ASC 960 and ASC 962 Reporting
Learn how to properly prepare and present the financial statements for defined benefit and defined contribution employee benefit plans following ASC 960 and ASC 962. Discover best practices, common pitfalls, and practical examples to ensure accurate and transparent reporting.
18.3 ASC 960 and ASC 962 Reporting
Employee benefit plans play a pivotal role in an entity’s overall compensation strategy, offering crucial support to employees through retirement, pension, or other post-employment programs. Within the overarching framework of accounting standards, reporting requirements for these plans are guided primarily by the Financial Accounting Standards Board (FASB) under two Accounting Standards Codifications (ASC):
• ASC 960: “Plan Accounting—Defined Benefit Pension Plans.”
• ASC 962: “Plan Accounting—Defined Contribution Pension Plans.”
These standards exist to ensure that plan sponsors and plan administrators provide transparent and comprehensive information to participants, regulators, and other stakeholders. The reporting objectives encompass clarity about the plan’s financial position, changes in net assets, and the underlying assumptions and methods used in valuing obligations and investments.
This section will guide you through the nuanced requirements of both ASC 960 and ASC 962, highlighting key statements, disclosures, and practical steps to ensure that plan financial statements are prepared in line with Generally Accepted Accounting Principles (GAAP). We will also incorporate examples and short case vignettes to illustrate real-world application.
–––––––––––––––––––––––––––––––––––––––––––––
Understanding ASC 960 and ASC 962
ASC 960 covers “Plan Accounting—Defined Benefit Pension Plans,” i.e., pension plans that guarantee participants a specific benefit (e.g., a monthly annuity) after retirement. The plan sponsor typically bears the investment risk and is responsible for ensuring the plan is sufficiently funded to meet future obligations.
ASC 962 covers “Plan Accounting—Defined Contribution Pension Plans,” where participants have individual accounts and benefits depend on contributions made by the employer and/or the employee and the overall performance of the investment. In defined contribution plans, the participant generally bears the investment risk.
Though both ASC 960 and ASC 962 provide reporting guidance, these standards differ primarily in terms of the nature of obligations, measurement of the benefits, and how the net assets (or net assets available for benefits) are presented.
–––––––––––––––––––––––––––––––––––––––––––––
Core Financial Statements Under ASC 960 and ASC 962
Regardless of whether a plan is defined benefit or defined contribution, plan-level financial statements generally include:
• Statement of Net Assets Available for Benefits (sometimes referred to as the Statement of Plan Net Assets).
• Statement of Changes in Net Assets Available for Benefits.
• Notes to the Financial Statements (including detailed disclosures).
• Supplemental schedules and additional disclosures as required by the Department of Labor (DOL) and the Employee Retirement Income Security Act (ERISA), if applicable.
For defined benefit plans (ASC 960), there is often an additional consideration:
• Statement of Accumulated Plan Benefits (and related Statement of Changes in Accumulated Plan Benefits), which focuses on measuring the present value of promised benefits.
This section focuses on the fundamental statements—particularly the Statement of Net Assets Available for Benefits—and their required content, reconciliations, and disclosures.
–––––––––––––––––––––––––––––––––––––––––––––
Statement of Net Assets Available for Benefits
This statement is relevant for both defined benefit and defined contribution plans. It discloses all assets held by the plan that are available to pay benefits to participants, net of any liabilities or obligations owed by the plan itself.
Typical line items include:
• Investments at fair value (segregated by major investment categories), including any short-term investments, mutual funds, pooled separate accounts, and other instruments.
• Receivables (e.g., contributions due from employers or participants, accrued investment income, pending settlement from securities transactions).
• Liabilities (e.g., unpaid expenses, pending investment trades, amounts owed to service providers).
• Net assets available for benefits (difference between total assets and total liabilities).
