ASC

ASC 965-10

Overall

965 Plan Accounting—Health and Welfare Benefit Plans

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In brief

IntroductoryIndustry-specificFinancial statement presentationDisclosure

ASC 965-10 is the Overall subtopic of the health and welfare benefit plan accounting Topic; it defines the scope and gives an overview of how such plans report. It applies to all entities that are defined benefit or defined contribution health and welfare benefit plans, describes how benefits may be delivered (insured contracts versus a self-funded trust such as a VEBA/501(c)(9) trust or 401(h) account), and flags that the insurance arrangement drives how assets and benefit obligations are accounted for. It also notes the ERISA reporting backdrop, including that many plans must file GAAP financial statements.

Key points (7)
  • Benefit plan accounting is split among Topic 960 (defined benefit pension plans), Topic 962 (defined contribution pension plans), and Topic 965 (health and welfare benefit plans), while Topic 715 governs the employer's own accounting (965-10-05-1).
  • The Topic applies to all entities that are either defined benefit or defined contribution health and welfare benefit plans (965-10-15-2), and its Subtopics provide only incremental guidance for those entities (965-10-15-1).
  • Benefits may be provided through insurance contracts paid for by the plan (an insured plan) or from net assets accumulated in a trust established by the plan (a self-funded plan); plans may be contributory or noncontributory (965-10-05-4).
  • Plan assets may be held in a legally restricted trust such as a VEBA/501(c)(9) trust, a 401(h) account, or other funding vehicle; a trust always exists for a multiemployer plan, trusteed plans with more than 100 participants generally require an audit, and DOL will not accept an accountant's report covering assets of more than one plan (965-10-05-5).
  • A VEBA trust with a bank or trust company trustee that holds assets of more than one plan of a single employer or commonly controlled group is a master trust subject to DOL master trust filing requirements (965-10-05-6).
  • Accounting for plan assets and benefit obligations depends on the insurance arrangement — whether the insurer assumes risk (experience-rated, pooled, minimum premium, stop-loss) or merely provides administrative or investment management services (965-10-05-7); experience-rating refunds are often not determined until months after the policy year ends (965-10-05-8).
  • Paragraphs 965-205-45-6 through 45-9 and 965-205-50-2 through 50-4 apply when a portion or all of the benefits are funded through a 401(h) feature in a defined benefit pension plan (965-10-15-3).

For students. This is the gateway subtopic: it tells you which Topic governs a given benefit plan and reminds you that the plan itself — not the employer — is the reporting entity (employer accounting is ASC 715). A common misunderstanding is assuming a fully insured plan needs no plan-level accounting; you must analyze the insurance contract to see whether risk actually transferred.

health and welfare benefit planinsured plan vs. self-funded planveba / 501(c)(9) trust401(h) accountmaster trustexperience-rating refunderisa reportingmultiemployer plan

Machine-generated study aid for ASC 965-10. Check the source paragraphs below.

965-10-00Status

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965-10-00-1
The following table identifies the changes made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
BenefitsAmendedAccounting Standards Update No. 2016-1912/14/2016
Benefits (3rd def.)AddedAccounting Standards Update No. 2014-0603/14/2014
Contributory Plan (2nd def.)AddedAccounting Standards Update No. 2014-0603/14/2014
Defined Benefit Health and Welfare PlansSupersededAccounting Standards Update No. 2014-0603/14/2014
Defined Benefit PlanAddedAccounting Standards Update No. 2014-0603/14/2014
Defined Contribution Health and Welfare PlansSupersededAccounting Standards Update No. 2014-0603/14/2014
Defined Contribution PlanAddedAccounting Standards Update No. 2014-0603/14/2014
Noncontributory PlanAddedAccounting Standards Update No. 2014-0603/14/2014
965-10-05-1AmendedAccounting Standards Update No. 2014-0603/14/2014
965-10-05-4AmendedAccounting Standards Update No. 2014-0603/14/2014
965-10-15-2AmendedAccounting Standards Update No. 2014-0603/14/2014
965-10-15-3AmendedAccounting Standards Update No. 2014-0603/14/2014

965-10-05Overview and Background

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965-10-05-1
The Codification contains several Topics for benefit plan accounting due to the differing accounting treatments for various forms of employee benefit plans. The Topics include:
  1. a
    Plan Accounting—Defined Benefit Pension Plans, Topic 960
  2. b
    Plan Accounting—Defined Contribution Pension Plans, Topic 962
  3. c
    Plan Accounting—Health and Welfare Benefit Plans, (this Topic).
Additionally, Topic 715 addresses financial accounting and reporting for an employer that offers pension, other postretirement, and certain special or contractual termination benefits to its employees.
965-10-05-2
The Plan Accounting—Health and Welfare Benefit Plans Topic includes the following Subtopics:
  1. a
    Overall
  2. b
    Net Assets Available for Plan Benefits
  3. c
    Plan Benefit Obligations
  4. d
    Terminating Plans
  5. e
    Presentation of Financial Statements
  6. f
    Receivables
  7. g
    Investments—Debt and Equity Securities
  8. h
    Investments—Other
  9. i
    Property, Plant, and Equipment.
965-10-05-3
The Overall Subtopic provides scope-related guidance for this Topic and an overview of accounting and reporting for health and welfare benefit plans.

