This free, guided checker walks your finance team through the key decision points for ASC 715 Defined Benefit Plan Accounting. Answer a few questions to see the likely treatment and the evidence to document.
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This tool is a high-level US GAAP screening aid for general information only and is not accounting, audit or legal advice. Conclusions require entity-specific evidence and judgement - confirm the treatment with your advisor.
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The defining question is who bears the risk. In a defined benefit plan the employer promises a determinable benefit and absorbs actuarial and investment experience; in a defined contribution plan the promise is the contribution itself. Cash balance plans are defined benefit plans under US GAAP even though they express the benefit as an account balance, a common misclassification trap.
Account for the plan under ASC 715-70; net cost is generally the contribution required for the period. Account for the plan under ASC 715-80; recognize the required contribution as expense and a liability for unpaid contributions.
Official guidance: FASB Accounting Standards Codification
All three settlement characteristics must be present: irrevocability, relief from primary responsibility, and elimination of significant risk. A lump-sum window offered to terminated vested participants and a nonparticipating annuity purchase are the classic examples. Investing in high-quality bonds that mirror the obligation, or purchasing a buy-in contract the employer still controls, does not settle the obligation because risk is not eliminated and the action is not irrevocable.
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Official guidance: FASB Accounting Standards Codification
ASC 715-30-35-82 sets a practical threshold: compare the aggregate cost of all settlements in the year against the sum of the service cost and interest cost components for the year. Track lump sums cumulatively during the year, because a series of individually small payouts can cross the threshold late in the year and force retrospective settlement accounting for the annual period. Under ASU 2017-07 presentation, any settlement charge is reported with the other components outside operating income.
Settlement accounting is required; recognize the pro rata settlement gain or loss under ASC 715-30-35-79.
Official guidance: FASB Accounting Standards Codification
Below the threshold, ASC 715-30-35-82 makes settlement recognition an accounting policy choice, not a free option each year: whichever approach the entity adopts must be applied consistently from period to period. Switching between recognizing and not recognizing below-threshold settlements to manage earnings is not acceptable, and a change in the policy would need to be evaluated under ASC 250 as a change in accounting principle.
Apply settlement accounting under the entity's consistent policy election; recognize the pro rata gain or loss under ASC 715-30-35-79.
Official guidance: FASB Accounting Standards Codification
Curtailments and settlements are separate events that can occur together: a plant closing may curtail the plan (employees stop accruing benefits) while lump-sum payouts settle part of the obligation, and each piece is accounted for under its own model. Normal turnover is not a curtailment. Judge significance against the plan as a whole, and document the measurement date of the triggering event because curtailment losses and gains have different recognition timing.
Apply curtailment accounting: write off associated prior service cost and measure the curtailment gain or loss under ASC 715-30-35-92 through 35-95.
Official guidance: FASB Accounting Standards Codification
ASU 2017-07 disaggregated net periodic benefit cost: only service cost belongs with employee compensation in operating results, and only service cost may be capitalized. If the income statement presents an operating subtotal, the other components must sit outside it, either as a separate line or combined with an appropriately described caption, with the line items disclosed under ASC 715-20-45-3B. A common error is leaving amortization of prior service cost in cost of sales after adoption.
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Official guidance: FASB Accounting Standards Codification
Each significant assumption must individually represent the best estimate for that assumption alone; offsetting a high discount rate with conservative mortality is not permitted. Support the discount rate with a yield-curve or bond-matching analysis of high-quality corporate bonds as of the measurement date, tie the expected long-term rate of return to the target allocation and capital market assumptions, and confirm the actuary is using current published mortality tables and improvement scales rather than outdated ones.
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Official guidance: FASB Accounting Standards Codification
ASC 715-30-35-18 through 35-25 establish delayed recognition as the default: gains and losses go to other comprehensive income when incurred and are reclassified to net periodic benefit cost over time. The corridor in ASC 715-30-35-24 is a minimum; ASC 715-30-35-25 permits any systematic method that amortizes at least as fast, treats gains and losses alike, is applied consistently, and is disclosed. Moving from the corridor to a faster method is a change in accounting principle requiring a preferability assessment under ASC 250.
The accelerated policy is acceptable if it meets the ASC 715-30-35-25 conditions; document consistency and disclosure. Immediate recognition in earnings is permitted; gains and losses never accumulate in AOCI under this policy.
Official guidance: FASB Accounting Standards Codification
Run the corridor test once a year using beginning-of-year balances: compare the net gain or loss in AOCI to 10 percent of the greater of the projected benefit obligation or the market-related value of plan assets. The minimum amortization is the excess divided by the average remaining service period of active employees expected to receive benefits; if all or almost all participants are inactive, use their average remaining life expectancy instead. Using a calculated market-related value that smooths asset returns over up to five years changes both sides of the test, so apply the definition consistently.
Amortize at least the excess over the corridor, divided by the average remaining service period of active employees expected to receive benefits (ASC 715-30-35-24). No minimum amortization is required this period; the net gain or loss stays in AOCI and the corridor test is repeated next year (ASC 715-30-35-24).
Official guidance: FASB Accounting Standards Codification
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