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Statutory Accounting Principles Working Group
Maintenance Agenda Submission Form
Form A
Issue: Move INT 13-03 Guidance into Applicable SSAPs
Check (applicable entity):
P/C
Life
Health
Modification of existing SSAP
New Issue or SSAP
Description of Issue: INT 13-03: Clarification of Surplus Deferral in SSAP No. 92 & SSAP No. 102 was
adopted in December 2013 to clarify that the deferral option was not intended to allow for more a favorable
surplus position related to pension or OPEB plans. This agenda item proposes to move the INT 13-03
guidance directly into SSAP No. 92—Accounting for Postretirement Benefits Other Than Pensions and SSAP
No. 102—Accounting for Pensions. Once the guidance is moved into the SSAPs, INT 13-03 would be
nullified.
Existing Authoritative Literature:
SSAP No. 92—Accounting for Postretirement Benefits Other Than Pensions and SSAP No. 102—Accounting
for Pensions as interpreted by INT 13-03:
INT 13-03 Issue
1.
In March 2012, the Statutory Accounting Principles (E) Working Group finalized SSAP No. 92
and SSAP No. 102 to adopt with modification GAAP guidance pertaining to pensions and
postretirement benefit obligations other than pensions. As a result of the accounting guidance, and
potential impact to surplus reflected in both SSAPs, the Working Group adopted transition guidance
that allowed a surplus deferral for a period not to exceed ten years.
2.
Per the surplus deferral provisions within the SSAPs, the deferral option was not intended to
allow a surplus benefit to be recognized at initial transition for an unfunded plan. Additionally, the
SSAPs required a minimum amount of the deferred liability to be subsequently recognized under the
deferral option to cover the annual amortization of the “unrecognized items” into net periodic cost and
prevent a surplus benefit.
3.
The SSAPs also incorporated guidance to indicate that the reporting entities must recognize
remaining transition liability to the extent that the plan reflects a prepaid benefit cost, with an example
that if changes in circumstances resulted with the plan reflecting an overfunded status; the remaining
transition liability must be recognized to the extent the plan is overfunded. Furthermore, the guidance
indicated that if circumstances resulted with a subsequent gain attributed to the plan that would be
recognized in earnings, the entity must recognize an additional amount of the remaining transition
liability to offset the recognized gain.
4.
Due to the current market environment resulting with increases in the fair value of plan assets
and/or changes in discount rates that have reduced the projected obligations for pension and OPEB
plans, questions have been received as to whether the reduction in pension or OPEB liabilities on the
balance sheet, resulting in more favorable surplus positions related to the pension/OPEB plans,
should be permitted when there are remaining unrecognized liabilities from the surplus deferral
elected at transition of SSAP No. 92 and SSAP No. 102. These questions often refer to the current
guidance in the SSAPs, which provide the example of a plan being in an overfunded state, or that the
gain is recognized in earnings, as criteria for when an additional amount of the remaining transition
liability is needed to offset the recognized gain. As the changes in fair value or discount rates (and
other changes such as curtailments or settlements) may not result in an overfunded plan, and may
not be recognized in earnings, there is uncertainty with regards to the application of the guidance.
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5.
The accounting issue is whether a surplus benefit was intended to result from pension/OPEB
changes or activities when an unrecognized pension/OPEB transition liability continues to exist.
INT 13-03 Discussion
6.
The Working Group reached a consensus that the existing explicit guidance highlighting the
intent to prevent a surplus benefit reflects the original objective of the surplus deferral guidance in
SSAP No. 92 and SSAP No. 102. As such, the guidance in SSAP No. 92 and SSAP No. 102 was not
intended (on a net basis for each plan) to result in more favorable, subsequent surplus pension/OPEB
positions when there are remaining unrecognized liabilities as a result of the reporting entity’s initial
election for surplus deferral.
7.
In accordance with this consensus, if there is a plan curtailment, settlement, or other plan
amendment resulting in a reduction of benefit obligations, or net benefit obligation gains due to
revisions in assumptions (e.g., discount rates) or plan experience differing from assumptions, or plan
asset gains due to the actual return on plan assets exceeding the expected return on plan assets, a
corresponding amount of unrecognized liability from the surplus deferral shall be recognized. For this
purpose, net gains, if any, are the net aggregation of all gains and losses (excluding plan
amendments that increase benefit obligations) from factors such as those listed above, determined as
of a measurement or remeasurement date. This shall occur regardless if the impact from the change
results with the plan being in an overfunded state, or whether the gain is recognized in earnings. The
Working Group agrees that the intent of the original guidance was to provide surplus relief from the
immediate surplus impact from adopting SSAP No. 92 and SSAP No. 102, but that in no instances
should changes (on a net basis for each plan) attributed to pension or OPEB plans result in more
favorable, subsequent surplus positions when there are unrecognized liabilities remaining as a result
of the reporting entity’s initial election for surplus deferral.
