ASC

ASC 325-965

Plan Accounting—Health and Welfare Benefit Plans

325 Investments—Other

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In brief

AdvancedSubsequent measurementFair valueDisclosureIndustry-specific

ASC 325-965 (parallel to 965-325) governs how health and welfare benefit plans measure, present, and disclose their investments and insurance contracts. The core rule is that plan investments are reported at fair value less costs to sell, if significant, at the financial statement date, except that insurance contracts are presented as reported in the plan's ERISA Form 5500 filing (fair value or contract value) and fully benefit-responsive investment contracts of defined contribution plans are measured at contract value. Presentation is by general type of investment, with specified disclosures for benefit-responsive contracts and for plan interests in master trusts.

Key points (7)
  • Plan investments — equity and debt securities, real estate, and other investments other than insurance contracts and fully benefit-responsive investment contracts — are reported at fair value less costs to sell, if significant, reduced by brokerage commissions and other normal selling costs (325-965-35-1; 35-1A).
  • Insurance contracts as defined in Subtopic 944-20 are presented the same way as in the plan's ERISA annual report — either fair value or contract value determined by the insurance entity — and non-ERISA plans report as if subject to the Act (325-965-35-3); investment contracts held by defined benefit health and welfare plans are reported at fair value (325-965-35-2).
  • Contract value is the relevant measure for the portion of net assets available for benefits of a defined contribution health and welfare plan attributable to fully benefit-responsive investment contracts (325-965-35-8), with each contract evaluated individually and prospective-rate contracts still qualifying if the crediting rate cannot be less than zero (325-965-35-6).
  • A plan whose fiscal year-end is not a month-end may elect to measure investments and investment-related accounts as of the closest month-end, applied consistently, and must disclose the election, the measurement date, and any contributions, distributions, or significant events between that date and fiscal year-end (325-965-35-2A; 50-1B; 50-1C).
  • Investments measured at fair value must be presented by general type — registered investment companies, government securities, short-term securities, corporate bonds, common stocks, mortgages, real estate — and in enough detail to show whether fair values used quoted prices in an active market (325-965-45-1; 45-2).
  • For fully benefit-responsive investment contracts, the plan discloses in the aggregate the nature of the contracts by type, events limiting its ability to transact at contract value (with a statement that their occurrence is not probable), events allowing issuers to terminate at other than contract value, and total contract value of each type (325-965-50-2).
  • Master trust disclosures require net appreciation/depreciation in fair value and investment income, the basis for allocating net assets and investment income, the plan's percentage interest if undivided, master trust investments by general type, and the plan's dollar interest in each type and in other master trust assets and liabilities (325-965-50-5 through 50-9).

For students. Exam traps here are the exceptions to fair value: insurance contracts follow whatever basis the plan uses on its Form 5500, and fully benefit-responsive investment contracts in defined contribution plans are carried at contract value (not fair value with an adjustment, which ASU 2015-12 eliminated). Also note the "less costs to sell, if significant" qualifier — health and welfare plan investments are not simply reported at fair value.

health and welfare benefit planfair value less costs to sellfully benefit-responsive investment contractcontract valueinsurance contractmaster trust interestnet assets available for benefitsdefined contribution plan

Machine-generated study aid for ASC 325-965. Check the source paragraphs below.

