EITF 1116FN December 23, 2016 TO: MEMBERS OF THE FASB EMERGING ISSUES TASK FORCE

Transcription

1 EITF 1116FN December 23, 2016 TO: MEMBERS OF THE FASB EMERGING ISSUES TASK FORCE Included are the final minutes of the November 17, 2016 meeting of the FASB Emerging Issues Task Force and an inventory of open issues for future EITF meetings. On November 30, 2016, the Board ratified the Task Force consensus on Issue 16-B. The Accounting Standards Update is expected to be posted to the FASB website in the first quarter of The next regular EITF meeting will be held on March 16, The extra EITF meeting date reserved for January 20, 2017, will not be utilized. Please call me if you have any questions. Sincerely, Robert Moynihan FASB Practice Fellow Financial Accounting Standards Board 401 Merritt 7, P.O. Box 5116, Norwalk, CT T: November 17, 2016 EITF Meeting Minutes

2 EITF 1116FN Emerging Issues Task Force Meeting Minutes November 17, 2016 Pages Attendees 1 2 Administrative Matters 3 SEC Staff Announcement 4 Discussion of Agenda Technical Issues Issue No. 16-B, Employee Benefit Plan Master Trust Reporting 5 11 Status of Open Issues 12 November 17, 2016 EITF Meeting Minutes

3 EITF 1116FN MINUTES OF THE NOVEMBER 17, 2016 MEETING OF THE FASB EMERGING ISSUES TASK FORCE Location: FASB Offices 401 Merritt 7 Norwalk, Connecticut Thursday, November 17, 2016 Starting Time: 8:30 a.m. Concluding Time: 10:10 a.m. Task Force Members Present: Susan M. Cosper (Chair) John M. Althoff (by telephone) Paul Beswick (by telephone) James G. Campbell (by telephone) Terri Z. Campbell (by telephone) Alexander M. Corl (by telephone) Bret Dooley (by telephone) Carl Kampel (by telephone) Mark LaMonte (by telephone) Robert B. Malhotra Lawrence J. Salva (by telephone) Mark Scoles (by telephone) Ashwinpaul C. (Tony) Sondhi (by telephone) Robert Uhl Kevin Vaughn (SEC Observer) (by telephone) James A. Dolinar (FinREC Observer) (by telephone) Thomas Groskopf (PCC Observer) (by telephone) Task Force Members Absent: None November 17, 2016 EITF Meeting Minutes, p. 1 Attendees

4 EITF 1116FN Others at Meeting Table: James L. Kroeker, FASB Board Member Marc A. Siegel, FASB Board Member Larry W. Smith, FASB Board Member R. Harold Schroeder, FASB Board Member Christine A. Botosan, FASB Board Member Robert O. Moynihan, EITF Coordinator Peter Proestakes, FASB Assistant Director Lisa Kaestle, FASB Assistant Project Manager (by telephone) Jenifer J. Wyss, FASB Supervising Project Manager Aishat O. Akinwale, FASB Postgraduate Technical Assistant November 17, 2016 EITF Meeting Minutes, p. 2 Attendees

5 ADMINISTRATIVE MATTERS The SEC Observer made an announcement that the SEC Staff Observer Comment regarding proportional amortization is being updated to conform to the guidance issued in Accounting Standards Update No , Investments Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects, and will be codified in paragraph S99-2 of the FASB Accounting Standards Codification. The FASB will update the Codification for this SEC staff announcement in the coming weeks. Staff announcements made at EITF meetings are effective as of the announcement date, unless otherwise specified. The EITF Coordinator announced that the proposed Accounting Standards Update resulting from the consensus-for-exposure reached on EITF Issue No. 16-C, Determining the Customer of the Operation Services in a Service Concession Arrangement, was issued at the beginning of November and that comment letters are due by January 6, A summary of comment letters received will be discussed at the March 16, 2017 EITF meeting. The EITF Coordinator announced that the final consensus reached at this meeting will be considered by the Board for ratification at the November 30, 2016 Board meeting. The EITF Coordinator announced that the next regular EITF meeting will be held on March 16, 2017, and that the extra EITF meeting date reserved for January 20, 2017, will not be utilized. The EITF Coordinator also announced that at the FASB Agenda Prioritization meeting on November 16, 2016, the Board decided that an EITF Working Group will be formed to discuss the customer s accounting for implementation costs incurred in a cloud computing arrangement that is considered a service contract. The Working Group will report to the EITF and the Board at the next EITF meeting on March 16, November 17, 2016 EITF Meeting Minutes, p. 3 Administrative Matters

