ASC

ASC 965-30

Plan Benefit Obligations

965 Plan Accounting—Health and Welfare Benefit Plans

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In brief

AdvancedIndustry-specificCompensation and benefitsSubsequent measurementDisclosure

ASC 965-30 governs how a health and welfare benefit plan measures and reports its own benefit obligations (as distinct from the sponsoring employer's obligations). Benefit obligations, measured at actuarial present value as of the plan's year end, comprise three classifications: (1) claims payable, claims incurred but not reported (IBNR), and premiums due to insurance entities; (2) accumulated eligibility credits and postemployment benefits; and (3) postretirement benefits split among retirees, participants fully eligible, and participants not yet fully eligible (965-30-35-1). Plans must also present the significant factors causing year-to-year changes in each classification.

Key points (7)
  • Benefit obligations must be measured and reported as of the end of the plan year so that assets and obligations are as of the same date, though a recent valuation may be rolled forward with adjusted discount rates if results would not be materially different (965-30-35-5 through 35-6).
  • Postemployment benefits are recognized for current participants when the rights are attributable to services already rendered, the benefits vest or accumulate, payment is probable, and the amount is reasonably estimable; if the first two conditions fail, recognition occurs when the triggering event occurs and the amount is estimable (965-30-25-3, 965-30-25-4).
  • The postretirement benefit obligation is the actuarial present value of all future benefits attributed to service rendered to the measurement date; for participants not yet fully eligible it is attributed over the credited service period up to the full eligibility date (965-30-35-16 through 35-18).
  • Benefit obligations include premiums due but not paid, estimated retrospective/additional premiums when loss ratios are exceeded, and premium deficits under experience-rated arrangements if probable and reasonably estimable (965-30-25-2, 965-30-25-5, 965-30-35-13).
  • Benefits expected to be earned for future service by active participants (for example, vacation benefits) are excluded, and benefits provided through an insurance contract are excluded from the postretirement benefit obligation (965-30-35-4, 965-30-35-20).
  • In an insured plan, claims payable and IBNR are the insurance entity's responsibility and are excluded from plan benefit obligations; a self-funded plan presents claims payable and currently due plus IBNR for active participants (965-30-45-2).
  • Changes in the three classifications must be presented in a reconciliation or narrative, disclosing at minimum the effects of plan amendments, plan mergers or spinoffs, and changes in actuarial assumptions, which are treated as changes in accounting estimates with no restatement (965-30-45-5 through 45-7).

For students. This is plan-level (not employer-level) reporting: the plan itself reports obligations even when the contributing employers of a multiemployer plan record none under ASC 715-60 (965-30-35-19). A frequent mistake is including IBNR and claims payable for a fully insured plan, or attributing postretirement benefits over the full working life rather than only to the full eligibility date.

benefit obligationsincurred but not reported claimspostretirement benefit obligationpostemployment benefitsaccumulated eligibility creditsactuarial present valueself-funded planpremium deficit

Machine-generated study aid for ASC 965-30. Check the source paragraphs below.

965-30-00Status

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965-30-05Overview and Background

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965-30-05-1
This Subtopic provides guidance on plan benefit obligations for health and welfare benefit plans.

965-30-15Scope and Scope Exceptions

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Overall Guidance

965-30-15-1
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 965-10-15.

965-30-25Recognition

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Benefit Payments

965-30-25-1
A health and welfare plan may process benefit payments directly or it may retain a third-party administrator (for example, an administrative service arrangement). In either case, a plan that is fully or partially self-funded is obligated for the related benefits, as described in this Subtopic.

Premiums Due under Insurance Arrangements

965-30-25-2
The benefit obligations shall include any obligation for premiums due but not paid under insurance arrangements.