325-965-00Status

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325-965-00-1
The following table identifies the changes made to this Subtopic.
Paragraph Action Accounting Standards Update Date
Benefit-Responsive Investment Contract Superseded Accounting Standards Update No. 2015-12 (Part I) 07/31/2015
Benefits Amended Accounting Standards Update No. 2016-19 12/14/2016
Benefits (3rd def.) Added Accounting Standards Update No. 2014-06 03/14/2014
Contract Value of a Fully Benefit-Responsive Investment Contract Superseded Accounting Standards Update No. 2015-12 (Part I) 07/31/2015
Contract Value of a Fully Benefit-Responsive Investment Contract Added Accounting Standards Update No. 2014-06 03/14/2014
Defined Benefit Plan Added Accounting Standards Update No. 2014-06 03/14/2014
Defined Contribution Plan Amended Accounting Standards Update No. 2014-06 03/14/2014
Fair Value (2nd def.) Superseded Accounting Standards Update No. 2012-04 10/01/2012
Fair Value (3rd def.) Added Accounting Standards Update No. 2012-04 10/01/2012
Net Assets Available for Benefits Added Accounting Standards Update No. 2012-04 10/01/2012
Plan Assets (1st def.) Amended Accounting Standards Update No. 2016-19 12/14/2016
Plan Assets (1st def.) Added Accounting Standards Update No. 2014-06 03/14/2014
965-325-05-2 Amended Accounting Standards Update No. 2014-06 03/14/2014
965-325-35-1 Amended Accounting Standards Update No. 2015-12 (Part I) 07/31/2015
965-325-35-1 Amended Accounting Standards Update No. 2012-04 10/01/2012
965-325-35-1A Added Accounting Standards Update No. 2012-04 10/01/2012
965-325-35-2A Added Accounting Standards Update No. 2015-12 (Part III) 07/31/2015
965-325-35-6 Amended Accounting Standards Update No. 2015-12 (Part I) 07/31/2015
965-325-35-6 Amended Accounting Standards Update No. 2014-06 03/14/2014
965-325-35-8 Amended Accounting Standards Update No. 2015-12 (Part I) 07/31/2015
965-325-35-9 Superseded Accounting Standards Update No. 2015-12 (Part I) 07/31/2015
965-325-45-2 Amended Accounting Standards Update No. 2015-12 (Part II) 07/31/2015
965-325-45-2 Amended Accounting Standards Update No. 2015-12 (Part I) 07/31/2015
965-325-45-2 Amended Accounting Standards Update No. 2013-08 06/07/2013
965-325-45-2 Amended Accounting Standards Update No. 2012-04 10/01/2012
965-325-50-1 Amended Accounting Standards Update No. 2015-12 (Part II) 07/31/2015
965-325-50-1 Amended Accounting Standards Update No. 2014-06 03/14/2014
965-325-50-1 Amended Accounting Standards Update No. 2012-04 10/01/2012
965-325-50-1A Superseded Accounting Standards Update No. 2015-12 (Part II) 07/31/2015
965-325-50-1A Added Accounting Standards Update No. 2012-04 10/01/2012
965-325-50-1B Added Accounting Standards Update No. 2015-12 (Part III) 07/31/2015
965-325-50-1C Added Accounting Standards Update No. 2015-12 (Part III) 07/31/2015
965-325-50-2 Amended Accounting Standards Update No. 2015-12 (Part I) 07/31/2015
965-325-50-3 Superseded Accounting Standards Update No. 2015-12 (Part I) 07/31/2015
965-325-50-3 Amended Accounting Standards Update No. 2014-06 03/14/2014
965-325-50-4 Added Accounting Standards Update No. 2015-12 (Part II) 07/31/2015
965-325-50-5 through 50-9
 Added Accounting Standards Update No. 2017-06 02/27/2017
965-325-55-1 Amended Accounting Standards Update No. 2012-04 10/01/2012
965-325-55-3 Amended Accounting Standards Update No. 2015-12 (Part I) 07/31/2015
965-325-55-8 Amended Accounting Standards Update No. 2015-12 (Part II) 07/31/2015

325-965-05Overview and Background

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325-965-05-1
This Subtopic provides guidance on investment and insurance contracts for health and welfare benefit plans.
325-965-05-2
Defined benefit plans provide participants with a determinable benefit based on a formula provided for in the plans, whereas defined contribution plans provide benefits based on amounts contributed to an employee's individual account plus or minus all of the following:
  1. a
    Forfeitures
  2. b
    Investment experience
  3. c
    Administrative expenses.
325-965-05-3
In such defined contribution plans, plan participants have a vested interest in monitoring the financial condition and operations of the plan since they bear investment risk under these plans, and plan transactions can directly affect their benefits (for example, investment mix, and risk and return).
325-965-05-4
The Internal Revenue Code generally requires that all investment experience under defined contribution plans be allocated to individual account balances.

325-965-10Objectives

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325-965-10-1
Plan assets of health and welfare benefit plans shall be measured and reported at values that are meaningful to financial statement users, including plan participants.

325-965-15Scope and Scope Exceptions

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Overall Guidance

325-965-15-1
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 965-10-15.

325-965-35Subsequent Measurement

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Reporting at Fair Value

325-965-35-1
Plan investments, whether they are in the form of equity or debt securities, real estate, or other investments (excluding insurance contracts and fully benefit-responsive investment contracts [see paragraph 965-325-35-3 for special provisions on the valuation of insurance contracts and paragraph 965-325-35-8 for special provisions on the valuation of fully benefit-responsive investment contracts]), shall be reported at their fair value less costs to sell, if significant, at the financial statement date.
325-965-35-1A
If significant, the fair value of an investment shall be reduced by brokerage commissions and other costs normally incurred in a sale.
325-965-35-2
Investment contracts held by defined benefit health and welfare benefit plans shall be reported at their fair values.
325-965-35-2A
If a plan's fiscal year-end does not coincide with a month-end, the plan may measure investments and investment-related accounts (for example, a liability for a pending trade with a broker) using the month-end that is closest to the plan's fiscal year-end. That election shall be applied consistently from year to year.

