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CBIZ & MHM Executive Education Series™

Primer on Plan Reporting Changes Under ASU 2015-12 Ryan Rold, Jenny Matasic May 18 and June 7, 2016

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About Us

• Together, CBIZ & MHM are a Top Ten accounting provider • Offices in most major markets • Tax, audit and attest* and advisory services • Over 2,900 professionals nationwide

A member of Kreston International A global network of independent accounting firms

*MHM is an independent CPA firm providing audit, review and attest services, and works closely with CBIZ, a business consulting, tax and financial services provider.

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Before We Get Started…

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CPE Credit

This webinar is eligible for CPE credit. To receive credit, you will need to answer periodic participation markers throughout the webinar. External participants will receive their CPE certificate via email immediately following the webinar.

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Disclaimer

The information in this Executive Education Series course is a brief summary and may not include all

the details relevant to your situation.

Please contact your service provider to further discuss the impact on your business.

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Presenters

Ryan is MHM's West Region EBP Audit Leader and based in our Phoenix

office. He has extensive experience with auditing employee benefit plans

including defined contribution, defined benefit, health and welfare, and

employee stock ownership plans. Ryan serves as an office leader in

auditing employee benefit plans, is a member of the MHM EBP Task

Force, and serves on the EBP internal inspection team that reviews firm's

quality on an annual basis.

602.264.6835 • rrold@cbiz.com • @ryanroldcpa J. RYAN ROLD, CPA MHM Shareholder CBIZ MHM Phoenix

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Presenters

Jenny is a senior manager in the attest department. She has over ten

years of experience in auditing employee benefit plans including defined

contribution, defined benefit and health and welfare plans. She oversees

the Tampa Bay office employee benefit plan practice.

727.572.1400 • jmatasic@cbiz.com

JENNY MATASIC, CPA Senior Manager,

CBIZ MHM Tampa Bay

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Agenda

Summary: ASU 2015-12, ASU 2015-10, ASU 2015-07

02

01

03

Impact on Financial Reporting

Communications with Those Charged with Governance

04 Questions

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SUMMARY

ASU 2015-12 ASU 2015-10 ASU 2015-07

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Primer on Plan Reporting Changes Under ASU 2015-12

• Effective Date: • For fiscal years beginning after December 15, 2015 • Early adoption of any or all of the three parts is allowed

• Three Parts: • I: Fully benefit-responsive investment contracts • II: Plan investment disclosures • III: Measurement date practical expedient

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Summary of Plan Reporting Changes Under ASU 2015-12

• Eliminated the requirement to measure the fair value of fully-benefit responsive investment contracts

• Eliminates disclosures related to interest crediting rates and average yields

• Disaggregation by type only either on the face of the financials or in the notes • Self-directed brokerage considered a type

• No longer required to disclose the net appreciation/depreciation in fair value of investments by type or disclose investments equal to or greater than 5% of net assets

• Plans with a fiscal year-end that does not match the end of a calendar month allowed to measure investments as of closest month-end

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Part I: Fully Benefit-Responsive Investment Contracts

• Current guidance requires FBRICs be measured at both fair and contract value with the difference between the two reconciled on the face of the financial statements.

• The ASU eliminates to requirement to measure at fair value and provide the related disclosures including the average yield earned by the plan and the methodology used to calculate the interest crediting rates.

• The new ASU clarifies that contract value is the relevant measure for FBRICs because that is the amount participants would receive in a transaction.

• Definition of a fully benefit-responsive investment contract (FBRIC) in master glossary did not change.

• Investment contracts that do not meet the definition of a FBRIC continue to be presented at fair value.

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Part I: Fully Benefit-Responsive Investment Contracts

Guidance clarifies that indirect investments in FBRICs through investment companies (e.g., stable value CCTs) are not in the scope of the FBRIC guidance.

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Part I: Fully Benefit-Responsive Investment Contracts

• Synthetic Investment Contracts • Plan owns the underlying securities (e.g., fixed income

investments, units in CCT, wrapper contract) • Present as single amount at contract value with other FBRICs (do

not break out underlying securities) • No changes to Form 5500 and supplemental schedule

requirements • Present each underlying security at its fair value • Wrapper will be presented at fair value (typically the

amount needed to adjust the fair value of the underlying securities from fair value to contract value)

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Part I: Fully Benefit-Responsive Investment Contracts

• Required disclosures • New disclosure: Total contract value of each type of FBRIC (e.g.,

synthetic investment contracts, traditional investment contracts) • Previously required disclosure: Description of the nature of each type of

FBRIC (including how it operates) • Previously required disclosure: Description of events that limit the

ability of the plan to transact at contract value, including a statement that these events are not probable of occurring

• Previously required disclosure: Description of events and circumstances that would allow the issuer to terminate the contracts and settle at an amount different from contract value

• Eliminated disclosures • Hierarchy level • Valuation techniques and inputs • Level 3 reconciliation • Average yields

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Part I: Fully Benefit-Responsive Investment Contracts

• Additional FBRIC Guidance: • FBRICs held in a master trust are subject to the same

presentation and disclosure requirements as FBRICs held by a plan.

