed to recognition, related to the disclosure being overlooked. To resolve their concern, the regulatory user recommended that the use of the practical expedient should be highlighted within the auditor s report. Page 21 of 27

22 Question 10 for the Task Force 10. Does the Task Force want to affirm the consensus-for-exposure that employee benefit plans should be allowed to disclose contributions, distributions, and significant events that occur between the alternative measurement date and the plan s fiscal year-end? 10a.Does the Task Force want to require any other disclosures? Staff Analysis and Recommendation 77. The staff recommends that the Task Force affirm its consensus-for-exposure that employee benefit plans be allowed to only disclose contributions, distributions, and significant events that occur between the alternative measurement date and the plan s fiscal year-end. 78. The staff understands the concern noted by the regulatory user that disclosure may not draw enough attention to the fact that the preparer has elected to use the practical expedient and that any contributions, distributions, and significant events have occurred between the alternative measurement date and the plan s fiscal year-end. One possible solution within the control of the Task Force (that is, other than changes in the auditor s report, which are not determined by the Task Force or the FASB) would be to require a tabular quantitative disclosure that shows the net assets available for benefits shown in the financial statements plus/minus the effect of any contributions, distributions, and significant events that occur between the alternative measurement date and the plan s fiscal year-end. However, while this might display more prominently the quantitative effect of contributions, distributions, and significant events, the staff is concerned about the requirement being overly prescriptive. For example, if such a quantitative reconciliation is required, the staff is concerned that entities may conclude that any contribution, distribution, or significant event must be disclosed rather than focusing on material transactions and the disclosures of any of these matters may reduce the benefits of providing the practical expedient. As such, the staff does not recommend any additional disclosure requirements. Transition, Implementation and Effective Date 79. The proposed Update included the following questions for respondents on the transition and implementation for plan investment disclosures: Page 22 of 27

23 Question 4: Should the proposed amendments be applied prospectively? If not, please explain why and what transition method you would propose. Question 5: How much time would be needed to implement the proposed amendments? Should early adoption be permitted? 80. All respondents, including the regulatory user, agreed with the prospective approach required in the proposed Update noting that consistency with the sponsor is appropriate. 81. In addition, many respondents commented that minimal time would be needed to implement the proposals, and recommendations for the effective date ranged from six months to one year after the issuance of the Update with the majority recommending one year. All respondents said that early adoption should be permitted. Question 11 for the Task Force 11. Does the Task Force want to affirm that the proposed amendments should be applied retrospectivelyprospectively? 11a. What should the effective date be? 11b. Should early adoption be permitted? Staff Analysis and Recommendation 82. The staff recommends that the Task Force affirm its consensus-for-exposure that the proposed amendments be applied prospectively. 83. Based on the outreach performed and the majority of the feedback received, aligning the transition method with the sponsor is important. As such, the staff continues to believe that a prospective approach is appropriate. 84. Because the staff believes that the time needed for implementation would be minimal, the staff also recommends that the proposed amendments be effective for financial statements issued for fiscal years beginning after December 15, Since that effective date would give entities over a year to implement the changes, the staff believes that such an effective date would provide entities with sufficient time to comply with the proposed amendments. Page 23 of 27

24 85. The staff also recommends that early adoption be permitted. Allowing early adoption will provide preparers with the opportunity to reduce cost and complexity while maintaining or improving the usefulness of the information provided to users of financial statements. Page 24 of 27

25 APPENDIX A: Summary of Proposed Updates and Staff Recommendations 15-C Proposed Updates Issue 1 Fully Benefit-Responsive Investment Contracts (FBRICs) Issue 2 Plan Investment Disclosures Issue 3 Measurement Date Practice Expedient Guidance included in Proposed Updates Eliminate requirement to measure FBRICs at fair value for purposes of presentation and disclosure Staff Recommendations for Changes to Proposed Updates Provide further clarification, through illustration, that a synthetic GIC meets the definition of a FBRIC Clarify that FBRICs are not required to be disaggregated by general type on the face of the financial statements or in the notes Emphasize that FBRICS have to be a direct holding of a plan Retrospective transition approach No change Classification of assets should be No change based only on general type Self-directed brokerage accounts No change should be one general type of asset Classification by general type can be No change (but see clarification relating to either on the face of the financial FBRICs in Issue 1) statements or in the notes Retain Topic 820 disclosures No change (including the fair value hierarchy and the Level 3 rollforward) except for exempting funds that file Form 5500 as DFEs from the investment strategy disclosures for investments measured using net asset value Eliminate the requirement to disclose No change individual investments equal to or greater than 5 percent Eliminate the requirement to disclose No change net appreciation/depreciation by general type in the notes Retrospective transition approach No change Allow a measurement date practical No change expedient for plans to measure investments and investment-related accounts using the month-end that is closest to the plan s fiscal year-end when the fiscal period does not coincide with a month-end Disclose contributions, distributions, No change and significant events that occur between the alternative measurement date and the plan s fiscal year-end Prospective transition approach No change Page 25 of 27

26 APPENDIX B: Recommendations for Additional Employee Benefit Plan Improvements B1. As noted in the Issue Summary Supplement, there were six main areas where respondents thought additional improvements could be made. The staff has provided some further details about those areas below. a. Balance Sheet Offsetting (i) One respondent suggested considering whether the disclosure in Section , Balance Sheet Offsetting Disclosure, relating to amounts subject to an enforceable master netting arrangement or similar agreement are necessary for employee benefit plans. The respondent noted that they are time consuming and costly to prepare and do not provide useful information beyond what is provided under the disclosures in Topic 815 on derivative. b. Derivatives and Hedging (i) Some respondents indicated that the derivatives and hedging disclosures in Topic 815 should be reduced for employee benefit plans. Defined benefit plans (and some defined contribution plans) typically utilize derivatives to hedge risk in their investment portfolios. As a result, those investments are subject to the disclosures in Topic 815, which some respondents find to be extensive and/or unnecessary when assessing the plan s present and future ability to pay benefits when they become due. Those respondents noted that the disclosures are very costly to prepare. c. Master Trusts (i) Some respondents said that the master trust disclosures should be reduced. Plans are currently required to provide certain disclosures about investments in a master trust, such as the disclosure of investment balances (by general type) held by the master trust, as well as the changes in fair value of those investments. Some said that because the disclosures are for the master trust (and not the specific plan s investment in the master trust) that the information is not relevant. Page 26 of 27