Employers are not required to remeasure plan assets and obligations for interim reporting purposes. Rather, under ASC 715-30-35-68 and ASC 715-60-35-125, measurements of net periodic benefit cost for interim financial statements should be based on the assumptions used for the previous year-end measurement of both plan assets and obligations, unless more recent measurements are available, such as when a significant event occurs (e.g., a curtailment, settlement, significant plan amendment) that would ordinarily call for such remeasurements. In this case, an employer would remeasure at an interim date. If there is an interim remeasurement, the subsequent interim balance sheet and amounts reflected in AOCI would be adjusted to reflect the remeasurement.

When there is no interim period remeasurement, a reporting entity will report in its interim balance sheet an amount that is based on the asset or liability recognized in the previous year-end balance sheet, adjusted for (1) subsequent accruals of net benefit cost (service cost, interest cost, and expected return on plan assets), excluding amortization of amounts previously recognized in AOCI (those amounts are charged/credited to the AOCI balance and do not affect the prepaid or accrued benefit liability account), and (2) contributions to a funded plan or benefit payments from an unfunded plan.

For each period that a reporting entity presents interim financial statements, the net periodic benefit cost and OCI would reflect the effect of amortizing amounts out of AOCI into net periodic benefit cost in accordance with the expense recognition guidance in ASC 715. See PEB 3.2.6 and PEB 3.2.7.

Example PEB 2-3 illustrates the quarterly amortization of amounts from AOCI to net periodic benefit cost. See PEB 3.2 for a discussion of pension cost components.

EXAMPLE PEB 2-3
Recording quarterly net periodic benefit cost

PEB Corporation has $4,000 of annual net periodic benefit cost with quarterly cost of $1,000 comprised of the following (each amount is 25% of the annual amount computed at the beginning of the year):

How would PEB Corporation record the net periodic benefit cost each quarter?

The journal entry for each quarter would be as follows (ignoring the effects of any contributions to the plan):

The remeasurement of plan assets and obligations for a significant event should occur as of the date of the significant event. However, employers can apply a practical expedient to remeasure the plan assets and obligations as of the nearest calendar month-end date. The decision to apply the practical expedient to interim remeasurements for significant events is not an accounting policy election and can be made independently for each individual event. Disclosure of the election to use the practical expedient and the date which the defined benefit plan assets and obligations were remeasured is required. This expedient does not apply to business combinations, which must be valued as of the acquisition date, as discussed in BCG 2.5.10.

A voluntary remeasurement of both the asset and obligation at an interim date is not prohibited, provided both are measured at the same date. However, a voluntary remeasurement at an interim date (i.e., one that is not done because of a significant plan amendment, curtailment, or settlement) may establish an accounting policy of remeasuring whenever a similar set of circumstances arises, such as the situations involving discount rate changes discussed below.

A change in the general level of interest rates is not the type of event contemplated by ASC 715-60-35-126 that would require an employer to remeasure its costs and obligations at an interim date. However, an employer is not prohibited from doing so, and may choose to perform an interim remeasurement to prospectively reflect the impact of a change in rates on costs and obligations prior to its regular annual measurement. Regular interim remeasurements that are performed because interest rates have changed since the last measurement date would be indicative of a policy of performing interim remeasurements whenever interest rates subsequently fall or rise by the same or a greater margin. For example, if an employer regularly performs an interim remeasurement when interest rates rise by 100 basis points, the employer would be deemed to have adopted a policy of performing interim remeasurements whenever there is a change in interest rates (i.e., an increase or decrease) of 100 basis points or more. This policy would then need to be consistently followed, and would require the reporting entity to demonstrate preferability, as required by ASC 250, in order to change the policy for remeasurement.

When performing interim remeasurements, employers should obtain new asset values, roll forward the obligation to reflect population changes, and review the appropriateness of all assumptions, regardless of the reason for performing the interim remeasurement (i.e., this applies to interim remeasurements performed because of changes in interest rates or expected rates of return, as well as plan amendments, curtailments, or settlements).

ASC 715 states that requiring plan measurements to be as of a particular date is not intended to require that all procedures be performed on that date, and that much of the information can be prepared as of an earlier date and projected forward to account for subsequent events. Further, ASC 715-30-35-1 states, "this Statement is intended to specify accounting objectives and results rather than specific computational means of obtaining those results. If estimates, averages, or computational shortcuts can reduce the cost of applying this Statement, their use is appropriate, provided the results are reasonably expected not to be materially different from the results of a detailed application."

Over time, a common practice by employers and their actuaries in developing pension plan measurements has been to estimate year-end plan obligations using a "rollforward" technique. This technique generally starts with a beginning-of-year obligation determined by an actuarial valuation using actual beginning-of-year census data, then (a) adds service cost and interest cost for the year, which were estimated as part of the beginning-of-year valuation, (b) subtracts benefit payments made during the year, (c) adjusts for significant activity during the year that was not anticipated (e.g., a major reduction in force or a plan amendment) that was below the employer's threshold for performing an interim remeasurement, and (d) adjusts for the change to an end-of-year discount rate, to produce a projected (rolled forward) year-end obligation. This rollforward technique does not use year-end census data estimates.

In the subsequent year (generally in the second or third quarter), typically in connection with the IRS requirement that a new beginning-of-year valuation be performed annually for funding purposes for qualified US pension plans, a new beginning-of-year ASC 715 valuation is performed using new beginning-of-year census data and updated demographic assumptions reflecting new experience studies (if available). The net benefit cost being recognized in the subsequent year that was originally estimated based on the prior year-end rollforward obligation is then "trued-up" in the current period based on this new beginning-of-year valuation. In other words, there may be additional expense in the period of valuation to catch up for the periods that were rolled forward.

Employers need to satisfy themselves that any rollforward techniques they use in developing year-end pension measurements produce a reasonable estimate of the year-end measurements. Accordingly, consideration should be given to whether there have been significant changes in such items as plan demographics that would affect the year-end obligation. Employers might compare actual benefit payments during the year to expected payments per the valuation and obtain information about unusual termination activity and other items impacting the demographics of the population. Also, a comparison of previous years' estimates to actual measurements can be used to identify the extent of differences due to the use of rollforwards.

A material difference in the results of the beginning-of-year valuation versus the results using the rollforward technique to derive the prior-year's end-of-year measurement may be indicative of an error in the prior year's end-of-year measurement, and should be assessed under ASC 250, Accounting Changes and Error Corrections. The employer should understand the reasons why the numbers are materially different, including whether the difference is attributable to information that was not available when the year-end rollforward measurement was performed.