Postemployment Benefits

965-30-25-3
Plans that provide postemployment benefits shall recognize a benefit obligation for current participants, based on amounts expected to be paid in subsequent years, if all the following conditions are met:
  1. a
    The participants' rights to receive benefits are attributable to services already rendered.
  2. b
    The participants' benefits vest or accumulate. For example, the supplemental unemployment benefit is 52 weeks' pay if a participant worked 3 years, 78 weeks' pay if a participant worked 5 years, and 104 weeks' pay if a participant worked 7 years. In this situation, the benefits would be considered accumulating. Benefits that increase solely as a function of wage or salary increases are not considered accumulating.
  3. c
    Payment of benefits is probable.
  4. d
    The amount can be reasonably estimated.
965-30-25-4
For postemployment benefits that do not meet conditions (a) and (b) in the preceding paragraph, the plan shall recognize a benefit obligation if the event that gives rise to a liability has occurred and the amount can be reasonably estimated. For example, if all participants receive the same medical coverage upon disability regardless of length of service (the benefits do not accumulate) and the benefits do not vest, medical benefits for disabled participants shall be accrued at the date of disability and not over the participants' working lives.

Obligation for Premium Deficit

965-30-25-5
Experience ratings determined by the insurance entity or by estimates (for example, in fully insured experience-rated arrangements) may result in a premium deficit. Premium deficits shall be included in the benefit obligations if both of the following criteria are met:
  1. a
    It is probable that the deficit will be applied against the amounts of future premiums or future experience-rating refunds. This determination shall consider both of the following:
    1. 1
      The extent to which the insurance contract requires payment of such deficits
    2. 2
      The plan's intention, if any, to transfer coverage to another insurance entity.
  2. b
    The amount can be reasonably estimated.

965-30-30Initial Measurement

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965-30-30-1
[Section not used]

965-30-35Subsequent Measurement

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Components of Benefit Obligations

965-30-35-1
Benefit obligations for single-employer, multiple-employer, and multiemployer defined benefit health and welfare plans shall include the actuarial present value, as applicable, for all of the following:
  1. a
    Claims payable, claims incurred but not reported, and premiums due to insurance entities. Claims incurred but not reported may be computed in the aggregate for active participants and retirees. Alternatively, if claims incurred but not reported are not calculated in the aggregate for active participants and retirees, such claims for retirees are recorded in the postretirement benefit obligation.
  2. b
    Accumulated eligibility credits and postemployment benefits, net of amounts currently payable
  3. c
    Postretirement benefits for the following groups of participants:
    1. 1
      Retired plan participants, including their beneficiaries and covered dependents, net of amounts currently payable and claims incurred but not reported (assuming such amounts are included in the aggregate computation described in [a]).
    2. 2
      Other plan participants fully eligible for benefits
    3. 3
      Plan participants not yet fully eligible for benefits.
965-30-35-1A
For a self-funded plan, the cost of incurred but not reported claims shall be measured at the present value, as applicable, of the estimated ultimate cost to the plan of settling the claims. Estimated ultimate cost shall reflect the plan's obligation to pay claims to or for participants, regardless of status of employment, beyond the financial statement date pursuant to the provisions of the plan or regulatory requirements.
965-30-35-2
Administrative expenses expected to be paid by the plan (but not those paid directly by the plan's participating employer[s]) that are associated with providing the plan's benefits shall be reflected by either of the following:
  1. a
    Including the estimated costs in the benefits expected to be paid by the plan
  2. b
    Reducing the discount rate(s) used in measuring the benefit obligation.
965-30-35-3
Aggregating claims payable and claims incurred but not reported is often appropriate if adequate time has passed to provide sufficient data on costs incurred and the actuarially determined expected cost of long-term medical claims is insignificant.
965-30-35-4
Benefits expected to be earned for future service by active participants (for example, vacation benefits) during the term of their employment shall not be included.
965-30-35-5
Benefit obligations shall be reported as of the end of the plan year.
965-30-35-6
The financial status of the plan considers assets and obligations as of the same date. Because plan assets are required to be presented as of the plan's year end, the benefit obligations also shall be measured and presented as of the plan's year end. That requirement does not, however, preclude the plan from using the most recent benefit obligations valuation rolled forward to the plan's year end to account for events occurring between the most recent valuation date and the plan's year end (such as employee service and benefit payments), provided that it is reasonable to expect that the results will not be materially different from the results of an actuarial valuation as of the plan's year end. In rolling forward the benefit obligations to the plan's measurement date, the discount rates shall be adjusted as appropriate to reflect current rates of return on high-quality fixed-income investments. For example, if a valuation was performed at September 30 and the plan has a calendar year end, the benefit obligations as of September 30 should be rolled forward to December 31, by making appropriate adjustments, such as for additional employee service; the time value of money; benefits paid; and changes in the number of participants, actuarial assumptions, discount rates, per capita claims costs, and plan terms.
965-30-35-7
The effect of plan amendments shall be included in the computation of the expected and accumulated postretirement benefit obligations once they have been contractually agreed to, even if some provisions take effect only in future periods. For example, if a plan amendment grants a different benefit level for employees retiring after a future date, that increased or reduced benefit level should be included in current-period measurements for employees expected to retire after that date.

