2.43 FASB ASC 235, Notes to Financial Statements, requires the disclo-sure of significant accounting policies, and FASB ASC 960 requires disclodisclo-sure of (a) the method and significant assumptions used to value investments and con-tracts with insurance companies (FASB ASC 960-325-50-1) and (b) the method and significant assumptions used in determining the actuarial present value of accumulated plan benefits, including any significant changes in the method or assumptions during the year (paragraphs 8–9 of FASB ASC 960-20-50).
2.44 Unless otherwise noted, FASB ASC 960-205-50-1 also requires dis-closure of
a. a brief general description of the plan agreement, including its vest-ing and benefit provisions.9
b. a description of significant plan amendments adopted during the year. If the amendments were adopted after the date of the accu-mulated benefit information, and accordingly their effect was not included in the calculation, this fact should be stated.
c. a brief description of the benefit priority and PBGC coverage in the event of plan termination.
9If a plan agreement or a description thereof providing this information is otherwise published and made available, this description may be omitted provided that reference to such other source is made.
d. the funding policy and any changes in the policy during the year.
If significant costs of plan administration are being absorbed by the employer(s), that fact should be disclosed. When applicable, the method of determining employee contributions should be disclosed.
ERISA plans should disclose their status with respect to any ap-plicable minimum funding requirements. If a minimum funding waiver has been granted by the IRS or if a request for a waiver is pending before the IRS, that fact should be disclosed.
e. the policy regarding the purchase of insurance contracts that have been excluded from plan assets and the income from those contracts for the year. The plan's dividend income for the year that is related to excluded contracts should be disclosed, and, as stated in FASB ASC 960-30-45-2, may be netted against payments to insurance en-tities related to such contracts as provided in (g) of that paragraph.
f. the federal income tax status of the plan if a favorable determina-tion letter from the IRS has not been obtained or maintained. Note that reports filed in accordance with the requirements of ERISA must include disclosure of "information concerning whether or not a tax ruling or determination letter has been obtained," which is more than is required by FASB ASC 960.
g. per FASB ASC 960-325-50-2, investments that represent 5 percent or more of total net assets. Listing all investments in Schedule H, line 4i—Schedule of Assets (Held at End of Year) required by ERISA does not eliminate the requirement to include this disclosure in the financial statements.
h. significant related-party transactions (see appendix A and chapter 11 for a discussion of related-party transactions).
i. unusual or infrequent events or transactions occurring after the lat-est benefit information date but before the financial statements are issued or are available to be issued (as discussed in FASB ASC 855-10-25) that might significantly affect the usefulness of the financial statements in an assessment of the plan's present and future ability to pay benefits. For example, a plan amendment adopted after the latest benefit information date that significantly increases future benefits that are attributable to employees' service rendered before that date should be disclosed. If such effects are not quantified, the reasons why they are not reasonably determinable should be disclosed. This does not contemplate disclosure of normal changes after the benefit information date, such as benefits attributable to service rendered after that date.
j. subsequent events disclosures as required by FASB ASC 855, Sub-sequent Events (see chapter 12 for a discussion of subSub-sequent events).||
||In May 2009, FASB issued FASB Statement No. 165, Subsequent Events, which was codified in FASB ASC 855-10. The objective of this statement is to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. FASB ASC 855-10 was effective for interim or annual financial periods ending after June 2009, and should be applied prospectively. Readers should consult the full text of FASB ASC 855-10 for further guidance. Readers should also note that at the time of publication of this guide, FASB is preparing an ASU relating to Topic 855. Be alert for the issuance of a final ASU. Readers are encouraged to visit the FASB ASC Web site at http://asc.fasb.org/home to monitor codification updates.
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Employee Benefit PlansThis list is not intended to modify the disclosure requirements in FASB ASC 960 but, rather, to serve as a reference to the major requirements. Nor does this list include information required by ERISA to be disclosed in the schedules filed as part of a plan's annual report. In this connection, it is important to note that any information required by ERISA to be disclosed in the schedules must be disclosed in the schedules; disclosure of the information on the face of the financial statements or in the notes to the financial statements but not in the schedules is not acceptable.