Below is a simplified illustrative example:
Statement of Net Assets Available for Benefits (Illustrative Example)
XYZ Defined Benefit Pension Plan
December 31, 20XX
Assets
Investments (at fair value):
• Common Stocks …………………………………… $2,450,000
• U.S. Treasury Bonds ………………………………. 1,750,000
• Mutual Funds …………………………………….. 500,000
• Cash and Cash Equivalents ………………………….. 225,000
Total Investments ………………………………… 4,925,000
Receivables:
• Contribution Receivable from Sponsor ………………… 60,000
• Accrued Investment Income ………………………….. 7,500
Total Receivables ………………………………… 67,500
Liabilities:
• Plan Administration Fees Payable …………………… (18,500)
• Accrued Management Fees Payable ……………………. (5,000)
Total Liabilities ………………………………… (23,500)
Net Assets Available for Benefits ……………………. $4,969,000
The above table is just a snapshot. Actual practice will require more robust line item detail and footnote disclosures, particularly for large or complex plans.
–––––––––––––––––––––––––––––––––––––––––––––
Statement of Changes in Net Assets Available for Benefits
This statement depicts how net assets change over the reporting period. Key elements generally include:
• Additions to Net Assets:
– Contributions from employers and participants
– Investment income (interest, dividends, net appreciation/depreciation in fair value)
• Deductions from Net Assets:
– Benefit payments to participants
– Administrative expenses (trustee fees, recordkeeping fees, etc.)
It is crucial to note that under ASC 960, if the plan is a defined benefit plan, changes in the fair value of plan assets and changes in the actuarial present value of accumulated plan benefits both factor into the overall presentation. However, these items are typically disclosed in separate statements or footnotes rather than solely within the statement of changes in net assets.
An illustrative example is provided below:
Statement of Changes in Net Assets Available for Benefits (Illustrative Example)
XYZ Defined Benefit Pension Plan
For the Year Ended December 31, 20XX
Additions:
• Employer Contributions …………………………….. 350,000
• Participant Contributions …………………………… 150,000
• Net Investment Income:
– Interest and Dividends ………………………. 42,000
– Net Appreciation in Fair Value ………………… 78,000
Total Additions ...................................... 620,000
Deductions:
• Benefit Payments ………………………………….. (280,000)
• Administrative Expenses ……………………………. (12,500)
Total Deductions ……………………………………. (292,500)
Net Increase in Net Assets Available for Benefits ……… 327,500
Net Assets Available for Benefits, Beginning of Year ……. 4,641,500
Net Assets Available for Benefits, End of Year ………… $4,969,000
–––––––––––––––––––––––––––––––––––––––––––––
Specific Requirements Under ASC 960 (Defined Benefit Plans)
In addition to the statements above, defined benefit plans place special emphasis on disclosing accrued liabilities for promised benefits. While ASC 715 (Compensation—Retirement Benefits) covers employer-level accounting, ASC 960 sets out plan-level requirements.
Accumulated Plan Benefits
• The Statement of Accumulated Plan Benefits measures the actuarial present value of estimated future benefits payable to plan participants.
• Changes in these accumulated plan benefits from year to year (due to interest rates, mortality assumptions, and plan amendments) must be disclosed.
Actuarial Assumptions
• Key assumptions used in calculating the present value of benefits—such as discount rates, mortality rates, and turnover assumptions—must be disclosed.
• The plan’s actuarial valuation method should be clearly described (e.g., projected unit credit).
Funding Policy
• Any history of funding policy, minimum required contributions, and the plan’s approach to maintaining adequate fiduciary coverage must be disclosed.
While ASC 960 focuses on the plan itself, keep in mind that the sponsoring employer’s statements may incorporate disclosures and liabilities in accordance with ASC 715, which is beyond the scope of this chapter but integral to a complete picture of retirement obligations.
–––––––––––––––––––––––––––––––––––––––––––––
Specific Requirements Under ASC 962 (Defined Contribution Plans)
For defined contribution plans, participant account balances generally represent the plan’s liabilities. The major difference from defined benefit plans is that any fluctuations in investment performance directly affect the participants’ accounts rather than creating direct liabilities for the sponsor.
Individual Participant Accounts
• Each participant’s account typically reflects contributions, allocations of earnings and expenses, and distributions.