INT 13-03 Status
8.
No further discussion anticipated.
Activity to Date (issues previously addressed by SAPWG, Emerging Accounting Issues WG, SEC,
FASB, other State Departments of Insurance or other NAIC groups): The SAPWG has previously
adopted revisions to move guidance from INTs into the underlying SSAPs.
Information or issues (included in Description of Issue) not previously contemplated by the SAPWG:
None
Staff Recommendation:
It is staff’s recommendation that the Working Group move this item to the nonsubstantive active listing
and expose nonsubstantive revisions to SSAP Nos. 92 and 102 as shown, with renumbering of
subsequent paragraphs. Upon adoption, INT 13-03 would be nullified and moved to Appendix H. This
is considered a nonsubstantive issue as it is strictly a placement change.
Proposed Revisions to SSAP No. 92:
Effective Date and Transition
103.
Gains or losses, prior service costs or credits (including prior service costs for non-vested
participants pursuant to paragraph 37), and remaining transition assets or obligations (collectively
referred to as “unrecognized items”) from prior application of SSAP No. 14 that have not yet been
included in net periodic benefit cost as of December 31, 20121 shall be recognized as components of
1
The intent of the guidance is to recognize the unrecognized amounts as of Dec. 31, 2012, annual statements, even if
new actuarial projections (expected postretirement benefit obligations) are calculated as of Jan. 1, 2013. (These
projections would be considered in the recognition of the 2013 pension cost.)
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the ending balance of unassigned funds (surplus), net of tax, as of January 1, 2013 (provided that
alternative transition is not elected per paragraph 104.b.). The offset to unassigned funds is reported
separately as an “Aggregate Write-In for Other Than Invested Assets” or as an “Aggregate Write-In
for Other Liabilities.” After recognition, the full unfunded or overfunded status or the plan shall be
reflected within the financial statements. Any prepaid asset resulting from an overfunded plan shall be
nonadmitted.
104.
Due to the potential impact to surplus as a result of immediately applying the accounting
guidance in paragraph 103, reporting entities may elect one of the following two methods, on an
individual plan basis, to recognize the transition surplus impact:
a. Reporting entities may elect to recognize the entire transition surplus impact calculated
from applying paragraph 103, on an individual plan basis, as of January 1, 2013.
b. Alternatively, reporting entities may elect to recognize the entire surplus impact from
applying paragraph 103, on an individual plan basis, over a period not to exceed ten (10)
years. The surplus impact initially recognized as of January 1, 2013, under this transition
option, and subsequently over the transition period, shall be the greater of:
i.
Ten percent of the calculated surplus impact as of the transition date; and
ii.
Amortization2 of the “unrecognized items” (defined in paragraph 103) into net
periodic benefit cost, including any accelerated amortization of these items from
curtailments or settlements that occur after the transition date. (If the amortization
cannot be determined at transition, at a minimum, the amount amortized for
“unrecognized items” during the prior year shall be utilized for this component of
the calculation. If the amount recognized for transition (greater of both
components in paragraph 104.b.) is subsequently determined to be less than
what is amortized for the year (104.b.ii.), the difference between what was
recognized for transition, and what is amortized must immediately be recognized
as an adjustment to the transition impact to unassigned funds – surplus.);
105.
If the surplus deferral (paragraph 104.b.)_is elected at the transition date, subsequently,
starting with the 2014 year-end financial statement, the reporting entity shall annually recognize the
remaining surplus impact (collectively referred to as the “transition liability”3) on a systematic basis
over a period not to exceed nine years. The minimum amount recognized each subsequent year shall
be an amount that reflects the conditions within paragraph 104.b. Reporting entities that elect the
transition option in paragraph 104.b. are permitted to recognize the remaining transition liability, or an
amount in excess of the minimum requirement, at any time after the transition date.
106.
Reporting entities that elect the transition option in paragraph 104.b. must recognize any
remaining transition liability to the extent that the plan reflects a prepaid benefit cost. (For example, if
changes in circumstances have resulted with the plan reflecting an overfunded status, the remaining
transition liability must be recognized to the extent that the plan is overfunded.) The transition
guidance in paragraph 104.b. is not intended (on a net basis for each plan) to result in more favorable
subsequent surplus positions when there are remaining liabilities as a result of the reporting entity’s
initial election for surplus deferral. Therefore, if there is a plan curtailment, settlement, or other plan
2
Unless otherwise impacted from the provisions within this statement or in accordance with changes to the benefit plan,
the amortization of the unrecognized items into net periodic benefit cost shall continue to follow the existing amortization
schedules in effect on the transition date.