6 SEC STAFF ANNOUNCEMENT Topic: Amendment of SEC Staff Observer Comment: Accounting for Tax Benefits Resulting from Investments in Qualified Affordable Housing Projects due to issuance of ASU Investments Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects Date of announcement: November 17, 2016 The SEC staff is conforming the SEC Staff Observer Comment: Accounting for Tax Benefits Resulting from Investments in Qualified Affordable Housing Projects, which is codified in paragraph S99-2, to the guidance issued in ASU , Investments Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects. As revised, the SEC Staff Observer Comment is as follows: It has been observed that the decision to apply the proportional amortization method of accounting is an accounting policy decision to be applied consistently to all investments in qualified affordable housing projects that meet the conditions in paragraph rather than a decision to be applied to individual investments that qualify for use of the proportional amortization method. The SEC staff believes that it would be inappropriate to extend the proportional amortization method of accounting to situations analogous to those described in paragraph November 17, 2016 EITF Meeting Minutes, p. 4 SEC Staff Announcement

7 DISCUSSION OF AGENDA TECHNICAL ISSUES Issue No. 16-B Title: Employee Benefit Plan Master Trust Reporting Dates Discussed: May 12, 2016 (Education Session); June 10, 2016; November 17, 2016 Background 1. At its April 20, 2016 meeting, the Board decided to add a project to its agenda to address the lack of presentation and disclosure guidance for employee benefit plans that have investments held in master trusts. The Board decided to refer this project to the EITF. 2. Many employee benefit plans hold investments in master trusts. A master trust is a trust for which a regulated financial institution (bank, trust company, or similar financial institution that is regulated, supervised, and subject to periodic examination by a state or federal agency) serves as a trustee or custodian and in which assets of more than one plan sponsored by a single employer or by a group of employers under common control are held. The regulated financial institution may or may not have discretionary control over the assets. 3. Current disclosure guidance about an employee benefit plan s interest in a master trust in Topic 960, Plan Accounting Defined Benefit Pension Plans, and Topic 962, Plan Accounting Defined Contribution Pension Plans, includes requirements for a plan to disclose the following items: the fair value of investments held by the master trust by general type of investment; the net change in the fair value of investments of the master trust; the total investment income of the master trust by type; a description of the basis used to allocate net assets, net investment income or loss, and gains or losses to participating plans; and the plan s percentage interest in the master trust. 4. Each plan s interest in the net assets of the master trust may be divided or undivided. A plan has an undivided interest in a master trust when the plan holds a proportionate interest in the net assets of the master trust but has no specific interest in any of the individual balances of the master trust. All other interests in a master trust are considered to be divided. 5. Historically, most benefit plans were defined benefit plans in which the sponsor promised to pay a specific benefit that was determined by specific factors (for example, age, years of service, and compensation). Under those defined benefit plans, the plan s investments were typically directed by the sponsor (otherwise known as nonparticipant-directed investments). When a master trust was used to hold those investments, the plans typically held an undivided interest in that master trust. However, employee benefit plans have evolved. The majority of plans are now defined contribution plans that involve more participant-directed investments (that is, the participant can elect specific investments based on options that the plan provides). Today, it is not uncommon for plans to have divided interests in master trusts. The sum of the individual participant-directed investments in a master trust establishes the plan s divided interest in each general type of investment held by the master trust. November 17, 2016 EITF Meeting Minutes, p. 5 Issue No. 16-B