Postemployment Benefits

965-30-35-9
The postemployment benefit obligation shall be measured as the actuarial present value of the future benefits attributed to plan participants' services rendered to the measurement date, reduced by the actuarial present value of future contributions expected to be received from the current plan participants. That amount represents the benefit obligation that is to be funded by contributions from the plan's participating employer(s) and from existing plan assets. The obligation is to be measured assuming the plan continues in effect and all assumptions about future events are met. Any anticipated forfeitures or integration with other related programs (for example, state unemployment benefits) shall be considered. The benefit obligation shall be discounted using rates of return on high-quality fixed-income investments currently available with cash flows that match the timing and amount of expected benefit payments and expected participant contributions.
965-30-35-10
When participant contributions are required after the event triggering postemployment benefits occurs (for example, employee disability, as described in paragraph 965-30-25-4), the postemployment benefit obligation shall be measured in a manner consistent with paragraph 965-30-35-9. As a result, in those situations the benefit obligation shall represent the amount that is to be funded by contributions from the participating employer(s) and from existing plan assets.

Accumulated Eligibility Credits

965-30-35-12
Plans may provide for the payment of insurance premiums or benefits for a period of time for those participants who have accumulated a sufficient number of eligibility credits or hours. At the financial statement date, such accumulated eligibility credits represent an obligation of the plan arising from prior employee service for which employer contributions have been received. This benefit obligation is generally determined by applying current insurance premium rates to accumulated eligibility credits or, for a self-funded plan, by applying the average cost of benefits per eligible participant to accumulated eligibility credits. In either case, the obligation for accumulated eligibility credits shall consider assumptions for mortality and expected employee turnover or other appropriate adjustments, to reflect the obligation at the amount expected to be paid.

Premiums Due under Insurance Arrangements

965-30-35-13
If an insurance contract requires payment of additional premiums (for example, retrospective premiums) when the loss ratio exceeds a specified percentage, an obligation for the estimated additional premiums shall be included in the benefit obligations.

Stop-Loss Arrangements

965-30-35-14
Stop-loss arrangements may be described by a variety of terms; therefore, details of all insurance or administrative arrangements should be reviewed carefully to determine if stop-loss provisions are included and to determine the specific benefit obligations assumed by the insurance entity.