• The Statement of Net Assets Available for Benefits and Statement of Changes in Net Assets Available for Benefits remain central, but references to the allocation to individual participant accounts are common.
Vesting Schedules
• Disclose the vesting requirements for employer contributions (e.g., immediate vesting, graduated schedules).
Investment Options
• Plan participants often choose from a menu of investment options. Disclosures should identify the major categories, including mutual funds, company stock funds, and stable value funds.
• The plan sponsor may also detail the percentage of total plan assets in each major investment category, if relevant.
Administrative and Loan Policies
• Many defined contribution plans permit participant loans. Under ASC 962, participant loans are generally reported as plan assets (at the unpaid principal balance plus accrued interest).
• Ensure that the plan’s loan policy, including interest rates and repayment terms, is disclosed.
–––––––––––––––––––––––––––––––––––––––––––––
Practical Example and Diagram
Below is a simplified Mermaid diagram illustrating the high-level flow of data and responsibilities in a defined contribution plan. The plan sponsor, trustee, participants, and third-party administrators each have responsibilities that ultimately feed into the financial statements.
flowchart LR
A["Plan Sponsor <br/> (Employer)"] --> B["Contributions to <br/> Plan Trust"]
B --> C["Plan Trust <br/> (Trustee)"]
C --> D["Investment of Plan <br/> Assets in Various Funds"]
D --> C
C --> E["Allocations to <br/> Individual Participant Accounts"]
E --> F["Participants <br/> (Account Balances)"]
Explanation:
• The employer (plan sponsor) typically remits contributions (which may include both employer and participant contributions via payroll deferrals) to the plan trust.
• The trustee invests these assets in various funds, including mutual funds, stable value funds, company stock, etc.
• Plan assets are then allocated to individual participant accounts, and the plan participants’ balances change based on investment performance and additional contributions or distributions.
• The net assets available for benefits at the plan level are aggregated across all participants’ accounts and reported in the plan’s financial statements.
–––––––––––––––––––––––––––––––––––––––––––––
Disclosures Under ASC 960 and ASC 962
Both ASC 960 and ASC 962 require robust disclosures to accompany the core financial statements. These disclosures typically include:
Plan Description
• Nature of the plan (defined benefit or defined contribution)
• Eligibility requirements
• Vesting requirements
• Benefits provided
Significant Accounting Policies
• Basis of accounting and use of estimates
• Valuation of investments at fair value
• Recognition of contributions and benefit payments
Investments and Fair Value Measurement
• Disclosure of fair value hierarchy (Levels 1, 2, and 3) in accordance with ASC 820
• Major investment concentrations
• Methods used to determine fair value for alternative investments
Risks and Uncertainties
• Interest rate risk, currency risk, credit risk, and other key risks that could significantly affect net assets available for benefits
• Disclosures regarding plan amendments or changes in law/regulations
Related-Party Transactions
• Any transactions between the plan and the plan sponsor or related entities, including plan sponsor’s stock or plan sponsor-provided services
Subsequent Events
• Material changes in plan assets or liabilities occurring between the plan’s year-end and the release date of the financial statements
–––––––––––––––––––––––––––––––––––––––––––––
Key Challenges and Common Pitfalls
Valuation Complexities
• Plans often hold complex or illiquid investments (e.g., hedge funds, private equity), requiring Level 3 fair value measurements. Ensuring thorough valuation documentation and disclosures is critical.
Incomplete or Late Contributions
• Delays in employer or participant contributions can lead to understatement of receivables. Proper cut-off procedures and audits of contribution timing should be implemented.
Administrative Oversight
• The plan sponsor may inadvertently misclassify administrative expenses or fail to capture them entirely. Regular reviews and reconciliations with trust statements can mitigate this risk.
Participant Loans
• Failure to properly track outstanding participant loans, accrued interest, and repayment schedules can lead to misstatements.
Definitions of Plan Expenses
• Plans can incur investment management fees, administrative fees, legal fees, trustee fees, etc. Ensuring that these fees are categorized correctly and appropriately disclosed is essential.