8 Issue 6. The issue is whether the evolution of employee benefit plans has resulted in a need to clarify and improve some of the GAAP requirements relating to master trusts. Scope 7. This Issue applies to all reporting entities within the scope of Topics 960, 962, or 965, Plan Accounting Health and Welfare Benefit Plans. Prior EITF Discussion Presentation 8. At its June 10, 2016 meeting, the Task Force noted that the existing presentation guidance in Topic 960 relating to master trusts is not consistently provided within each of the plan accounting Topics. Topic 960 requires that defined benefit pension plans present investments in a master trust in a single line item in the statement of net assets available for benefits. However, similar guidance is not included in Topic 962 or 965 for defined contribution pension plans and health and welfare benefit plans, respectively, and no guidance is included in any of the Topics on how to present a plan s changes in interest of the master trust in the plan s statement of changes in net assets available for benefits. 9. In addition, based on outreach, the Task Force understands that there is diversity in practice in the presentation of other master trust balances and activity within the plan s financial statements (for example, amounts due from brokers for securities sold, amounts due to brokers for securities purchased, accrued interest and dividends, and accrued expenses). 10. The Task Force reached a consensus-for-exposure that all plans should present their interest in each master trust and the change in interest in the master trust as single line items in the statement of net assets available for benefits and the statement of changes in net assets available for benefits, respectively. The Task Force believes that this presentation appropriately reflects the plan s interest in the legal structure that is the master trust. That is, the presentation retains a crucial distinction between an interest in the master trust and all other plan activity and balances (such as the investments the plan holds directly). Furthermore, while there is some diversity in practice, the Task Force understands that the majority of plans currently follow a single-line presentation for purposes of reflecting a plan s interest in a master trust. The Task Force also notes that this presentation was supported by the majority of stakeholders during outreach and is more consistent with regulatory reporting. In reaching this conclusion, Task Force members expressed the view that the plan s asset is its interest in the master trust, which is what should be presented in the statement of net assets available for benefits. Some Task Force members believe that separately presenting the plan s interest in the master trust s assets and liabilities in the plan s statement of net assets available for benefits would be presenting items that are not the assets and liabilities of the plan but those of another unconsolidated entity. Disclosure 11. At its June 10, 2016 meeting, the Task Force reached a consensus-for-exposure to require disclosure of the dollar amount of a plan s interest in each general type of investment held by the master trust for plans with a divided interest in the master trust, as well as disclosure of the master November 17, 2016 EITF Meeting Minutes, p. 6 Issue No. 16-B