2.45 FASB ASC 815, Derivatives and Hedging, provides accounting and reporting standards for derivative instruments, including certain derivative in-struments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. FASB ASC 815 applies to certain contracts that meet the definition of derivative instrument, as defined in FASB ASC 815-10-15-83. See FASB ASC 815-10-15 for further information on certain contracts that are not subject to the requirements of FASB ASC 815.#
2.46 For assets and liabilities that are measured at fair value on a re-curring basis, the disclosures required by FASB ASC 820-10-50 in the tabular format as shown in example 8 (paragraphs 60–63) of FASB ASC 820-10-55 should be made. In addition, FASB ASC 820-10-50 requires the reporting en-tity to disclose certain information that enables users of its financial statements to assess the valuation techniques and inputs used to develop those measure-ments. For recurring fair value measurements using significant unobservable inputs (level 3), the reporting entity is required to disclose certain information to help users assess the effect of the measurements on earnings (or changes in net assets) for the period.
2.47 In addition, FASB ASC 820-10-50-2 requires certain disclosures to be made by major category of assets and liabilities.**FASB ASC 820-10-50-2
#In March 2008, FASB issued FASB Statement No. 161, Disclosures about Derivative Instru-ments and Hedging Activities—an amendment of FASB Statement No. 133. This statement requires enhanced disclosures about (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under FASB Statement No. 133, Account-ing for Derivative Instruments and HedgAccount-ing Activities, and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity's financial position, financial perfor-mance, and cash flows. To meet these objectives, FASB Statement No. 161 requires qualitative disclo-sures about objectives and strategies for using derivatives, quantitative disclodisclo-sures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. These further disclosures are intended to improve the transparency of financial reporting.
FASB Statement No. 161 was effective for fiscal years and interim periods beginning after November 15, 2008. Early application was encouraged. FASB Statement No. 161 encourages, but does not require, comparative disclosures for earlier periods at initial adoption. FASB Statement No.
161 applies to all entities and derivative instruments, including bifurcated derivative instruments and related hedge items accounted for under FASB Statement No. 133 and its related interpretations.
This guidance is located in FASB ASC 815-10-50.
**In January 2010, FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. ASU No. 2010-06 amends the disclosure requirements of FASB ASC 820 to require new disclosures regarding (a) transfers in and out of levels 1 and 2 and (b) activity in level 3 fair value measurements. ASU No. 2010-06 also provides amendments to FASB ASC 820 that clarify existing disclosures regarding (a) level of disaggregation for each class of assets and liabilities and (b) disclosures about inputs and valuation techniques for fair value measurements that fall in either levels 2 or 3.
The new disclosures and clarifications of existing disclosures are effective for interim and an-nual reporting periods beginning after December 15, 2009, except for the disclosures regarding the (continued)
states that for equity and debt securities, major category should be defined as major security type as described in FASB ASC 320-10-50-1B even if the equity securities or debt securities are not within the scope of FASB ASC 320-10. According to FASB ASC 320-10-50-1B, major security types are based on the nature and risks of the security. In determining whether disclosure for a particular security type is necessary and whether it is necessary to further separate a particular security type into greater detail, all of the following should be considered: the activity or business sector, vintage, geographic concentration, credit quality, or economic characteristic.
2.48 As indicated in FASB ASC 960-30-45-11, investments in master trusts are presented in a single line item in the statement of net assets avail-able for benefits. In addition, paragraphs 1–3 of FASB ASC 960-30-50 state that in the notes10to the financial statements the investments of the master trust should be detailed by general type, such as government securities, short-term securities, corporate bonds, common stocks, mortgages and real estate, as of the date of each statement of net assets available for benefits presented. The net change in the fair value of each significant type of investment of the master trust and total investment income of the master trust by type, for example, interest and dividends, should also be disclosed in the notes for each period for which a statement of changes in net assets available for benefits is presented.
