Audit, Accounting and Reporting Updates
Fair Value
Measurements
Statement of Financial Accounting Standards No. 157, Fair
Value Measurements (“FAS 157”), continues to pose challenges for plans that
hold investments that, based on their nature, are expected to be classified
as either level 2 or 3 within the fair value hierarchy established by FAS
157. Such investments may include common collective trusts, (including
stable value funds), pooled separate accounts, guaranteed and bank
investment contracts (GICs and BICs), synthetic GICs, participant loans (in
a defined contribution plan), various debt instruments, non-publicly traded
employer stock, American Depository Receipts (ADRs), private equity funds,
hedge funds, real estate, real estate funds, limited partnerships, futures,
swaps, options, foreign currency contracts or other alternative or
hard-to-value investments.
Plan sponsors are responsible
for implementation of FAS 157 and the valuation of investments. If they
haven’t already, plan sponsors should contact the plan’s service providers
(trustees, custodians or other investment service providers) to understand
how the level 2 and 3 assets are valued and what information the service
providers will provide in reports
and certifications to support the assertions of fair value. Plan sponsors
must have a sufficient understanding of the nature of the plan’s investments
and valuation methodologies, key assumptions and inputs used to determine
fair value. Furthermore, plan sponsors must determine that the methods used
are appropriate under the FAS 157 fair value definition, that the values
presented are as of the plan’s year end and obtain additional information
about the valuation inputs to make the appropriate footnote disclosures
required by FAS 157.
Fee Disclosures
Effective for plan years beginning on or after January 1, 2009, there
are new requirements for reporting service provider fees and other
compensation on Schedule C – Service Provider Information of the 2009 Form
5500 Annual Return/Report of Employee Benefit Plan.
The revised schedule will require fees paid to service providers to be classified as either direct or indirect compensation. Direct compensation is compensation paid directly by the plan to the service provider such as recordkeeping fees and custodial fees. These fees should be relatively easy to identify and disclose. Indirect compensation is compensation paid by sources other than directly from the plan, such as fees charged to investment funds, and of ten netted in the value of the plan’s investments or return on investment. These fees will be more challenging to identify.
The EBSA has released 40 frequently asked questions (“FAQ”) to help plan administrators and service providers comply with the new Schedule C requirements. The FAQs cover such issues as the alternative reporting option for eligible indirect compensation, electronic disclosure of fee information by service providers, fee reporting for brokerage window options in participant directed plans, and reporting on gifts, entertainment and other nonmonetary compensation. The FAQs on Schedule C reporting can be found at www.dol.gov/ebsa.
FASB Accounting Standards
Codification
On July 1, 2009, the FASB Accounting Standards CodificationTM
(“ASC”) became the single official source of authoritative, nongovernmental
U.S. generally accepted accounting principles (“GAAP”), superseding existing
FASB, AICPA, EITF and related literature. Only one level of authoritative
GAAP now exists, plus the guidance issued by the SEC. All other literature
will be nonauthoritative.
The topics of FASB ASC specific to employee benefit plans are as follows:
-
960, Plan Accounting – Defined Benefit Pension Plans
-
962, Plan Accounting – Defined Contribution Pension Plans
-
965, Plan Accounting – Health and Welfare Benefit Plans
Employee Benefit Plan Commentator is provided by Somerset’s Employee Benefits Team for our clients and other interested persons upon request. For additional information on the issues discussed, please contact Yvette C. Ward, CPA. Since technical information is presented in generalized fashion, no final conclusion on these topics should be made without further review.
These articles were written by and published herein
with the permission from professionals of BDO Seidman, LLP. Somerset is a
member of the BDO Seidman Alliance, a nationwide association of
independently owned accounting and consulting firms.
Somerset CPAs,
P.C.
3925 River Crossing Parkway, Third Floor
Indianapolis, Indiana 46240
317.472.2200 • 800.469.7206 • FAX 317.208.1200
www.somersetcpas.com
info@somersetcpas.com