9 trust s other assets and liabilities and the dollar amount of a plan s interest in each of those balances for all plans. 12. With respect to the plan s interest in each general type of investment held by the master trust, the Task Force understands that because today more plans have a divided interest and participantdirected investments, the current requirement to disclose the plan s total percentage interest in the master trust may not appropriately reflect the plan s interest in each type of investment that is held by the master trust. As such, some stakeholders have said, and the Task Force ultimately agreed, that the current disclosure could be improved to provide additional information for plans with a divided interest and, therefore, proposed providing the dollar amount of the plan s interest in each type of investment held by the master trust for plans with a divided interest in the master trust. 13. With respect to disclosing the master trust s other assets and liabilities and the plan s interest in each of those balances, the Task Force understands that the current disclosure requirements do not provide insight into all of the balances in the master trust s statement of net assets, which make up the plan s interest in the master trust. That is, the current disclosures focus only on the investments. As such, the Task Force decided that the master trust s other assets and liabilities and the dollar amount of the plan s interest in each of those balances also should be disclosed for all plans. The Task Force understands that the information is useful at the master trust level, provides information about the legal structure that is the master trust, and facilitates the regulator s ability to reconcile the disclosure with the master trust s Form 5500 regulatory filing under the Employee Retirement Income Security Act of The Task Force also believes that the dollar amount of the plan s interest in each of the master trust s other asset and liability balances is useful because it helps a user better understand the amounts included in the plan s interest in the master trust that is presented in the plan s statement of net assets available for benefits. 14. The Task Force decided not to require that plans disclose the master trust s statement of net assets available for benefits and the statement of changes in net assets available for benefits. The Task Force believes that much of the same information would be provided through the other asset and liability disclosure, which would be less costly and provide more targeted information to users. As such, the Task Force did not think the benefits would justify the costs. 15. The Task Force also decided not to specify in situations in which financial statements were being prepared for the master trust, rather than for a specific plan, whether master trust financial statements should follow investment company or employee benefit plan guidance or some combination of the two. The Task Force noted that while it agreed that the simplifications provided for employee benefit plans during the Board s simplification initiative in 2015 (including presentation of fully-benefit-responsive investment contracts at contract value, and providing investment disclosures by general type of investment as opposed to nature, characteristics, and risks) should be considered for master trusts, it did not think this issue was within the scope of the proposed Update. 16. The Task Force also decided not to require individual plans to provide GAAP disclosures (for example, Topic 815, Derivatives and Hedging, and Topic 820, Fair Value Measurement) for the underlying investments held by a master trust. While some Task Force members noted that the disclosure requirements (for example, the requirement to disclose the fair value hierarchy of November 17, 2016 EITF Meeting Minutes, p. 7 Issue No. 16-B

10 investments) relate more to the underlying investments held in the master trust (as opposed to the interest in the master trust), the Task Force ultimately decided that those disclosures would be more appropriate within master trust financial statements, when prepared as opposed to plan financial statements. 17. Lastly, the Task Force reached a consensus-for-exposure that a health and welfare benefit plan is not required to provide investment disclosures (for example, the disclosures required by Topics 815 and 820) for 401(h) account assets because those disclosures are required to be provided within the defined benefit pension plan financial statements. The Task Force understands that the defined benefit pension plan legally owns the assets within 401(h) accounts. Therefore the health and welfare benefit plan s interest is that of a receivable from the defined benefit pension plan, not an investment. Furthermore, the Task Force also notes that including the investment disclosures with the defined benefit pension plan financial statements more closely aligns with regulatory reporting requirements. As such, the Task Force sees no need to require the same investment disclosures within multiple financial statements; however, the Task Force also reached a consensus-forexposure to require disclosure of the defined benefit pension plan name within the health and welfare benefit plan s financial statements so that all users can access the disclosure information relating to the 401(h) accounts if desired. Effective Date and Transition 18. At its June 10, 2016 meeting, the Task Force reached a consensus-for-exposure that the amendments in the proposed Update should be applied retrospectively to all periods presented beginning in a reporting entity s fiscal year of adoption. The Task Force believes that it is appropriate for the disclosures to be consistent in all periods presented in a reporting entity s financial statements because it would allow for greater comparability. 19. The effective date and the ability to early adopt will be determined after the Task Force considers stakeholder feedback on the proposed Update. 20. The Task Force considered whether the disclosures related to changes in accounting principle in paragraphs through 50-3 should apply to the proposed amendments. Many of the disclosure requirements are not applicable to employee benefit plans because plan financial statements generally do not contain any of the items referred to in those paragraphs, such as per share amounts or retained earnings. As such, the Task Force believes that a reporting entity should be required to only disclose the nature of and reason for the change in accounting principle (that is, the requirements of paragraph (a)). 21. At its June 29, 2016 meeting, the Board ratified the consensus-for-exposure reached by the Task Force on this Issue and approved the issuance of a proposed Update for a 60-day public comment period. Current EITF Discussion Presentation 22. At its November 17, 2016 meeting, the Task Force reached a consensus that all plans should present separately their interest in each of the master trusts in which they hold investments and the change in their interest in each of those master trusts as separate line items in the statement of net November 17, 2016 EITF Meeting Minutes, p. 8 Issue No. 16-B