Insurance Contracts

325-965-35-3
Insurance contracts, as defined by Subtopic 944-20, shall be presented in the same manner as specified in the annual report filed by the plan with certain governmental agencies pursuant to the Employee Retirement Income Security Act; that is, either at fair value or at amounts determined by the insurance entity (contract value). Plans not subject to the Employee Retirement Income Security Act shall present insurance contracts as if the plans were subject to the reporting requirements of the Act.
325-965-35-4
See paragraphs
944-20-05-5 through 05-7
for a discussion of the purpose, types, and a general characterization of insurance transactions.
325-965-35-5
See paragraphs
944-20-15-16 through 15-19
for a discussion of certain types of insurance contracts, including long-duration contracts that do not subject the insurance entities to mortality or morbidity risks (investment contracts) and annuity contracts.

Investment Contracts

325-965-35-6
If a plan holds multiple contracts, each contract shall be evaluated individually for benefit responsiveness. Contracts that provide for prospective interest adjustments may still be fully benefit-responsive provided that the terms of the contracts specify that the crediting interest rate cannot be less than zero.
325-965-35-7
Section 965-325-55 includes implementation guidance for the application of the definition of fully benefit-responsive for defined contribution health and welfare plan investments.
325-965-35-8
Contract value is the relevant measure for the portion of the net assets available for benefits of a defined contribution health and welfare benefit plan attributable to fully benefit-responsive investment contracts.

325-965-45Other Presentation Matters

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325-965-45-1
Information regarding a plan's investments shall be presented in enough detail to identify the types of investments and shall indicate whether reported fair values have been measured by quoted prices in an active market or have been determined otherwise (paragraph 965-325-50-2 specifies additional disclosures related to investments).
325-965-45-2
Investments measured using fair value in the statement of net assets available for benefits or in the notes shall be presented by general type, including the following:
  1. a
    Registered investment companies (also known as mutual funds)
  2. b
    Government securities
  3. c
    Short-term securities
  4. d
    Corporate bonds
  5. e
    Common stocks
  6. f
    Mortgages
  7. g
    Subparagraph superseded by Accounting Standards Update No. 2012-04.
  8. h
    Real estate.
For the presentation of fully benefit-responsive investment contracts, which are measured at contract value, see paragraphs 965-325-35-8 and 965-325-50-2.

325-965-50Disclosure

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325-965-50-1
Disclosure of a health and welfare benefit plan's accounting policies shall include a description of the valuation techniques and inputs used to measure the fair value less costs to sell, if significant, of investments (as required by Section 820-10-50) and a description of the methods and significant assumptions used to measure the reported value of insurance contracts. However, health and welfare benefit plans are exempt from the requirements in paragraph 820-10-50-2B(a) to disaggregate assets by nature, characteristics, and risks. The disclosures of information by classes of assets required by Section 820-10-50 shall be provided by general type of plan assets consistent with paragraph 965-325-45-2.
325-965-50-1B
If applicable, a plan shall disclose the accounting policy election to measure investments and investment-related accounts using the month-end that is closest to the plan's fiscal year-end in accordance with paragraph 965-325-35-2A and the month-end measurement date.
325-965-50-1C
If a plan measures investments and investment-related accounts in accordance with paragraph 965-325-35-2A and contributions, distributions, and/or significant events (such as a plan amendment, a merger, or a termination) occur between the month-end date used to measure investments and investment-related accounts and the plan's fiscal year-end, the plan shall disclose the amounts of those contributions, distributions, and/or significant events.

Fully Benefit-Responsive Investment Contracts

325-965-50-2
Health and welfare plans shall disclose the following in connection with fully benefit-responsive investment contracts, in the aggregate:
  1. a
    A description of the nature of those investment contracts (including how they operate) by the type of investment contract (for example, synthetic investment contracts or traditional investment contracts).
    1. 1
      Subparagraph superseded by Accounting Standards Update No. 2015-12. (Part I).
    2. 2
      Subparagraph superseded by Accounting Standards Update No. 2015-12. (Part I).
    3. 3
      Subparagraph superseded by Accounting Standards Update No. 2015-12. (Part I).
  2. b
    Subparagraph superseded by Accounting Standards Update No. 2015-12. (Part I).
  3. c
    Subparagraph superseded by Accounting Standards Update No. 2015-12. (Part I).
  4. d
    A description of the events that limit the ability of the plan to transact at contract value with the issuer, including a statement that the occurrence of each of those events that would limit the plan's ability to transact at contract value with participants in the plan is not probable of occurring (the term probable is used in this Subtopic consistent with its use in Topic 450). Such events might include, among others, all of the following:
    1. 1
      Premature termination of the contracts by the plan
    2. 2
      Plant closings
    3. 3
      Layoffs
    4. 4
      Plan termination
    5. 5
      Bankruptcy
    6. 6
      Mergers
    7. 7
      Early retirement incentives.
  5. e
    A description of the events and circumstances that would allow issuers to terminate fully benefit-responsive investment contracts with the plan and settle at an amount different from contract value.
  6. f
    The total contract value of each type of investment contract (for example, synthetic investment contracts or traditional investment contracts).

