ASC

ASC 712-10

Overall

712 Compensation—Nonretirement Postemployment Benefits

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In brief

IntermediateCompensation and benefitsRecognitionInitial measurementDisclosure

ASC 712-10 governs employer accounting for nonretirement postemployment benefits — special and contractual termination benefits and other postemployment benefits (severance, salary continuation, disability, continued health coverage) paid to former or inactive employees after employment but before retirement and not paid through a pension or other postretirement plan. Special termination benefits are accrued when employees accept the offer and the amount is reasonably estimable; contractual termination benefits are accrued when it is probable employees will be entitled to them and the amount is reasonably estimable. Other postemployment benefits are accrued under Subtopic 710-10 if they accumulate or vest, and otherwise under the loss contingency model of paragraph 450-20-25-2.

Key points (7)
  • Scope covers all employers offering termination or other postemployment benefits paid before retirement and not paid from a pension or other postretirement plan (712-10-15-2 through 15-3).
  • Excluded from scope: pension/OPEB plan benefits (715-30, 715-60), individual deferred compensation (710-10), one-time termination benefits from exit or disposal activities (420-10), and stock compensation (Topic 718) (712-10-15-4).
  • Special termination benefits are recognized as a liability and a loss when employees accept the offer and the amount can be reasonably estimated; no loss is recognized at the offer date based on an estimated acceptance rate (712-10-25-1).
  • Contractual termination benefits are recognized as a liability and a loss when it is probable employees will be entitled to the benefits and the amount is reasonably estimable, measured as lump-sum payments plus the present value of expected future payments (712-10-25-2); such an event may also be a curtailment under 715-30-35-92 through 35-96 and 715-60-35-161 through 35-171 (712-10-25-3).
  • Other postemployment benefits that accumulate or vest and meet the conditions of 710-10-25-1 are accrued under Subtopic 710-10; those that do not are accrued under the contingency model in 450-20-25-2 (712-10-25-4 through 25-5).
  • Discounting in measuring other postemployment benefit obligations is permitted but not required; employers may look to Subtopics 715-30 and 715-60 by analogy (712-10-35-1).
  • If an obligation is not accrued solely because the amount cannot be reasonably estimated, that fact must be disclosed (712-10-50-2); termination benefit disclosures follow 715-20-50-1.

For students. The exam trap is timing and scope: an employer may NOT accrue a loss when a short-term special termination offer is made based on expected acceptance rates — it waits for actual acceptance — while contractual benefits accrue on a probable-and-estimable basis. Also be able to distinguish an enhancement to an ongoing benefit arrangement (712-10) from a one-time termination benefit (ASC 420).

special termination benefitscontractual termination benefitsother postemployment benefitsseverance and salary continuationaccumulate or vestloss contingency accrualinactive employeescurtailment

Machine-generated study aid for ASC 712-10. Check the source paragraphs below.

712-10-00Status

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712-10-00-1
The following table identifies the changes made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
712-10-60-2AmendedAccounting Standards Update No. 2009-1712/23/2009

712-10-05Overview and Background

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712-10-05-1
The Compensation—Nonretirement Postemployment Benefits Topic provides guidance on nonretirement postemployment benefits, including termination benefits and other postemployment benefits provided to former and inactive employees. This Topic contains only the Overall Subtopic.

Termination Benefits

712-10-05-2
An employer may provide benefits to employees in connection with their termination of employment. They may be either special termination benefits offered only for a short period of time or contractual termination benefits required by the terms of a plan only if a specified event, such as a plant closing, causes employees' services to be terminated involuntarily. Termination benefits may take various forms including lump-sum payments, periodic future payments, or both. They may be paid directly from an employer's assets, an existing pension plan, a new employee benefit plan, or a combination of those means.
712-10-05-3
See Section 712-10-15 for links to other Topics in the Codification that provide guidance on termination benefits, such as the following:
  1. a
    One-time termination benefits resulting from an exit or restructuring activity
  2. b
    Termination benefits (for example, supplemental early retirement benefits, termination indemnities) paid through a pension or other postretirement plan.

Other Postemployment Benefits

712-10-05-4
Other postemployment benefits include all benefits listed in the following paragraph. These include benefits that are paid before retirement and not payable from a pension or other postretirement plan.
712-10-05-5
Other postemployment benefits include, but are not limited to, the following:
  1. a
    Salary continuation
  2. b
    Supplemental unemployment benefits
  3. c
    Severance benefits
  4. d
    Disability-related benefits (including workers' compensation)
  5. e
    Job training and counseling
  6. f
    Continuation of benefits such as health care benefits and life insurance coverage.
712-10-05-6
Generally, other postemployment benefits are part of the compensation provided to an employee in exchange for service.

712-10-15Scope and Scope Exceptions

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Overall Guidance

712-10-15-1
The Scope Section of the Overall Subtopic establishes the pervasive scope for the Compensation—Nonretirement Postemployment Benefits Topic.