The notes to the financial statements should also include a description of the basis used to allocate net assets, net investment income, gains and losses to participating plans, and the plan's percentage interest in the master trust as of the date of each statement of net assets available for benefits presented.
2.49 FASB ASC 825 requires all entities except for those covered by an exemption11for which the disclosure is optional, to disclose within the body of the financial statements or in the accompanying notes, the fair value of finan-cial instruments for which it is practicable to estimate fair value.12An entity should also disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments. According to FASB ASC 825-10-50-8,
(footnote continued)
rollforward of activity in level 3 fair value measurements which are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years.
This guidance is located in FASB ASC 820-10-50 and 820-10-55 and is labeled as "Pend-ing Content" due to the transition and open effective date information contained in FASB ASC 820-10-65-7.
10 The AICPA issued a TIS section to provide guidance on the required fair value measurement disclosures to be made when a plan holds investments in a master trust: TIS section 6931.11, "Fair Value Measurement Disclosures for Master Trusts" (AICPA, Technical Practice Aids). This practice aid assists with the implementation of FASB ASC 820, for employee benefits plans that have investments in a master trust. This guidance states that the disclosure requirements of FASB ASC 820 should be made for each major category of master trust assets and liabilities. In addition, consideration should be given to combining, or reconciling, or both, the master trust FASB ASC 820 disclosures with the master trust disclosures as required by paragraphs 1–3 of FASB ASC 960-30-50.
11 According to FASB ASC 825-10-50-3, the disclosures are optional for plans that meet all of the following criteria:
a. The plan is a nonpublic entity.
b. The plan's total assets are less than $100 million on the date of the financial statements.
c. The plan has no instrument that, in whole or in part, is accounted for as a deriva-tive instrument under FASB ASC 815, Derivaderiva-tives and Hedging, during the reporting period.
12 Fair value disclosed in the notes should be presented together with the related carrying amount in a form that makes it clear whether the fair value and carrying amount represent assets or liabilities and how the carrying amounts relate to what is reported in the statement of net assets available for benefits.
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Employee Benefit Plansfinancial instruments of a pension plan other than (a) obligations for pension benefits as defined in FASB ASC 960 and (b) insurance contracts, other than financial guarantees and investment contracts, as discussed in FASB ASC 944-20, generally are included in the scope of FASB ASC 825 and are subject to its disclosure requirements. In addition, the disclosure requirements of FASB ASC 820 may also apply.
2.50 FASB ASC 825 requires disclosure of all significant concentrations of credit risk arising from all financial instruments. The following information should be disclosed about each significant concentration:
r
Information about the (shared) activity, region, or economic char-acteristic that identifies the concentrationr
The maximum amount of loss due to credit risk that, based on the gross fair value of the financial instrument, the entity would incur if parties to the financial instruments that make up the concentration failed completely to perform according to the terms of the contracts and the collateral or other security, if any, for the amount due proved to be of no value to the entityr
The entity's policy of requiring collateral or other security to sup-port financial instruments subject to credit risk, information about the entity's access to that collateral or other security, and the na-ture and a brief description of the collateral or other security sup-porting those financial instrumentsr
The entity's policy of entering into master netting arrangements to mitigate the credit risk of financial instruments, information about the arrangements for which the entity is a party, and a brief description of the terms of those arrangements, including the extent to which they would reduce the entity's maximum amount of loss due to credit risk2.51 401(h) accounts. Some defined benefit pension plans provide a postre-tirement medical-benefit component in addition to the normal repostre-tirement bene-fits of the plan, pursuant to Section 401(h) of the Internal Revenue Code (IRC).