11 assets available for benefits and the statement of changes in net assets available for benefits, respectively. The Task Force concluded that this presentation appropriately reflects the plan s interest in the legal structure that is the master trust. That is, the presentation retains a crucial distinction between an interest in the master trust and all other plan activity and balances (such as the investments the plan holds directly). Furthermore, while there is some diversity in practice, the Task Force understands that the majority of plans currently follow a single-line presentation for purposes of reflecting a plan s interest in a master trust, and the amendments in the Update resulting from this Issue would not result in a change in that practice. The Task Force also notes that this presentation was supported by the majority of stakeholders during outreach and is more consistent with regulatory reporting. In reaching its conclusion, Task Force members expressed the view that the plan s asset is its interest in each master trust and therefore agreed that that interest is what should be presented in the statement of net assets available for benefits. Furthermore, some Task Force members noted that separately presenting the plan s interest in the master trust s assets and liabilities in the plan s statement of net assets available for benefits would be presenting items that are not the assets and liabilities of the plan but those of another unconsolidated entity. Disclosure 23. At its November 17, 2016 meeting, the Task Force reached a consensus that all plans (that is, both plans with a divided interest and plans with an undivided interest) should disclose the dollar amount of the plan s interest in each general type of investment held by the master trust, which supplements the existing requirement to disclose the master trust s balances in each general type of investment. 24. The Task Force understands that because more of today s plans have divided interests due to participant-directed investments, the current requirement to disclose the plan s total percentage interest in the master trust may not appropriately reflect the dollar amount of the plan s interest in each general type of investment that is held by the master trust. As such, most stakeholders indicated, and the Task Force ultimately agreed, that the current disclosure could be misleading for plans with a divided interest. 25. While the amendments in the proposed Update would have required the disclosure of the dollar amount of the plan s interest in each general type of investment held by the master trust for only plans with a divided interest in the master trust, the Update resulting from this Issue requires that same disclosure for all plans. This is because some stakeholders noted an inconsistency in the proposed amendments whereby plans with an undivided interest would not be required to disclose the dollar amount of the plan s interest in each general type of investment held by the master trust but would be required to disclose the dollar amount of the plan s interest in the master trust s other assets and liabilities as discussed in paragraph 26 below. The Task Force ultimately decided to require that all plans disclose the dollar amount of the plan s interest in each general type of investment held by the master trust because the disclosure would improve transparency for users by providing greater insight about the types of investments held by the plan and the associated dollar amount of the plan s interest held in those investments. The Task Force understands that the cost of providing this disclosure would not be burdensome because much of the work of identifying the dollar amount of the plan s interest in each general type of investment held by the master trust is currently done for purposes of having the plan s interest in the master trust audited. While some stakeholders questioned whether the disclosure would be necessary for plans with an undivided November 17, 2016 EITF Meeting Minutes, p. 9 Issue No. 16-B

