The Financial Accounting Standards Board released a proposed Accounting Standards Update on Wednesday with the objective of improving accounting guidance for certain market-return cash balance plans.
The proposed ASU is based on a recommendation of the Emerging Issues Task Force, a panel that assists the FASB in improving financial reporting through the identification, discussion, and resolution of financial accounting issues within the framework of the Accounting Standards Codification.
Market-return cash balance plans are a type of cash balance plan in which interest crediting rates are based on investable market returns. Stakeholders expressed concern that current guidance may not fully reflect the economics of these plans. As a result, companies may measure the benefit obligation using a discount rate that produces an amount inconsistent with the plan’s hypothetical account balance, the FASB says.
To address stakeholders’ concerns, the amendments in this proposed ASU would specify the discount rate required to be used to measure the benefit obligation for certain market-return cash balance plans.
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The ASU states:
The amendments in this proposed Update would require that an entity use the assumed interest crediting rate as the discount rate to measure the benefit obligation under Subtopic 715-30, Compensation—Retirement Benefits—Defined Benefit Plans—Pension, for market-return cash balance plans that meet the following conditions:
1. Pension benefits are communicated to employees in the form of an account balance that comprises principal credits and interest credits based on an investable market return in any of the following forms:
a. The return on plan assets
b. The return on a subset of plan assets that approximates the associated cash balance liabilities
c. The return on a regulated investment company.2. Participants have the option to elect lump-sum payments. The amendments in this proposed Update would not change how market-return cash balance plans should be accounted for under current guidance in Subtopic 715-30, except for requiring that the assumed interest crediting rate be used as the discount rate when measuring the benefit obligation of qualifying plans. As a result of using the assumed interest crediting rate as the discount rate, the benefit obligation of those plans generally would be equal to their hypothetical account balance.
The amendments in this proposed Update would (1) better reflect the economics of market-return cash balance plans that meet the conditions listed above (in-scope market-return cash balance plans) and (2) reduce diversity in practice on how the measurement guidance in Subtopic 715-30 should be applied to those plans.
Stakeholders are encouraged to review and provide comments on the proposed ASU by Aug. 10, 2026.
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