{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/965/","source":"FASB Accounting Standards Codification, Basic View","usage":"Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective.","number":"965","title":"Plan Accounting—Health and Welfare Benefit Plans","area":"Industry","group":"96X Plan Accounting","subtopics":[{"number":"965-10","topic":"965","title":"Overall","area":"Industry","paragraphs":15,"summary":"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.","concepts":["health and welfare benefit plan","insured plan vs. self-funded plan","veba / 501(c)(9) trust","401(h) account","master trust","experience-rating refund","erisa reporting","multiemployer plan"],"categories":["Industry-specific","Financial statement presentation","Disclosure"],"level":"introductory","topic_title":"Plan Accounting—Health and Welfare Benefit Plans","sections":[{"number":"00","label":"00 Status","anchor":"00-status","is_sec":false,"groups":[{"block":null,"heading":null,"paragraphs":[{"citation":"965-10-00-1","para":"00-1","html":"The following table identifies the changes made to this Subtopic.
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:
- a
Plan Accounting—Defined Benefit Pension Plans, Topic
960 - b
Plan Accounting—Defined Contribution Pension Plans, Topic
962 - 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. The Plan Accounting—Health and Welfare Benefit Plans Topic includes the following Subtopics:
- a
Overall
- b
Net Assets Available for Plan Benefits
- c
Plan Benefit Obligations
- d
Terminating Plans
- e
Presentation of Financial Statements
- f
Receivables
- g
Investments—Debt and Equity Securities
- h
Investments—Other
- i
Property, Plant, and Equipment.
The Overall Subtopic provides scope-related guidance for this Topic and an overview of accounting and reporting for
health and welfare benefit plans.
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: - a
Through insurance contracts paid for by the plan (an insured plan)
- b
From net assets accumulated in a trust established by the plan (a self-funded plan).
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.
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.
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. 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.
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: - a
The schedule of benefits
- b
Eligibility rules
- c
Premium rate per eligible participant
- d
The date that premiums are due.
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).
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.
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.
Paragraphs and 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. The following table identifies the changes made to this Subtopic.
This Subtopic provides guidance on net assets available for benefits for
health and welfare benefit plans.
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section
965-10-15.
A plan may have liabilities (other than for benefits) that should be accrued. Such liabilities may be for amounts owed for securities purchased, income taxes payable by the plan, or other expenses (for example, third-party administrator fees). These liabilities shall be deducted to arrive at net assets available for benefits. A noncash contribution shall be recorded at fair value less costs to sell, if significant, at the date of the contribution. The statement of net assets available for benefits of the plan shall present amounts for the following: - a
Total assets
- b
Total liabilities
- c
- d
Net assets available for benefits.
The statement of changes in net assets available for benefits shall be presented in enough detail to identify the significant changes during the year, including, as applicable, the following: - a
Contributions from employers, segregated between cash and noncash contributions
- b
The nature of noncash contributions described either parenthetically or in a note
- c
Contributions from participants, including those collected and remitted by the sponsor
- d
Contributions from other identified sources (for example, state subsidies or federal grants)
- e
The net appreciation or depreciation in fair value. 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.
- f
Investment income, excluding the net appreciation or depreciation
- g
Income taxes paid or payable, if applicable
- h
Payments of claims, excluding payments made by an insurance entity pursuant to contracts that are excluded from plan assets - i
Payments of premiums to insurance entities to purchase contracts that are excluded from plan assets
- j
Operating and administrative expenses
- k
Other changes (such as transfers of assets to or from other plans), if significant.
The list of minimum disclosures is not intended to define the degree of detail or the manner of presenting the information, and subclassifications or additional classifications may be useful.
The statement of changes in net assets available for benefits shall be prepared on a basis that reflects income credited to participants in the plan and net appreciation or depreciation in the fair value of only those investment contracts that are not deemed to be fully benefit responsive.
The nature of noncash contributions shall be described either parenthetically or in a note.
The following table identifies the changes made to this Subtopic.
This Subtopic provides guidance on plan benefit obligations for
health and welfare benefit plans.
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section
965-10-15.
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. The benefit obligations shall include any obligation for premiums due but not paid under insurance arrangements.
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: - a
The participants' rights to receive benefits are attributable to services already rendered.
- 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.
- c
Payment of benefits is probable.
- d
The amount can be reasonably estimated.
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.
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: - 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
The extent to which the insurance contract requires payment of such deficits
- 2
The plan's intention, if any, to transfer coverage to another insurance entity.
- b
The amount can be reasonably estimated.
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: - 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.
- b
- c
Postretirement benefits for the following groups of participants:
- 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
Other plan participants fully eligible for benefits
- 3
Plan participants not yet fully eligible for benefits.
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.
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: - a
Including the estimated costs in the benefits expected to be paid by the plan
- b
Reducing the discount rate(s) used in measuring the benefit obligation.
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.
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.
Benefit obligations shall be reported as of the end of the plan year.
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. 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.
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.
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. 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.
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 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. 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. 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: - a
A retired or active participant
- b
A terminated participant
- c
A beneficiary or covered dependent.
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: - a
An active participant
- b
A beneficiary
- c
A covered dependent.
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.
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. 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. 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: - 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
- 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)
- c
Salary progression (for pay-related plans)
- d
The probability of payment (considering turnover, retirement age, dependency status, and mortality)
- e
Participation rates (for contributory plans).
The postretirement benefit obligation information shall include the following classifications: - a
Obligations related to retired plan participants, including their beneficiaries and covered dependents
- b
Obligations related to active or terminated participants who are fully eligible to receive benefits
- c
Obligations related to other plan participants not yet fully eligible for benefits.
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. 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: - a
Claims payable and currently due for active and retired participants, dependents, and beneficiaries
- b
Incurred but not reported claims for active participants.
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). 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.
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: - a
Claims payable, claims incurred but not reported, and premiums due to insurance entities
- b
- c
Postretirement benefits for the following:
- 1
Retired plan participants, including their beneficiaries and covered dependents, net amounts currently payable, and claims incurred but not reported
- 2
Other plan participants fully eligible for benefits
- 3
Plan participants not yet fully eligible for benefits.
Minimum disclosure regarding changes in benefit obligations shall include the significant effects of all of the following: - a
Plan amendments
- b
Changes in the nature of the plan (mergers or spinoffs)
- c
Changes in actuarial assumptions (health care cost-trend rate or interest rate).
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: - 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.
- b
The effects of the time value of money (for interest).
- c
Benefits paid.
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. Separate disclosure for each classification for each significant benefit described in paragraph 965-30-35-22 (for example, medical and death) may be appropriate. If an obligation for postemployment benefits is not recognized in accordance with paragraphs 965-30-25-3 and only because the amount cannot be reasonably estimated, the financial statements shall disclose that fact. For negotiated plans, benefit obligations due during a plan's contract period may, but need not, be disclosed. Paragraphs
provide a discussion of the characteristics of plans, including plans negotiated with one or more labor unions.
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. Disclosure of a health and welfare benefit plan's accounting policies shall include both of the following: - 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.
- b
The weighted-average assumed discount rate used to measure the plan's obligation for postemployment benefits.
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.
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.
The following table identifies the changes made to this Subtopic.
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section
965-10-15.
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. Plan financial statements for periods ending after the determination that liquidation is imminent are prepared using the liquidation basis of accounting.
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. 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.