12 interest, the Task Force noted that there is no conceptual basis for plans with an undivided interest to disclose the dollar amount of their interest in the master trust s other assets and liabilities but not disclose the dollar amount of their interest in the general type of investments held by the master trust. In addition, the Task Force noted that not distinguishing between plans with a divided interest and plans with an undivided interest is consistent with the regulatory reporting requirements. 26. The Task Force also reached a consensus to require that all plans (that is, plans with a divided interest and plans with an undivided interest) disclose the master trust s other assets and liabilities, as well as the dollar amount of the plan s interest in each of those other assets and liabilities. The Task Force understands that the current disclosure requirements do not provide insight into all of the balances in the master trust s statement of net assets, which make up the plan s interest in the master trust. That is, the current disclosures focus only on the investments. As such, the Task Force decided that the master trust s other assets and liabilities and the dollar amount of the plan s interest in each of those other assets and liabilities also should be disclosed for all plans. The Task Force understands that the information is useful at the master trust level, provides information about the legal structure that is the master trust, and facilitates the regulator s ability to reconcile the disclosure with the master trust s Form 5500 regulatory filing under the Employee Retirement Income Security Act of 1974 (ERISA). The Task Force also concluded that the dollar amount of the plan s interest in each of the master trust s other assets and liabilities is useful because it helps a user better understand the amounts included in the plan s interest in the master trust that is presented in the plan s statement of net assets available for benefits. 27. Although GAAP does not currently require disclosures for the underlying investments held by a master trust (for example, disclosures in Topics 815 and 820), the Task Force understands that the majority of plans provide these disclosures on the basis of nonauthoritative guidance. This nonauthoritative guidance includes (a) AICPA Technical Practice Aid TIS Section , Fair Value Measurement Disclosures for Master Trusts, and (b) the AICPA Audit and Accounting Guide, Employee Benefit Plans. While some Task Force members said that explicit GAAP requirements should be provided, other Task Force members said that there was no need for standard setting in this area. Ultimately, the Task Force decided not to address this issue, noting that it does not appear to be a significant current practice issue for which standard setting is warranted and there is no intent to change current practice. 28. Lastly, the Task Force reached a consensus that a health and welfare benefit plan is not required to provide investment disclosures (for example, the disclosures required by Topics 815 and 820) for 401(h) account assets because those disclosures are provided within the defined benefit pension plan financial statements. The Task Force understands that the defined benefit pension plan legally owns the 401(h) account assets. Therefore, the health and welfare benefit plan s interest is that of a receivable from the defined benefit pension plan, not an investment. Furthermore, the Task Force notes that including the investment disclosures in the defined benefit pension plan financial statements more closely aligns with regulatory reporting requirements. As such, the Task Force sees no need to require the same investment disclosures within multiple financial statements; however, the Task Force also reached a consensus to require disclosure of the defined benefit pension plan name within the health and welfare benefit plan s financial statements so that all users can access the disclosure information relating to the 401(h) account assets, if desired. November 17, 2016 EITF Meeting Minutes, p. 10 Issue No. 16-B

13 Effective Date and Transition 29. At its November 17, 2016 meeting, the Task Force reached a consensus that the amendments in the Update resulting from this Issue should be applied retrospectively to each period for which financial statements are presented beginning in a reporting entity s fiscal year of adoption. The Task Force concluded that it is appropriate for the disclosures to be consistent in all periods presented within a reporting entity s financial statements because it will allow for greater comparability. 30. The Task Force decided that the amendments in the Update resulting from this Issue should be effective for fiscal years beginning after December 15, 2018, because that effective date will provide all affected plans with sufficient time to comply with the amendments. Early adoption is permitted. Board Ratification 31. At its November 30, 2016 meeting, the Board ratified the consensus reached by the Task Force on this Issue and directed the staff to draft a final Update reflecting the consensus for vote by written ballot. Status 32. No further EITF discussion is planned. November 17, 2016 EITF Meeting Minutes, p. 11 Issue No. 16-B

14 Status of Open Issues The following represents the FASB staff s assessment of the status and immediate plans with respect to the open Issue on the Task Force s agenda. The Issue(s) that will be added to the proposed agenda for the March 16, 2017 meeting will be considered either high priority issues or issues on which meaningful progress can be made within the staff s given complement of resources. The staff s prioritization of issues is based primarily on the FASB staff s understanding of the level of diversity in practice created by each respective Issue, the financial reporting implications of that diversity, the current interaction, if any, of the Issues with active Board projects, and current resource availability among the staff (with respect to both time and relevant technical expertise). Issue No. Description 16-C Determining the Customer of the Operation Services in a Service Concession Arrangement Date Added Date(s) Discussed Next Meeting EITF Liaison FASB Staff Immediate Plans 8/16 9/16 3/17 Althoff Faineteau A proposed Update was issued in November The staff will prepare an Issue Summary Supplement summarizing comment letter feedback Next Deliverable March 16, 2017 EITF meeting materials November 17, 2016 EITF Meeting Minutes, p. 12 Status of Open Issues