Characteristics of Plans

965-10-05-4
Plan participants may be active or terminated employees (including retirees), as well as covered dependents and beneficiaries, of a single employer or group of employers. Employer contributions may be voluntary or required under the terms of a collective bargaining agreement negotiated with one or more labor organizations. Plans may require contributions from employers and participants (contributory plans) or from employers only (noncontributory plans). During periods of unemployment, a noncontributory plan may require contributions by participants to maintain their eligibility for benefits. Benefits may be provided in any of the following manners:
  1. a
    Through insurance contracts paid for by the plan (an insured plan)
  2. b
    From net assets accumulated in a trust established by the plan (a self-funded plan).
965-10-05-5
As noted in the preceding paragraph, a plan may establish a trust to hold assets to pay all or part of the covered benefits. The assets may be segregated and legally restricted under a trust arrangement (such as a voluntary employees' beneficiary association or a 501(c)(9) trust, a 401(h) account, or other funding vehicles). Generally, if a separate trust exists, financial statements are required under the Employee Retirement Income Security Act. A trust always exists for a multiemployer plan. Such trusteed plans with more than 100 participants generally will require an audit. For Employee Retirement Income Security Act filings, the U.S. Department of Labor will not accept an accountant's report that covers the assets of more than one plan.
965-10-05-6
If the trustee of the Voluntary Employees' Beneficiary Association is a bank or trust company, and the trust holds the assets of more than one plan sponsored by a single employer or by a group of entities under common control, it is a master trust subject to the Department of Labor's master trust filing requirements.

Arrangements with Insurance Entities

965-10-05-7
The nature of, and method of accounting for, the assets and benefit obligations of a health and welfare benefit plan may be determined by the arrangement with an insurance entity. The insurance entity may assume all or a portion of the financial risk (for example, in fully insured experience-rated arrangements, fully insured pooled arrangements, minimum premium plan arrangements, and stop-loss arrangements), or it may provide only administrative services (for example, in administrative service arrangements) or investment management services. It is important to have an understanding of the insurance arrangement to determine whether any or all of the risks associated with benefit payments or claims have been transferred to the insurance entity.
965-10-05-8
Certain group insurance contracts covering health and welfare benefit plans include a provision for a refund, at the end of the policy year, of the excess of premiums paid over the total of paid claims, required reserves, and the fee charged by the insurance entity. Often such experience-rating refunds (or dividends) are not determined by the insurance entity for several months after the end of the policy year.
965-10-05-9
Benefits to participants may be provided through insurance arrangements that transfer the risks of loss or liability to an insurance entity. Group insurance contracts for health and welfare plans are usually written for a one-year period, although the contract may provide for annual renewal. The contract generally specifies, among other things, all of the following:
  1. a
    The schedule of benefits
  2. b
    Eligibility rules
  3. c
    Premium rate per eligible participant
  4. d
    The date that premiums are due.

The Employee Retirement Income Security Act of 1974

965-10-05-10
Health and welfare benefit plans are generally subject to certain of the reporting and other requirements of The Employee Retirement Income Security Act of 1974. In addition to establishing certain minimum standards for participation, vesting, and funding for employee benefit plans of private entities, it also requires annual reporting of certain information to particular governmental agencies and summarized information to plan participants. For many plans, the reporting requirements include financial statements prepared in conformity with generally accepted accounting principles (GAAP).
965-10-05-11
The reporting requirements of the Act, except for certain particular references, are not included in the Codification, but they should nonetheless be considered by those responsible for the preparation of health and welfare benefit plan financial statements.

965-10-15Scope and Scope Exceptions

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Overall Guidance

965-10-15-1
The Subtopics within the Plan Accounting—Health and Welfare Benefit Plans Topic only provide incremental guidance for the entities defined in this Scope Section, or as further defined in the Scope Sections of the individual Plan Accounting—Health and Welfare Benefit Plans Subtopics.

Entities

965-10-15-2
The guidance in this Topic applies to all entities that are either defined benefit or defined contribution health and welfare benefit plans (referred to as health and welfare benefit plans).
965-10-15-3
Paragraphs
965-205-45-6 through 45-9
and
965-205-50-2 through 50-4
apply to health and welfare benefit plans if a portion or all of the benefits under such plans are funded through a 401(h) feature in a defined benefit pension plan.

Related subtopics