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FASB ASC Guide > FASB ASC 715

The Financial Accounting Standards Board (FASB) released Accounting Standards Codification 715 (ASC 715) to address retirement benefits compensation plans.  The main types of retirement accounts in existence today are:

• Defined Benefit Plans
• Defined Contribution Plans

The difference between these two lies not only within the way in which the beneficiary (i.e., the retiree) but also in how the company reflects these obligations on the balance sheet.

A defined benefit plan is commonly known as a pension plan.  The employee gets a certain amount of money every pay period for a defined period of time once the specific rules are met.  The benefit to the employee is fixed and does not
fluctuate.

A defined contribution plan is what people generally hold in their 401k.  The company will deposit X amount of dollars every year, and then it absolves all responsibility.  If the market goes down, then the retiree gets less money – the converse is also true, if the market goes up the retiree can make more money.

Check out more high level explanations of the FASB ASC in our Guide to the Accounting Standards Codification!

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