FASB Indefinitely Defers Employee Benefit Plan Disclosure Requirement

Brian Garstecki, CPA

The Financial Accounting Standards Board (FASB) recently voted to indefinitely defer certain disclosures regarding investments held by a nonpublic employee benefit plan in its plan sponsor’s own nonpublic equity securities. Accounting Standards Update (ASU) 2011-04, issued in May 2011, originally required that plans disclose the valuation processes used for fair value measurements of Level 3 investments held by the plan sponsor.

There was significant concern that disclosing this information would provide sensitive proprietary financial details about the plan sponsor to a large audience via the plans’ financial statements. FASB’s vote was in response to these concerns.

Which Plans are Affected?
This deferral applies to employee benefit plans that are not subject to Securities and Exchange Commission filing requirements.

Which Disclosures are Included?
This indefinite deferral is for disclosures of certain quantitative information about the significant unobservable inputs – such as credit risk adjustments, growth rates, volatilities, and other internally-developed inputs – used in Level 3 fair value measurement. Level 3 investments include employer securities of privately held companies, investment contracts with insurance entities, direct real estate holdings, and partnership interests.

When is It Effective?
FASB will issue Accounting Standards Update, Fair Value Measurement (Topic 820): Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No. 2011-04 in the next few weeks with additional details, and the deferral will become effective when it is issued.

Contact your accountant for further details or to clarify any questions you may have. The new ASU will be available on FASB’s website atwww.fasb.org.

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