September 2025

Affects: All entities.

Background: At its April 2025 meeting, the EITF Agenda Committee added a project to its agenda related to the application of ASC 7151 to market-return cash balance plans. The EITF deliberated the issue summary at its September 9, 2025, meeting.

Paragraph 4 of the issue summary states, in part, “Traditional defined benefit pension plans were designed to facilitate retirement for career employees. An employee’s compensation would eventually exceed their value to a company, and a pension effected a timely transition to retirement” (footnote omitted). However, as the workforce has become more mobile, the use of defined contribution plans and cash balance plans has increased because they provide benefits on the basis of the current value of the account balance, rather than the future value.

Moreover, paragraph 21 of the issue summary states, in part, “A market-return cash balance plan is an emerging type of variable interest crediting rate cash balance plan. Interest credits are based on an investable market return, such as the return on plan assets, the return on a subset of plan assets that approximates the associated cash balance liabilities, or the return on a regulated investment company (for example, a mutual fund or exchange-traded fund).” A market-return cash balance plan functions economically similarly to a 401(k) (which represents a defined contribution plan) since the benefits to participants upon retirement or termination represent principal credits and the investment returns on those credits. However, the guidance in ASC 715 states that a cash balance plan is a defined benefit plan in which entities apply the traditional unit credit method for fixed interest crediting rates even though the interest crediting rate for a market-return cash balance plan is variable. This typically results in a benefit obligation that exceeds the accumulated hypothetical account balances, which some have observed does not accurately reflect the economic substance of these plans.

The EITF deliberated the merits of three alternatives:

• Alternative A — “When measuring the benefit obligation for a market-return cash balance plan under the existing defined benefit accounting model in Subtopic 715-30, it would be appropriate to set the discount rate equal to the assumed interest crediting rate.”
• Alternative A1 — “When measuring the benefit obligation for a plan that promises benefits based on the expected returns on investable assets under the existing defined benefit accounting model in Subtopic 715-30, the discount rate used would be set equal to the rate of expected asset returns.”
• Alternative B — “The benefit obligation for a market-return cash balance plan is measured equal to the total hypothetical account balances of the plan as of the measurement date.”

The deliberations primarily focused on whether to provide a narrower scope limited to plans that meet the definition of a market-return cash balance plan (i.e., Alternative A) or whether to establish a principle for when the discount rate could be equal to the expected asset returns (i.e., Alternative A1). Under Alternative A1, it is possible that other plans, such as variable annuity plans and certain foreign plans, could be within the scope of this issue.

Summary: At its September 9, 2025, meeting, the EITF made the following decisions:

• The EITF voted 8 to 3 in favor of Alternative A, recommending that an entity be required to measure the benefit obligation for market-return cash balance plans under the existing defined benefit accounting model in ASC 715-30 by setting the discount rate equal to the assumed interest crediting rate.
• EITF members unanimously agreed that the proposed changes should apply to all entities and recommended that either prospective or retrospective adoption be permitted.

Next Steps: The FASB staff will prepare an agenda decision memo for the Board to discuss, at a public meeting, whether to add the project to its agenda. The memo will include the materials addressed by the EITF, a summary of the EITF’s discussions, the basis for the EITF’s recommendation, and an analysis of the FASB’s agenda criteria.