3
If the surplus deferral from paragraph 104.b. is elected, the deferred liability, although comprised of the previous
“unrecognized items” shall be collectively referred to as the “transition liability.” Although reporting entities will need to
continue to track the unrecognized items for amortization into net periodic cost (offset through unassigned funds),
reporting entities shall not allocate the recognized surplus impact from transition to these categories. As noted in
paragraph 104.b.ii., the minimum amount of liability recognized under the deferral option must cover the annual
amortization of the “unrecognized items” into net periodic benefit cost to prevent a surplus benefit.
© 2014 National Association of Insurance Commissioners 3
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amendment resulting in a reduction of benefit obligations, or net benefit obligation gains due to
revisions in assumptions (e.g., discount rates) or plan experience differing from assumptions, or plan
asset gains due to the actual return on plan assets exceeding the expected return on plan assets, a
corresponding amount of unrecognized liability from the surplus deferral shall be recognized. For this
purpose, net gains, if any, are the net aggregation of all gains and losses (excluding plan
amendments that increase benefit obligations) from factors such as those listed above, determined as
of a measurement or remeasurement date. This shall occur regardless if the impact from the change
results with the plan being in an overfunded state, or whether the gain is recognized in earnings. The
transition guidance was to provide surplus relief from the immediate surplus impact from adopting this
statement, but in no instance should changes (on a net basis for each plan) attributed to OPEB plans
result in more favorable, subsequent surplus positions when there are unrecognized liabilities
remaining as a result of the reporting entity’s initial election for surplus deferral. (The guidance in this
paragraph was originally contained within INT 13-03: Clarification of Surplus Deferral in SSAP No. 92
& SSAP No. 102 and was effective December 15, 2013.)
107.
Thei transition guidance in paragraphs 103-107 is specific to the transition surplus impact
from initially applying this statement on Jan. 1, 2013. Thus, this transition guidance does not apply to
additional liability calculated from subsequent comparison of the fair value of plan assets to the
accumulated benefit obligation, or the impact of subsequent plan amendments.
Proposed Revisions to SSAP No. 102:
Effective Date and Transition
85.
Gains or losses, prior service costs or credits (including prior service costs for non-vested
participants pursuant to paragraph 11), and remaining transition assets or obligations from prior
application of SSAP No. 89 (collectively referred to as “unrecognized items”) that have not yet been
4
included in net periodic benefit cost as of December 31, 2012 shall be recognized as components of
the balance of unassigned funds (surplus), net of tax, as of January 1, 2013 (provided that alternative
transition is not elected per paragraph 86.b.). The offset to unassigned funds is reported separately
as an “Aggregate Write-In for Other-Than-Invested Assets” or as an “Aggregate Write-In for Other
Liabilities.” After recognition, the full unfunded or overfunded status of the plan shall be reflected
5
within the financial statements. Any prepaid asset resulting from an overfunded plan shall be
nonadmitted.
86.
Due to the potential impact to surplus as a result of immediately applying the accounting
guidance in paragraph 85, reporting entities may elect one of the following two methods, on an
individual plan basis, to recognize the transition surplus impact:
a.
Reporting entities may elect to recognize the entire transition surplus impact
calculated from applying paragraph 85, on an individual plan basis, as of January 1,
2013.
b.
Alternatively, reporting entities may elect to recognize the entire surplus impact from
applying paragraph 85, on an individual plan basis, over a period not to exceed ten
(10) years. The surplus impact initially recognized as of January 1, 2013, under this
transition option, and subsequently over the transition period, shall be the greater of:
4
The intent of the guidance is to recognize the unrecognized amounts as of December 31, 2012, annual statements, even if new
actuarial projections (accumulated benefit obligation/projected benefit obligation amounts) are calculated as of January 1, 2013. (These
projections would be considered in the recognition of the 2013 pension cost.)
5
Upon the effective date of this statement, reporting entities are required to reflect the full unfunded or overfunded status of their defined
benefit pension plans. As such, the concept of an “additional minimum liability” previously reflected in SSAP No. 89—Pensions is not
incorporated within this statement. If an additional minimum liability (and a corresponding intangible asset) had been recognized under
SSAP No. 89, such items shall be eliminated with the implementation of this statement, and the guidance in paragraph 86 shall be
followed. The elimination of any additional minimum liability and corresponding intangible asset shall also occur if the entity elects the
transition option reflected in paragraph 86.b.
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i.
Ten percent of the calculated surplus impact as of the transition date;
ii.
Amortization of the “unrecognized items” (defined in paragraph 85) into net
periodic pension cost, including any accelerated amortization of these items
from curtailments or settlements that occur after the transition date. (If the
amortization cannot be determined at transition, at a minimum, the amount
amortized for “unrecognized items” during the prior year shall be utilized for
this component of the calculation. If the amount recognized for transition
(greater of all three components in paragraph 86.b.) is subsequently
determined to be less than what is amortized for the year (86.b.ii.), the
difference between what was recognized for transition, and what is amortized
must immediately be recognized as an adjustment to the transition impact to
unassigned funds (surplus);
iii.