Employers may fund a portion of their postretirement medical-benefit obliga-tions related to their health and welfare benefit plans through a health ben-efit account (401(h) account) in their defined benben-efit pension plans, subject to certain restrictions and limitations. Funding can be accomplished through a qualified transfer of excess pension plan assets or through additional contri-butions. Any assets transferred to a 401(h) account in a qualified transfer of excess pension plan assets (and any income allocable thereto) must be used only to pay qualified current retiree health benefits for the taxable year of the transfer (whether directly or through reimbursement). Any assets transferred to a 401(h) account in a qualified transfer of excess pension plan assets (and any income allocable thereto) that are not used in the year must be transferred out of the account to the pension plan.
2.52 The IRC allows employers to allocate up to 25 percent of total con-tributions to the plan, subject to certain limitations, to the 401(h) account. If the full amount of these contributions is not used during the year, they may be accumulated for future retiree medical expenses in the 401(h) account. The de-ductibility of employer contributions to a 401(h) account is subject to separate limitations, and, therefore, such contributions have no effect on the amount of deductible contributions an employer can make to fund pension benefits under
the plan. The earnings on the 401(h) account are ignored for minimum funding purposes. Additionally, under the IRC, qualified transfers are not treated as prohibited transactions for purposes of Section 4975.
2.53 The plan sponsor has discretion in making contributions to the 401(h) account. A pension or annuity plan may provide for payment of medical benefits for retired employees, their spouses, and their dependents if all of the following conditions are met:
a. Benefits are subordinate (as defined in Section 401(h) of the IRC) to the retirement benefits provided by the plan.
b. A separate account is established and maintained for such benefits.
c. The employer's contributions to the separate account are reason-able and ascertainreason-able.
d. It is impossible, at any time prior to the satisfaction of all obligations under the plan to provide such benefits, for any part of the corpus or income of the separate account to be (within the taxable year or thereafter) used for, or diverted to, any purpose other than the providing of such benefits.
e. Notwithstanding the provisions of certain IRC sections, upon sat-isfaction of all obligations under the plan to provide such benefits, any amount remaining in the separate account must, under the terms of the plan, be returned to the employer.
f. In the case of an employee who is a key employee (as defined in Sec-tion 416(i)), a separate account is established and maintained for such benefits which are payable to such employee (and the spouse and dependents), and such benefits (to the extent attributable to plan years beginning after March 31, 1984, for which the employee is a key employee) are payable only to that employee (and the spouse and dependents) from the separate account.
2.54 The 401(h) assets may be used only to pay current retiree health ben-efits, which generally are obligations of a separate health and welfare benefit plan or health benefit arrangement. They may not be used to satisfy pension obligations. Although the assets may be invested together with assets that are available to pay pension benefits, a separate accounting must be maintained for all qualified transfers, contributions, distributions or expenses, and income earned thereon.
2.55 As stated in paragraphs 4–10 of FASB ASC 960-30-45, because the 401(h) net assets may not be used to satisfy pension obligations, the total of net assets available for pension benefits must not include net assets held in the 401(h) account related to obligations of the health and welfare benefit plan.
The 401(h) account assets less liabilities (net assets of the 401(h) account) are required to be shown in defined benefit pension plan financial statements as a single line item on the face of the statements (as illustrated in exhibits D-9–D-11 in appendix D). Those net assets related to the 401(h) account also must be deducted before arriving at the total of net assets available for pension benefits.
In deducting those net assets, the amount related to the 401(h) features should be presented as a separate line item in the liabilities section of the statement of net assets available for pension benefits. The financial statement caption should clearly denote that the net assets held in the 401(h) account relate to obligations of the health and welfare benefit plan or arrangement. The statement of changes in net assets should show only the changes in net assets of the pension plan and
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Employee Benefit Plansnot any of the components of the changes in the net assets in the 401(h) account.
The only amounts that should be reported in the statement of changes in net assets are qualified transfers to the 401(h) account and any unused or unspent
The only amounts that should be reported in the statement of changes in net assets are qualified transfers to the 401(h) account and any unused or unspent