Entities

712-10-15-2
The guidance in the Compensation—Nonretirement Postemployment Benefits Topic applies to all entities and all employers that offer or have offered termination or other postemployment benefits to employees and former employees in connection with their termination of employment or their transfer to inactive status. The benefits covered by this Topic are paid before retirement and are not paid from a pension or other postretirement plan.

Transactions

712-10-15-3
The guidance in the Compensation—Nonretirement Postemployment Benefits Topic applies to the following nonretirement postemployment benefits:
  1. a
    Special or contractual termination benefits that are payable before retirement and are not payable from a pension or other postretirement plan.
  2. b
    All types of other postemployment benefits provided to former or inactive employees, their beneficiaries, and covered dependents after employment but before retirement. Benefits may be provided in cash or in kind and may be paid as a result of a disability, layoff, death, or other event. Benefits may be paid immediately upon cessation of active employment or over a specified period of time. Employees' rights to benefits may accumulate or vest as they render service. See paragraph 710-10-25-1(b) for a description of the meaning of accumulate or vest.
712-10-15-4
The guidance in this Topic does not apply to the following benefits:
  1. a
    Benefits provided through a pension or postretirement benefit plan (See Subtopics 715-30 and 715-60, which specify the accounting for those costs.)
  2. b
    Individual deferred compensation arrangements that are addressed by Subtopic 710-10
  3. c
    Special or contractual termination benefits, payable upon termination, from a defined benefit pension plan, or payable upon retirement, covered by Subtopic 715-30.
  4. d
    Special or contractual termination benefits other than pension (for example, welfare benefits), payable upon termination from a defined benefit other postretirement plan, or payable upon retirement, covered under Subtopic 715-60.
  5. e
    One-time termination benefits covered in Subtopic 420-10 (see the following paragraph).
  6. f
    Stock compensation plans that are addressed by Topic 718.

Other Considerations

712-10-15-5
As indicated in paragraph 420-10-05-4, accounting for termination benefits granted in connection with an exit or disposal activity will differ depending on whether the benefits payable are considered an enhancement to an ongoing benefit arrangement, (covered by this Subtopic or Subtopics referenced in the preceding paragraph) or provided under a one-time termination arrangement covered by Topic 420. For guidance on making this determination, see paragraph 420-10-55-1 and Example 5 (paragraph 420-10-55-16).

712-10-25Recognition

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Special Termination Benefits

712-10-25-1
Nonretirement postemployment benefits offered as special termination benefits to employees shall be recognized as a liability and a loss when the employees accept the offer and the amount can be reasonably estimated. An employer that offers, for a short period of time, special termination benefits to employees, shall not recognize a loss at the date the offer is made based on the estimated acceptance rate.

Contractual Termination Benefits

712-10-25-2
An employer that provides contractual termination benefits shall recognize a liability and a loss when it is probable that employees will be entitled to benefits and the amount can be reasonably estimated. The cost of termination benefits recognized as a liability and a loss shall include the amount of any lump-sum payments and the present value of any expected future payments.
712-10-25-3
A situation involving special or contractual termination benefits may also constitute a curtailment to be accounted for under paragraphs
715-30-35-92 through 35-96
and
715-60-35-161 through 35-171
.

Determining the Timing and Method of Accruing Other Postemployment Benefits

712-10-25-4
Other postemployment benefits that meet the conditions in paragraph 710-10-25-1 shall be accounted for in accordance with Subtopic 710-10.
712-10-25-5
Other postemployment benefits that are within the scope of this Subtopic and that do not meet the conditions in paragraph 710-10-25-1 shall be accounted for in accordance with paragraph 450-20-25-2. For example, an employer may provide any former employee on permanent disability with continued medical insurance coverage until that employee meets the requirements for participation in the employer's postretirement medical plan. If the level of benefits provided is the same for any disabled employee regardless of years of service, the cost of those benefits should be recognized when the event causing a permanent disability occurs and a reasonable estimate can be made as specified by that paragraph.

712-10-30Initial Measurement

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712-10-30-1
See Section 712-10-25 for guidance on initial measurement.

712-10-35Subsequent Measurement

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712-10-35-1
To the extent that similar issues apply to other postemployment benefit plans, employers may refer to Subtopics 715-30 and 715-60 for guidance in measuring their other postemployment obligations in compliance with the requirements of this Subtopic.
As a result, the use of discounting in measuring other postemployment benefit obligations will continue to be permitted but not required.

712-10-50Disclosure

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Termination Benefits

712-10-50-1
For guidance on disclosure requirements related to special and contractual termination benefits, see paragraph 715-20-50-1.

Other Postemployment Benefits

712-10-50-2
If an obligation for other postemployment benefits is not accrued in accordance with paragraphs 450-20-25-2 or 710-10-25-1 only because the amount cannot be reasonably estimated, the financial statements shall disclose that fact.

712-10-60Relationships

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Business Combinations

712-10-60-1
For guidance on recognition of liabilities for contractual termination benefits or changing benefit plan assumptions in anticipation of a business combination, see Subtopic 805-20.

Consolidation

712-10-60-2
For guidance prohibiting the consolidation of an employee benefit plan subject to the provisions of this Subtopic, see paragraph 810-10-15-12(a).

Related subtopics