Fair value vs contract value

[PAL]

I am hearing from our auditors that based on ASU 2015-12, for fixed income investments like stable value CCT's, contract value will be the new fair value on the plans financial statements. However, at this point I am unclear as to what value we would report on the 5500 for those funds: Fair value calculated based on the value of the underlying assets which is what we've been reporting or would we go back to treating contract value as fair value. Thoughts?

[benakt]

Was wondering if you were ever able to get an answer to this question outside of this forum? I'm struggling with the same question and would appreciate any information you've found. Thanks!

[chc93]

We recently worked on a plan that had such investment. We initially used the fair market value on the 5500, but the auditors insisted on the contract value. We called the Office of the Chief Accountant at EBSA and they said to use the fair market value on the 5500. However, the plan's auditor said that their benefits department said to use the contract value. The auditor essentially said that the contract value is the fair market value. So the client instructed us to use the contract value, which we did since the client sill sign the 5500.

[Peter Gulia]

For those plan administrators (and practitioners who advise them) who take seriously the idea that the plan administrator is the maker of a retirement plan's financial statements and is responsible to decide the accounting methods and policies, one can retrieve Accounting Standards Update 2015-12 (July 2015) at:

http://www.fasb.org/cs/ContentServer?c=Document_C&pagename=FASB%2FDocument_C%2FDocumentPage&cid=1176166228978

This Update is effective for years that begin after December 15, 2015, but early application is permitted.

[benakt]

chc93 ... I believe you hit the issue square on and back to the original question. What is fair market value for a stable value fund that holds guaranteed investment contracts? Is it contract value, or the value of the underlying investments? On page 21 of the FASB document Peter references above, BC8 and BC9 seem to indicate that these stable value funds are considered indirectly held FBRICs and "As such, while the amendments in Part I of this Update [ASU 2015-12] make it clear that those investments should no longer be reflected as fully benefit-responsive investment contracts, those investments may qualify for the practical expedient to measure at net asset value in Topic 820". In the financial statements of our stable value fund, NAV is calculated based on contract value, which seems to lead me to the logical conclusion that fair value is contract value, by way of NAV as a practical expedient.

That said, our recordkeeper, who prepares our 5500 for us, insists that fair value is the value of the underlying investments, and is not willing to budge on that. So, who's right?

[david rigby]

That said, our recordkeeper, who prepares our 5500 for us, insists that fair value is the value of the underlying investments, and is not willing to budge on that. So, who's right?

Is your recordkeeper also your auditor?

A "preparer" of the 5500 does not own the form or (more importantly) the filing itself. The "owner" of the 5500 and its accompanying financial statement is the Plan Administrator. Therefore, such decisions are in the wheelhouse (technical term) of the PA.

[Peter Gulia]

Consider too that an administrator's Form 5500 financial-statements Schedule may report a contract on fair value even if the administrator's other financial statements (that are the subject of the independent qualified public accountant's report) report the same contract on contract value.

The AICPA's Audit & Accounting Guide for Employee Benefits Plans tells an IQPA to include in its report a reconciliation between the Form 5500 amounts and the other financial statements' amounts.

[benakt]

Thanks for the responses! I do understand that ultimately the form 5500 is my responsibility. Our recordkeeper is Principal Financial, and the stable value fund is their investment, so I'm hesitant to deviate from how they report it, because I'm certain they prepare thousands of 5500s for clients that include that same investment. Also given their size and resources, I feel I need to give some weight to that. The other thing that a colleague pointed out is that the opinion of FASB carries weight for financial reporting, but may not necessarily carry over to IRS reporting on the 5500. I'm leaning towards your suggestion Peter to report our financials as I feel correct, accepting Principal's guidance on the 5500, and then reconciling the two in the footnotes.