Accounting Standards Codification (ASC) 715, Compensation - Retirement Benefits

ASC 715 applies to all employers, including not-for-profit entities (NFPs), that offer postretirement benefits to their employees. Three common types of plans are single-employer, multiemployer and multiple-employer plans. Single-employer plans are further classified as either defined benefit or defined contribution plans. Regardless of the type of plan, employers need to consider both the written plan and unwritten practices to appropriately account for their postretirement arrangements.

ASC 715 requires measurement of an employers' plan assets and benefit obligations at the employer's year end and upon the occurrence of a significant event (e.g., a significant plan amendment). If a significant event occurs during the year that calls for a remeasurement, the benefit obligation and plan assets are remeasured and the net periodic benefit cost is recalculated for the remainder of the year.

ASC 715 requires plan assets be segregated and restricted, usually in a trust. They must be paid to the trust and cannot be used for other purposes at the company's discretion. If an asset does not meet these requirements, it cannot be considered a plan asset and, therefore, must be presented outside of the funded status on the employer's statement of financial position. 

Measuring the benefit obligation is complex and requires actuarial techniques and the use of best estimates or assumptions about future events, including salary increases, medical costs and mortality rates. The benefit obligation is the present value of the future benefits expected to be paid, discounted at current market rates. The measurement of the benefit obligation is based on the benefit formula described in the defined benefit plan and enacted laws and regulations. The two fundamental aspects to measuring the benefit obligation are (1) attributing the cost of benefits to individual years of service and (2) the estimates or assumptions that are made concerning the future events.