• Apply new guidance retrospectively.

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Part I: Fully Benefit-Responsive Investment Contracts

Example: Statements of Net Assets Prior to Adoption

2015 2014Assets:

Investments at fair value $ 700,000 500,000 Notes receivable from participants 10,000 8,000

Net assets reflecting investmentsat fair value 710,000 508,000

Adjustment from fair value to contract value forfully benefit-responsive investment contracts (5,000) (3,000)

Net assets available for benefits $ 705,000 505,000

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Part I: Fully Benefit-Responsive Investment Contracts

Example: Statements of Net Assets with Adoption, Redline

2015 2014Assets:

Investments at fair value $ 600,000 700,000 400,000 500,000

Fully benefit-responsive investment contracts 95,000 97,000 at contract value

Notes receivable from participants 10,000 8,000

Net assets reflecting investmentsat fair value 710,000 508,000

Adjustment from fair value to contract value forfully benefit-responsive investment contracts (5,000) (3,000)

Net assets available for benefits $ 705,000 505,000

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Part I: Fully Benefit-Responsive Investment Contracts

Example: Statements of Net Assets with Adoption, Final

2015 2014Assets:

Investments at fair value $ 600,000 400,000 Fully benefit-responsive investment contracts

at contract value 95,000 97,000 Notes receivable from participants 10,000 8,000

Net assets available for benefits $ 705,000 505,000

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Part I: Fully Benefit-Responsive Investment Contracts

• Guidance clarifies that indirect investments in FBRICs through investment companies (e.g., stable value CCTs) are not in the scope of the FBRIC guidance. • Plans should report these investments at fair value. • These funds typically qualify for measuring fair value using the net asset

value (NAV) practical expedient. • These funds calculate NAV per share (or its equivalent) in a manner

consistent with the measurement principles of ASC 946. • As required by ASC 946, the NAV calculated by the fund is based on “net

assets” which includes FBRICs at contract value. • This NAV represents the plan’s fair value since this is the NAV at which the plan

transacts with the fund.

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Part I: Fully Benefit-Responsive Investment Contracts

• The amount previously presented as contract value is now presented as fair value. • This does not change total net assets available for benefits. • The investments are now accounted for consistent with other

CCTs or similar investment funds and are presented with investments at fair value.

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Part II: Plan Investment Disclosures

• Current guidance requires that plans disclose the investments disaggregated by class (i.e. nature, characteristics and risks of the investments). Additionally disaggregation by general type (i.e. common stocks, corporate bonds, mutual funds, etc.) is also required.

• The ASU eliminates the need to disaggregate by class meaning investments will be disaggregated only by general type. Additionally, self-directed brokerage accounts are considered one general type of investments and are still included in the fair value hierarchy table. Applies to investments held in a master trust.

• Current guidance also requires the net appreciation or depreciation in fair value of investments by general type and investments with a value equal to or greater than 5% of net assets available for benefits be disclosed. Form 5500 reporting still requires breakout of certain types of unrealized appreciation and depreciation.

• The ASU eliminates both requirements. Applies to investments held in a master trust.

• No longer required: the significant investment strategies for an investment in a fund that files an annual report on Form 5500 as a direct filing entity when the plan measures that investment using the NAV practical expedient.

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Part II: Plan Investment Disclosures

Example: Investments at Fair Value Prior to Adoption

Level 1 Level 2 Level 3 Total

Mutual funds: $ - - - -

Index funds - - - -

Balance funds - - - -

Growth funds - - - -

Other funds - - - -

Total mutual funds - - - -

Common stocks:Industries - - - -

Telecommunications - - - -

Consumer - - - -

Other - - - -

Total common stocks - - - -

U.S. government securities - - - -

Common/collective trust funds:*Equity index funds - - - -

Fixed income funds - - - -

Total common/collective trust funds - - - -

Pooled separate accounts:*Large U.S. equity - - - -

Asset allocation - - - -

Total pooled separate accounts - - - -

Guaranteed interest account - - - -

Total investments at fair value $ - - - -

Investments at Fair Value as of December 31, 2015

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Part II: Plan Investment Disclosures

Example: Investments at Fair Value with Adoption

Level 1 Level 2 Level 3 Total

Mutual funds $ - - - - Common stocks - - - - U.S. government securities - - - - Self-directed brokerage account - - - - Guaranteed interest account

(only if non benefit-responsive) - - - -

Total assets in the fair value hierarchy $ - - - -

Investments measured at NAV (a) -

Total investments excluding plan interest inZZ Master Trust, at fair value $ -

(a)

Investments at Fair Value as of December 31, 2015

In accordance with Subtopic 820-10, certain investments that were measured at net asset value per share (or itsequivalent) have not been classified in the fair value hierarchy. The fair value amounts presented in this table areintended to permit reconciliation of the fair value hierarchy to the line items presented in the statements of netassets available for benefits.

