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9.2 Framework and overall objectives for plan reporting
Publication date: 30 Jun 2022
us Pensions guide
The primary objective of a plan's financial statements is to provide information to the plan participants that is useful in assessing the plan's present and future ability to pay benefits when due.
9.2.1 Differences between FASB and regulatory guidance
When the financial reporting model for benefit plans was originally created, the FASB’s objectives were to provide useful information to stakeholders but in a way that balanced some of the administrative burden of compliance. As such, ASC 960 considers the manner in which actuarial information is generated for plans, information that is generally available to insurance companies, and would not differ from the requirements of the United States Department of Labor (DOL) for plan reporting. Although these goals were largely achieved, many mechanical differences between the DOL rules and regulations and ASC 960 have emerged. The DOL’s rules for plan reporting are set out in the Employee Retirement Income Security Act of 1974 (ERISA). Importantly, ASC 960 does not alter the requirements of ERISA.
Figure PEB 9-1 summarizes the principal differences between ERISA reporting requirements (specifically Form 5500, "Annual Return/Report of Employee Benefit Plan") and ASC 960. Similar differences exist between ERISA reporting requirements and ASC 962 and ASC 965.
Figure PEB 9-1
Differences between ASC 960 and ERISA
Differences between ASC 960 and ERISA
Accounting basis
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ERISA permits the use of accrual, cash, or modified cash basis accounting.
Cash basis financial statements that adjust securities investments to fair value are considered to be prepared on a modified cash basis.
Financial statements prepared on the modified cash basis should include all informative disclosures that are appropriate for the basis of accounting used.
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Only accrual accounting is acceptable under GAAP.
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Actuarial information
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Schedule SB of Form 5500 includes actuarial information used in determining the plan’s funding requirements under ERISA.
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ASC 960 designates actuarial information as essential to plan financial statements and sets forth a method of reporting pension obligations that differs from that used in the preparation of Schedule SB. This difference may result in additional discussions with actuaries and plan administrators when GAAP financial statements are prepared.
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Investments
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Form 5500 and/or the supplemental schedules require disclosure of the cost of investments or the separation of investment gains and losses into realized and unrealized components.
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ASC 960 does not require this information.
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Form 5500 does not require separation of readily marketable investments from those with a limited market.
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ASC 960-325-45-1 requires this distinction in the statement of net assets.
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Comparative statements
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ERISA requires a comparative statement of net assets.
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In certain circumstances described in ASC 960, comparative statements are not required.
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Operating assets
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ERISA requires fair value accounting for all plan assets.
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ASC 960-360-35-1 states that operating assets of the plan should be reported at depreciated cost.
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Liabilities
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Liabilities to plan participants for the amount of benefit claims that have been processed and approved for payment as of year-end are required to be reported in Form 5500.
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Such liabilities are not liabilities for financial statement purposes and thus should be presented in the reconciliation between the financial statements and the Form 5500.
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9.2.2 Benefit plan cash flow statements
Under ASC 230-10-15-4, defined benefit pension plans that follow ASC 960 and other employee benefit plans that present financial information similar to that required by ASC 960 are exempt from the requirement to provide a statement of cash flows with their annual financial statements. However, when a statement of cash flows would provide relevant information about the ability of the plan to meet future obligations, ASC 230-20-15-4 encourages its inclusion in the financial statements.
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