–––––––––––––––––––––––––––––––––––––––––––––
Short Case Study
Case Outline: A mid-sized manufacturing company, HighTech Fabrications, sponsors a single-employer defined benefit pension plan subject to the requirements of ASC 960. During the current reporting period, they amend the plan to include additional post-retirement health benefits, which significantly increase the actuarial present value of accumulated plan benefits. Simultaneously, the company shifts part of its investment strategy from publicly traded mutual funds to private equity investments.
Challenges and Reporting Outcomes:
• Actuarial Disclosure: HighTech must disclose the updated actuarial assumptions leading to the increased present value of accumulated plan benefits, along with the method used to estimate the additional retirement health coverage costs.
• Fair Value Measurement: The new private equity holdings require robust disclosure about valuation methodologies, including the usage of unobservable inputs for Level 3 investments.
• Statement of Changes in Accumulated Plan Benefits: This captures the plan amendment’s effect on the total benefit liability.
• Statement of Net Assets Available for Benefits: The value of the private equity investment is reflected at its estimated fair value, based on the best available information, with footnotes describing the valuation technique, significant assumptions, and inherent uncertainties.
This scenario underscores the interplay of plan amendments, investment strategies, and the heightened importance of thorough, transparent disclosures.
–––––––––––––––––––––––––––––––––––––––––––––
Best Practices and Recommendations
• Maintain Close Coordination with Service Providers: Working closely with actuaries, trustees, and investment managers ensures timely, accurate valuations and disclosures.
• Implement Thorough Internal Controls: Proper segregation of duties, robust documentation, and regular internal audits of participant data can substantially reduce errors.
• Stay Current with Regulatory Requirements: ERISA and DOL rules may augment or modify the disclosures required under ASC 960 and ASC 962.
• Present Clear, Concise Disclosures: While compliance is paramount, user-friendly narratives and tabular presentations help participants and stakeholders better understand the plan’s descriptions and changes.
• Conduct Regular Benefit Plan Audits: Whether external or internal, audits are invaluable for catching misstatements early and fine-tuning processes to ensure accurate and reliable reporting.
–––––––––––––––––––––––––––––––––––––––––––––
Summary
Reporting for employee benefit plans under ASC 960 and ASC 962 aims to provide a transparent snapshot of the plan’s financial condition to participants, regulators, and other users. Defined benefit plans typically require additional disclosures related to accumulated benefits, actuarial assumptions, and the funding policy, while defined contribution plans revolve around participants’ individual accounts and vesting schedules. In both cases, care must be taken to properly value investments, measure contributions, outline administrative costs, and detail any transactions with related parties or plan sponsors.
By adhering to best practices and ensuring robust internal controls, plan administrators and sponsors can maintain compliance and uphold the fiduciary responsibilities demanded by ERISA and other governing bodies. Impeccable plan financial statements can foster greater trust, inspire confidence among participants, and fulfill regulatory obligations with ease.
–––––––––––––––––––––––––––––––––––––––––––––
Quiz: Mastering ASC 960 and ASC 962 Reporting
–––––––––––––––––––––––––––––––––––––––––––––
For Additional Practice and Deeper Preparation
Business Analysis and Reporting (BAR) CPA Mock Exams
Business Analysis and Reporting (BAR) CPA Mocks: 6 Full (1,500 Qs), Harder Than Real! In-Depth & Clear. Crush With Confidence!
• Tackle full-length mock exams designed to mirror real BAR questions.
• Refine your exam-day strategies with detailed, step-by-step solutions for every scenario.
• Explore in-depth rationales that reinforce higher-level concepts, giving you an edge on test day.
• Boost confidence and minimize anxiety by mastering every corner of the BAR blueprint.
• Perfect for those seeking exceptionally hard mocks and real-world readiness.
Disclaimer: This course is not endorsed by or affiliated with the AICPA, NASBA, or any official CPA Examination authority. All content is for educational and preparatory purposes only.