Amount necessary to establish a total liability that is equal to any unfunded
accumulated benefit obligation (the accumulated benefit obligation less the
7
fair value of plan assets).
6
87.
If the surplus deferral (paragraph 86.b.) is elected at the transition date, subsequently,
starting with the 2014 year-end financial statement, the reporting entity shall annually recognize the
8
remaining surplus impact (collectively referred to as the “transition liability” ) on a systematic basis
over a period not to exceed nine years. The minimum amount recognized each subsequent year shall
be an amount that reflects the conditions within paragraph 86.b. Reporting entities that elect the
transition option in paragraph 86.b. are permitted to recognize the remaining transition liability, or an
amount in excess of the minimum requirement, at any time after the transition date.
88.
Reporting entities that elect the transition option in paragraph 86.b. must recognize any
remaining transition liability to the extent that the plan reflects a prepaid benefit cost. (For example, if
changes in circumstances have resulted with the plan reflecting an overfunded status, the remaining
transition liability must be recognized to the extent that the plan is overfunded.) The transition
guidance in paragraph 86.b. is not intended (on a net basis for each plan) to result in more favorable,
subsequent surplus pension positions when there are remaining unrecognized liabilities as a result of
the reporting entity’s initial election for surplus deferral. Therefore, if there is a plan curtailment,
settlement, or other plan amendment resulting in a reduction of benefit obligations, or net benefit
obligation gains due to revisions in assumptions (e.g., discount rates) or plan experience differing
from assumptions, or plan asset gains due to the actual return on plan assets exceeding the expected
return on plan assets, a corresponding amount of unrecognized liability from the surplus deferral shall
be recognized. For this purpose, net gains, if any, are the net aggregation of all gains and losses
(excluding plan amendments that increase benefit obligations) from factors such as those listed
above, determined as of a measurement or remeasurement date. This shall occur regardless if the
impact from the change results with the plan being in an overfunded state, or whether the gain is
recognized in earnings. The transition guidance was to provide surplus relief from the immediate
surplus impact from adopting SSAP No. 102, but in no instance should changes (on a net basis for
each plan) attributed to pension plans result in more favorable, subsequent surplus positions when
6
Unless otherwise impacted from the provisions within this statement or in accordance with changes to the pension plan, the
amortization of the unrecognized items into net periodic pension cost shall continue to follow the existing amortization schedules in effect
on the transition date.
7
The intent of this standard is to ensure that under the deferral option the liability initially recognized for an unfunded plan reflects the
minimum liability previously recognized under SSAP No. 89. For any instances in which an additional minimum liability recognized under
SSAP No. 89 is greater than the unfunded ABO at transition, an amount equal to the previously recognized additional minimum liability
shall be used in determining this component of 86.b.iii. The deferral option under this standard is not intended to allow a surplus benefit
to be recognized at initial transition for an unfunded plan.
If the surplus deferral from paragraph 86.b. is elected, the deferred liability, although comprised of the previous “unrecognized items”
shall be collectively referred to as the “transition liability.” Although reporting entities will need to continue to track the unrecognized items
for amortization into net periodic cost (offset through unassigned funds), reporting entities shall not allocate the recognized surplus
impact from transition to these categories. As noted in paragraph 86.b.ii., the minimum amount of liability recognized under the deferral
option must cover the annual amortization of the “unrecognized items” into net periodic pension cost to prevent a surplus benefit.
8
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there are unrecognized liabilities remaining as a result of the reporting entity’s initial election for
surplus deferral. The guidance in this paragraph was originally contained within INT 13-03:
Clarification of Surplus Deferral in SSAP No. 92 & SSAP No. 102 and was effective December 15,
2013.
89.
The transition guidance in paragraphs 85-89 is specific to the transition surplus impact from
initially applying this statement on January 1, 2013. Thus, this transition guidance does not apply to
additional liability calculated from subsequent comparison of the fair value of plan assets to the
projected benefit obligation, or the impact of subsequent plan amendments.
Staff Review Completed by:
Linda Hunsucker – September 24, 2014
NAIC staff
Status:
On November 16, 2014, the Statutory Accounting Principles (E) Working Group moved this item to the
nonsubstantive active listing and exposed nonsubstantive revisions to SSAP No. 92 and SSAP No. 102 to
incorporate the guidance from INT 13-03, as illustrated above.
G:\DATA\Stat Acctg\3. National Meetings\A. National Meeting Materials\2014\fall\NM Exposures\14-33 INT 13-03 move to SSAPs 92 102.docx
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