Postretirement Benefit Obligations

965-30-35-15
Health and welfare benefit plans may continue to provide benefits to participants after retirement (postretirement benefits). Those benefits may commence immediately upon termination of service or payment may be deferred until the participant attains a specified age. If a plan provides postretirement benefits to participants, an estimated amount for those benefits, as described in the following paragraph, shall be included in the benefit obligations.
965-30-35-16
The postretirement benefit obligation as of the measurement date is the actuarial present value of all future benefits attributed to plan participants' services rendered to that date, assuming the plan continues in effect and all assumptions about future events are fulfilled. Postretirement benefits comprise benefits expected to be paid to or on behalf of any of the following who are expected to receive benefits under the health and welfare benefit plan:
  1. a
    A retired or active participant
  2. b
    A terminated participant
  3. c
    A beneficiary or covered dependent.
965-30-35-17
Postretirement benefits expected to be paid to or for any of the following who are still earning their postretirement benefits (that is, one who is not yet fully eligible) shall be measured over the participant's credited period of service up to the date when full eligibility for benefits is attained:
  1. a
    An active participant
  2. b
    A beneficiary
  3. c
    A covered dependent.
965-30-35-18
For example, if a participant has worked 8 years and must work another 16 to be fully eligible for benefits after retirement, one-third of the postretirement benefits have been earned and should be included in the postretirement benefit obligation if it is probable that the employee will work the remaining 16 years.
965-30-35-19
If a multi-employer health and welfare benefit plan provides postretirement benefits, the benefit obligations shall include the postretirement benefit obligation. Consideration should be given to the promises currently made to employees and the history of making such payments to retirees. The fact that benefits may be reduced or even potentially eliminated would not ordinarily affect the promise made as of the end of the plan year unless the change meets the substantive plan criteria of Subtopic 715-60 (for example, an amendment is in place or has been communicated to employees). The fact that the contributing employers of a multi-employer plan do not record a similar obligation under that Subtopic does not affect the accounting for the obligations by the plan.
965-30-35-20
The postretirement benefit obligation shall be measured using the plan's written provisions to the extent possible, as well as the substantive plan if it differs from the written plan. In many health and welfare benefit plans, postretirement benefits are not defined as a specified amount for each year of service. Section 715-60-35 describes the measurement of the postretirement benefit obligation. For multi-employer plans that do not have date-of-hire information as required by paragraph 715-60-35-66, reasonable estimates thereof shall be used to measure the obligation. Death or disability benefits provided outside of a pension plan (if the employee is considered to be retired) shall also be included in the calculation of the postretirement benefit obligation. Benefits that are provided through an insurance contract shall be excluded. Insured plans shall be reviewed carefully to determine the extent to which postretirement benefits are insured. Currently, except for single-premium life insurance contracts, few, if any, insurance contracts unconditionally obligate an insurance entity to provide most forms of postretirement benefits.
965-30-35-21
In measuring the postretirement benefit obligation explicit assumptions shall be used, each of which represents the best estimate of a particular future event. All assumptions shall presume that the plan will continue in its present form, unless there is evidence to the contrary. Principal actuarial assumptions used shall include all of the following:
  1. a
    Discount rates, used to reflect the time value of money in determining the present value of future cash outflows currently expected to be required to satisfy the liability in the due course of business
  2. b
    The timing and amount of future postretirement benefit payments (taking into consideration per capita claims cost by age, health care cost-trend rates, current Medicare reimbursement rates, retirement age, dependency status, and mortality)
  3. c
    Salary progression (for pay-related plans)
  4. d
    The probability of payment (considering turnover, retirement age, dependency status, and mortality)
  5. e
    Participation rates (for contributory plans).
965-30-35-22
The postretirement benefit obligation information shall include the following classifications:
  1. a
    Obligations related to retired plan participants, including their beneficiaries and covered dependents
  2. b
    Obligations related to active or terminated participants who are fully eligible to receive benefits
  3. c
    Obligations related to other plan participants not yet fully eligible for benefits.

965-30-45Other Presentation Matters

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Classifications of Benefit Obligations

965-30-45-1
To the extent they exist, the amounts of benefit obligations in each of the three major classifications identified in paragraph 965-30-35-1 shall be shown as separate line items in the financial statements or notes to financial statements. Regardless of the format selected, the plan financial statements shall present the benefit obligations information in its entirety in the same location.
965-30-45-2
In an insured health and welfare benefit plan, claims payable and currently due and claims incurred but not yet reported to the plan will be paid by the insurance entity. Consequently, they should be excluded from the benefit obligations of the plan. Benefit obligations of a self-funded plan shall present the amount of both of the following:
  1. a
    Claims payable and currently due for active and retired participants, dependents, and beneficiaries
  2. b
    Incurred but not reported claims for active participants.
965-30-45-3
Incurred but not reported claims for retired participants are included in the postretirement benefit obligation, if separately calculated in accordance with paragraph 965-30-35-1(a).

