ASC 965-40

Terminating Plans

965 Plan Accounting—Health and Welfare Benefit Plans

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In brief

IntermediateSubsequent measurement Disclosure Compensation and benefits Industry-specific

ASC 965-40 governs accounting and reporting by health and welfare benefit plans that are terminating. Once liquidation of the plan is deemed imminent under paragraph 205-30-25-2, the plan must prepare its financial statements using the liquidation basis of accounting under Subtopic 205-30, including for the year-end statements if imminence is determined before the plan year ends. Benefit obligations are measured on the liquidation basis rather than as actuarial present values, and the termination or wasting-trust circumstances must be disclosed in all subsequent plan financial statements.

Key points (6)

The scope follows the Overall Subtopic scope for health and welfare benefit plans (965-40-15-1), and covers only terminating plans (965-40-05-1).
If liquidation is deemed imminent (as defined in 205-30-25-2) before the end of the plan year, the plan's year-end financial statements must be prepared using the liquidation basis of accounting under Subtopic 205-30 (965-40-25-1).
All plan financial statements for periods ending after the determination that liquidation is imminent use the liquidation basis of accounting (965-40-25-2).
Benefit obligations of a terminating plan are determined on the liquidation basis, and their carrying value may differ from the actuarial present value of benefit obligations reported by an ongoing plan (965-40-35-2).
Upon determining that liquidation is imminent, the plan must consider whether any or all benefits become vested (965-40-35-2).
When a decision to terminate has been made, or when a wasting trust exists (participants no longer accrue benefits but the plan remains to pay accrued benefits), the relevant circumstances must be disclosed in all subsequent financial statements issued by the plan (965-40-50-1).

For students. The trigger is "liquidation is imminent" as defined in 205-30-25-2, not the mere adoption of a termination resolution or the plan's legal dissolution date; once that trigger is met the plan switches wholesale to the liquidation basis, even for a year-end that has not yet arrived. A common mistake is continuing to report benefit obligations at actuarial present value, or assuming a wasting trust needs no disclosure because it is not yet liquidating.

terminating plan liquidation basis of accounting liquidation imminent benefit obligations wasting trust vesting of benefits health and welfare benefit plan

Machine-generated study aid for ASC 965-40. Check the source paragraphs below.

965-40-00Status

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965-40-00-1

The following table identifies the changes made to this Subtopic.

Paragraph	Action	Accounting Standards Update	Date

Benefits	Amended	Accounting Standards Update No. 2016-19	12/14/2016
Benefits (3rd def.)	Added	Accounting Standards Update No. 2014-06	03/14/2014
Liquidation	Added	Accounting Standards Update No. 2013-07	04/22/2013
Terminating Plan (1st def.)	Added	Accounting Standards Update No. 2014-06	03/14/2014
Terminating Plan (2nd def.)	Superseded	Accounting Standards Update No. 2014-06	03/14/2014

965-40-05-1	Amended	Accounting Standards Update No. 2014-06	03/14/2014
965-40-25-1	Amended	Accounting Standards Update No. 2013-07	04/22/2013
965-40-25-2	Amended	Accounting Standards Update No. 2013-07	04/22/2013
965-40-35-1	Amended	Accounting Standards Update No. 2014-06	03/14/2014
965-40-35-1	Superseded	Accounting Standards Update No. 2013-07	04/22/2013
965-40-35-1	Amended	Accounting Standards Update No. 2012-04	10/01/2012
965-40-35-2	Amended	Accounting Standards Update No. 2014-06	03/14/2014
965-40-35-2	Amended	Accounting Standards Update No. 2013-07	04/22/2013
965-40-50-1	Amended	Accounting Standards Update No. 2014-06	03/14/2014

965-40-05Overview and Background

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965-40-05-1

This Subtopic provides guidance for health and welfare benefit plans that are terminating plans.

965-40-15Scope and Scope Exceptions

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Overall Guidance

965-40-15-1

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

965-40-25Recognition

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965-40-25-1

If the liquidation of a plan is deemed to be imminent (as defined in paragraph 205-30-25-2) before the end of the plan year, the plan's year-end financial statements shall be prepared using the liquidation basis of accounting in accordance with Subtopic 205-30.

965-40-25-2

Plan financial statements for periods ending after the determination that liquidation is imminent are prepared using the liquidation basis of accounting.

965-40-30Initial Measurement

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965-40-30-1

[Section not used]

965-40-35Subsequent Measurement

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965-40-35-1

Paragraph superseded by Accounting Standards Update No. 2013-07.

965-40-35-2

For terminating plans, benefit obligations shall be determined using the liquidation basis of accounting (see Subtopic 205-30), and their carrying value may differ from the actuarial present value of benefit obligations reported for an ongoing plan. Consideration shall be given upon the determination that liquidation is imminent to whether any or all benefits become vested.

965-40-50Disclosure

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965-40-50-1

When the decision has been made to terminate a plan or when a wasting trust (that is, a plan under which participants no longer accrue benefits but that will remain in existence as long as necessary to pay already accrued benefits) exists, the relevant circumstances shall be disclosed in all subsequent financial statements issued by the plan.