FASB ASC 960 – Plan Accounting – Define Benefit Pension Plans
The Financial Accounting Standards Board (FASB) released Accounting Standards Codification 960 (ASC 960) to address topics associated with defined benefit pension plans.
As those plans that meet certain requirements must be audited, this is a useful code as it contains important information when doing this.
Defined benefit pension plans are what most people when they think of a pension plan. After a certain vesting period has passed, the company will pay the employee a defined annual salary in retirement. As there are a lot of volatile assumptions made in pension plans, these need more scrutiny than a defined contribution plan would and are generally thought of as more technical and difficult to manage and audit.
Presenting Defined Benefit Plans in the Financial Statements
As it relates to the presentation of the pension plan in the financial statements, the primary concern is the ability for the company to pay the pension obligations when they are due to the participants. In order to accomplish this, the statements should show the plan net assets available for benefits, the statement of changes in net assets, notes to these statements, including information about the actuarial present value of accumulated benefits and the changes to those accumulated benefits.
Statement of Net Assets
The method of measurement for the Statement of Net Assets, which is equivalent to a Balance Sheet for the defined benefit plan, is typically recorded at fair value. Based on investment leveling guidance, which indicates how active the market to sell these, and investment valuation expert may be required to appropriately value these assets. How the fair value was determined should be disclosed in the financial statements.
Outside of the actual investments involved, presentation of the contributions receivable will also be included. These are typically the contributions which the employer sponsoring the defined benefit pension plan is to pay the plan yet.
Statement of Changes in Net Assets
The Statement of Changes in Net Assets available for Benefits, equivalent to an Income Statement for the plan, should display all of the items which effected the net assets. This will include the following types of transactions:
- Contributions made (from employer, participants, or other sources)
- Appreciation or depreciation of the fair value of each investment class
- Investment income not included in the appreciation or depreciation
- Amounts paid to participants of the plan
- Payments to insurance companies for contracts not in the plan assets
- Administrative expenses for running the pension plan
- Other charges if applicable, including descriptions
Other Presentation Requirements
Defined benefit pension plans are subject to other regulations as well, including disclosing related party transactions, certain risks and uncertainties that may effect the plan assets, as well as actuarial data which summarizes the present value of the accumulated plan benefits.
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