Changes in Benefit Obligations

965-30-45-4
Information regarding changes in the benefit obligations within a plan period shall be presented to identify significant factors affecting year-to-year changes in benefit obligations.
965-30-45-5
Changes in each of the three major classifications of benefit obligations (see paragraph 965-30-35-1) shall be presented in the body of the financial statements or in the notes to financial statements; the information may be presented in either a reconciliation or narrative format. Providing such information in the following categories will generally be sufficient:
  1. a
    Claims payable, claims incurred but not reported, and premiums due to insurance entities
  2. b
    Accumulated eligibility credits and postemployment benefits, net of amounts currently payable
  3. c
    Postretirement benefits for the following:
    1. 1
      Retired plan participants, including their beneficiaries and covered dependents, net amounts currently payable, and claims incurred but not reported
    2. 2
      Other plan participants fully eligible for benefits
    3. 3
      Plan participants not yet fully eligible for benefits.
965-30-45-6
Minimum disclosure regarding changes in benefit obligations shall include the significant effects of all of the following:
  1. a
    Plan amendments
  2. b
    Changes in the nature of the plan (mergers or spinoffs)
  3. c
    Changes in actuarial assumptions (health care cost-trend rate or interest rate).
965-30-45-7
Changes in actuarial assumptions are to be considered as changes in accounting estimates and, therefore, previously reported amounts shall not be restated. The significant effects of other factors may also be identified. These include, for example, the following:
  1. a
    Benefits accumulated. Actuarial experience gains or losses may be included with the effects of additional benefits accumulated rather than separately disclosed. If the effects of changes in actuarial assumptions cannot be separately determined, those effects shall be included in benefits accumulated and described accordingly.
  2. b
    The effects of the time value of money (for interest).
  3. c
    Benefits paid.
965-30-45-8
If presented, benefits paid shall not include benefit payments made by an insurance entity pursuant to a contract that is excluded from plan assets. However, amounts paid by the plan to an insurance entity pursuant to such a contract (including purchases of annuities with amounts allocated from existing investments with the insurance entity) shall be included in benefits paid. Because of the use of different actuarial assumptions, the amount paid by the plan to an insurance entity may be different from the previous measure of the actuarial present value of the related accumulated plan benefits. If that information is available, it shall be presented as an actuarial experience gain or loss. If only the minimum disclosure is presented, presentation in a statement format will necessitate an additional unidentified other category to reconcile the initial and ultimate amounts.

965-30-50Disclosure

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Postretirement Benefit Obligations

965-30-50-1
Separate disclosure for each classification for each significant benefit described in paragraph 965-30-35-22 (for example, medical and death) may be appropriate.

Postemployment Benefits

965-30-50-2
If an obligation for postemployment benefits is not recognized in accordance with paragraphs 965-30-25-3 and
965-30-35-9 through 35-10
only because the amount cannot be reasonably estimated, the financial statements shall disclose that fact.

Amounts Due During Plan Contract Period

965-30-50-3
For negotiated plans, benefit obligations due during a plan's contract period may, but need not, be disclosed. Paragraphs
965-10-05-4 through 05-6
provide a discussion of the characteristics of plans, including plans negotiated with one or more labor unions.

Obligation for Premium Deficit

965-30-50-4
If no obligation is included for a premium deficit under insurance arrangements because any of the conditions described in paragraph 965-30-25-5 are not met, or if an exposure to loss exists in excess of the amount accrued, disclosure of the premium deficit shall be made if it is reasonably possible that a loss or an additional loss has been incurred.

Additional Financial Statement Disclosures

965-30-50-5
Disclosure of a health and welfare benefit plan's accounting policies shall include both of the following:
  1. a
    A description of the methods and significant actuarial assumptions used to determine the plan's benefit obligations. Any significant changes in assumptions made between financial statement dates and their effects shall be described.
  2. b
    The weighted-average assumed discount rate used to measure the plan's obligation for postemployment benefits.
965-30-50-6
See paragraph 965-30-45-5 for disclosure requirements of the changes in each of the three major classifications of benefit obligations if not presented in the body of the financial statements.
965-30-50-7
If administrative expenses expected to be paid by the plan (but not those paid directly by the plan's participating employer[s]) that are associated with providing the plan's benefits are reflected by reducing the discount rate(s) used in measuring the benefit obligation, the resulting reduction in the discount rate(s) shall be disclosed.

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