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Part III: Measurement Date Practical Expedient

• The ASU allows a plan with a fiscal year-end that doesn’t coincide with the end of a calendar month to measure its investments and investment related accounts using the month end closest to its fiscal year end.

• Added to the project as a result of a similar practical expedient that the FASB recently issued for employers with FYEs that don’t end at the end of a calendar month (ASU 2015-04).

• Allows a plan to measure its investments and investment related accounts using the month end closest to its FYE (i.e., an alternative measurement date). • Disclose as an accounting policy. • Disclose financial effects of contributions, distributions and/or

significant events that occur between the alternative measurement date and the plan’s fiscal year-end.

• Apply consistently year to year. • Applied prospectively

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Readily Determinable Fair Value (RDFV) (ASU 2015-10)

• FASB issued ASU 2015-10, Technical Corrections and Improvements in June 2015.

• RDFV is defined in the FASB Accounting Standards Codification Master Glossary as follows (ASU 2015-10 changes are underlined and effective on issuance): • An equity security has a readily determinable fair value if it meets any of the

following conditions: • The fair value of an equity security is readily determinable if sales prices or bid-and-asked

quotations are currently available on a securities exchange registered with the U.S. Securities and Exchange Commission (SEC) or in the over-the-counter market, provided that those prices or quotations for the over-the-counter market are publicly reported by the National Association of Securities Dealers Automated Quotations systems or by OTC Markets Group Inc. Restricted stock meets that definition if the restriction terminates within one year.

• The fair value of an equity security traded only in a foreign market is readily determinable if that foreign market is of a breadth and scope comparable to one of the U.S. markets referred to above.

• The fair value of an equity security that is an investment in a mutual fund or in a structure similar to a mutual fund (that is, a limited partnership or a venture capital entity) is readily determinable if the fair value per share (unit) is determined and published and is the basis for current transactions.

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Readily Determinable Fair Value (RDFV) (ASU 2015-10)

• If a security has a RDFV, generally it is measured at fair value.

• ASU 2015-10’s revised definition may also affect equity securities that were being valued by applying the NAV practical expedient. • If a security has a RDFV, the NAV practical expedient

cannot be applied, and it should be included in the fair value hierarchy table disclosure required by ASC 820.

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Readily Determinable Fair Value (RDFV) (ASU 2015-10)

• The FASB ASC Master Glossary defines an equity security as: • Any security representing an ownership interest in an entity (for

example, common, preferred, or other capital stock) or the right to acquire (for example, warrants, rights, and call options) or dispose of (for example, put options) an ownership interest in an entity at fixed or determinable prices. The term equity security does not include any of the following: • Written equity options (because they represent obligations of the writer, not

investments) • Cash-settled options on Equity Securities or options on equity-based

indexes(because those instruments do not represent ownership interests in an entity)

• Convertible debt or preferred stock that by its terms either must be redeemed by the issuing entity or is redeemable at the option of the investor.

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Readily Determinable Fair Value (RDFV) (ASU 2015-10)

• The Master Glossary does not define the term mutual fund. Mutual fund is another name for an investment company. • To determine whether an investment is in a structure similar to a

mutual fund, consideration should be given as to whether it is similar to an investment company as defined in ASC 946, Financial Services - Investment Companies. • Mutual funds can be registered with the SEC under the Investment

Company Act of 1940. Mutual fund shares are purchased from the fund itself or through a broker.

• Examples of other types of funds may include: pooled separate accounts, common collective trusts, hedge funds, and private equity funds.

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Readily Determinable Fair Value (RDFV) (ASU 2015-10)

• The RDFV definition retains the requirement that an equity security’s fair value is readily determinable if the fair value per share (unit) is determined and published, and is the basis for current transactions. • The Master Glossary does not define the terms published or

the basis for current transactions and judgment will be required.

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Revised Disclosures for NAV Practical Expedient (ASU 2015-07)

• FASB issued ASU 2015-07, Fair Value Measurement (Topic 820) Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) in May 2015. • This ASU states investments measured using the NAV

practical expedient will no longer need to be included as part of the fair value hierarchy table disclosure.

• This means if it is determined that an investment has a RDFV and therefore, the NAV practical expedient cannot be applied, the investment should be included in the fair value hierarchy table disclosure.

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IMPACT ON FINANCIAL REPORTING

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Sample Language for Summary of Significant Accounting Policy

Disclosure is necessary in the summary of significant accounting policies when early adopting.

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? QUESTIONS

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