FASB Proposes Rule for Cash Balance Plans, Setting Discount Rates to Assumed Credits by Aug. 10
Updated
Updated · PLANSPONSOR · Jun 17
FASB Proposes Rule for Cash Balance Plans, Setting Discount Rates to Assumed Credits by Aug. 10
2 articles · Updated · PLANSPONSOR · Jun 17
Summary
June 10’s exposure draft would require employers to measure certain market-based cash balance plan obligations using a discount rate equal to the plans’ assumed interest-crediting rate.
The change targets plans that offer lump-sum payouts and present benefits as account balances tied to investable market returns, where current practice has produced inconsistent liabilities that can exceed participant balances.
If finalized, sponsors could apply the guidance prospectively at their next pension measurement date, a shift consultants say would remove artificial volatility and reduce accounting-driven hesitation about adopting these plans.
August 10 is the comment deadline, after FASB moved ahead in January following an Emerging Issues Task Force recommendation and amid rapid growth in market-based cash balance designs.
About 60% of U.S. defined benefit plans are now cash balance plans, and October Three says the share of those using market-based crediting rates has climbed from roughly 10% in 2018 to about 60%.