Investments Measured Using the Net Asset Value per Share Practical Expedient

325-965-50-4
If an investment is measured using the net asset value per share (or its equivalent) practical expedient in paragraph 820-10-35-59 and that investment is in a fund that files U.S. Department of Labor Form 5500 as a direct filing entity, disclosure of that investment's significant investment strategy, as discussed in paragraph 820-10-50-6A(a), is not required.

Interests in Master Trusts

325-965-50-5
A plan shall disclose the following in the notes to financial statements for each period for which a statement of changes in net assets available for benefits is presented:
  1. a
    Net appreciation or depreciation in the fair value of investments of the master trust. Net appreciation or depreciation includes realized gains and losses on investments that were both purchased and sold during the period as well as unrealized appreciation or depreciation of the investments held at year-end.
  2. b
    Investment income (exclusive of (a)).
325-965-50-6
A plan also shall include in the notes to financial statements both of the following:
  1. a
    Description of the basis used to allocate both of the following:
    1. 1
      Net assets
    2. 2
      Total investment income. See paragraph 965-325-50-5 for the components of total investment income.
  2. b
    For a plan with an undivided interest in the master trust (that is, when the plan has a proportionate, rather than specific, interest in the master trust), its percentage interest in the master trust as of the date of each statement of net assets available for benefits presented.
325-965-50-7
In the notes to financial statements a plan shall include the investments of a master trust measured using fair value presented by general type of investment, such as the following, as of the date of each statement of net assets available for benefits presented:
  1. a
    Registered investment companies (for example, mutual funds)
  2. b
    Government securities
  3. c
    Common-collective trusts
  4. d
    Pooled separate accounts
  5. e
    Short-term securities
  6. f
    Corporate bonds
  7. g
    Common stocks
  8. h
    Mortgages
  9. i
    Real estate.
For the presentation of fully benefit-responsive investment contracts, which are measured at contract value, see paragraphs 965-325-35-8 and 965-325-50-2.
325-965-50-8
A plan shall disclose the dollar amount of its interest in each general type of investment held by the master trust, consistent with the disclosure required by paragraph 965-325-50-7. See paragraph 962-325-55-18 for an example of this disclosure.
325-965-50-9
A plan also shall disclose the master trust's other assets and liabilities and the dollar amount of the plan's interest in each of those other assets and liabilities. Examples of those balances include the following:
  1. a
    Amounts due from brokers for securities sold
  2. b
    Amounts due to brokers for securities purchased
  3. c
    Receivables relating to derivatives
  4. d
    Payables relating to derivatives
  5. e
    Accrued interest and dividends
  6. f
    Accrued expenses.
See paragraph 962-325-55-18 for an example of this disclosure.

325-965-55Implementation Guidance and Illustrations

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Implementation Guidance

325-965-55-1
Implementation guidance in Section 962-325-55 illustrates the guidance in paragraphs
965-325-35-6 through 35-8
for the application of fair value less costs to sell, if significant, and contract value reporting for health and welfare plan investments. In each situation, value is determined within the context of the objectives of financial statements for a defined contribution plan. The valuation must reflect the ability of the plan to pay benefits from the perspective of the participants. This value is then reflected on participants' statements to disclose the amount they can expect to receive when they exercise their rights to withdraw, borrow, or transfer funds under the terms of the plan.
325-965-55-2
See paragraph 962-325-55-3 for implementation guidance on a five-year public bond (or portfolio of bonds) that is guaranteed by a third party to have a fixed value at the end of three years.
325-965-55-4
See paragraph 962-325-55-8 for implementation guidance on a five-year, non-benefit-responsive investment contract that has no liquid market for trading.
325-965-55-5
See paragraph 962-325-55-10 for implementation guidance on a benefit-responsive participating separate account investment contract.
325-965-55-6
See paragraph 962-325-55-12 for implementation guidance on a synthetic contract (managed type).
325-965-55-7
See paragraph 962-325-55-13 for implementation guidance on a synthetic investment contract (repurchase type).

Illustrations

325-965-55-8
See Example 2 (paragraph 962-325-55-17) for financial statements that illustrate certain applications of the provisions of this Subtopic that apply to the annual financial statements of a defined contribution plan.

Related subtopics