FASB Proposes Clarifications Related to Discount Rate Used to Measure the Benefit Obligation for Certain Market-Return Cash Balance Plans (June 11, 2026)

FASB Proposes Clarifications Related to Discount Rate Used to Measure the Benefit Obligation for Certain Market-Return Cash Balance Plans

Overview

On June 10, 2026, the FASB issued a proposed ASU 1 that would clarify the guidance in ASC 715-302 on the discount rate used to measure the benefit obligation for certain market-return cash balance plans. The purpose of the proposed ASU is to “reduce diversity in practice” and “better reflect the economics of [certain] market-return cash balance plans” that are within the scope of the proposed amendments. The proposed amendments would require entities to measure the benefit obligation by using the same rate used to project growth in participants’ hypothetical account balances (i.e., the assumed interest crediting rate).

Comments on the proposed ASU are due by August 10, 2026.

Background

In April 2025, the Emerging Issues Task Force (EITF) Agenda Committee added a project to the EITF’s agenda to address the application of the guidance in ASC 715-30 to certain market-return cash balance plans. Stakeholders noted that there was diversity in practice related to the measurement guidance in ASC 715-30 and that, at times, the resulting accounting did not reflect the economics of the plans.

At its September 9, 2025, meeting, the EITF deliberated the issue and voted to recommend clarifying ASC 715-30 to require entities to measure the benefit obligation for certain market-return cash balance plans by using a discount rate equal to the assumed interest crediting rate. At its January 14, 2026, meeting, the FASB approved the addition of a project on this topic to its technical agenda, made tentative decisions about the EITF’s recommendations, and instructed the staff to draft the proposed ASU.

Connecting the Dots

A cash balance plan is a defined benefit pension plan in which the employer establishes and tracks a hypothetical account balance comprising principal and interest credits for each plan participant. Principal credits are awarded on the basis of the plan’s terms, often depending on the participant’s age or years of service. The interest credits represent a return on those principal credits and accrue to the plan participant’s retirement benefit. The interest crediting rates are outlined by the terms of the plan and can be variable or fixed.

Market-return cash balance plans are a type of cash balance plan in which the variable interest crediting rates are based on investable market returns. In these plans, the plan participant can benefit from the actual investment returns of the principal credits.

As indicated in ASC 715-30-15-3(a), cash balance plans are within the scope of ASC 715-30, although ASC 715 does not currently provide specific guidance on market-return cash balance plans. In accordance with ASC 715-30-35-43, entities with cash balance plans are currently required to measure the benefit obligation by using an assumed discount rate at which “the pension benefits could be effectively settled.” As noted in paragraph BC6 of the proposed ASU, stakeholders “observed different interpretations in practice of how paragraph 715-30-35-43 should be applied in measuring the benefit obligation for market-return cash balance plans.” Further, some stakeholders indicated that “when an entity uses a discount rate other than the assumed interest crediting rate to measure the benefit obligation for a market-return cash balance plan, the benefit obligation often is different from the plan’s hypothetical account balance [and] this accounting outcome may not reflect the economics of the plan.”

The proposed amendments in ASC 715-30-35-43A are intended to reduce diversity in practice and better reflect the economics of these plans by specifying that entities must use the assumed interest crediting rate as the assumed discount rate for in-scope market-return cash balance plans. As noted in paragraph BC21 of the proposed ASU, when the assumed interest crediting rate is used as the discount rate, “the benefit obligation of an in-scope market-return cash balance plan would generally be equal to the plan’s hypothetical account balances, absent the effect of other actuarial assumptions.”

Main Provisions of the Proposed ASU

Scope

The proposed guidance (in ASC 715-30-35-43A) would apply to market-return cash balance plans that meet both of the following conditions:

Pension benefits are communicated to employees in the form of an account balance that comprises principal credits and interest credits based on an investable market return in any of the following forms:
1. The return on plan assets
2. The return on a subset of plan assets that approximates the associated cash balance liabilities
3. The return on a regulated investment company.
Participants have the option to elect lump-sum payments.

Connecting the Dots

ASC 715-30-35-43A outlines the characteristics that a market-based cash balance plan must possess to be within the scope of the proposed amendments. As described above, these characteristics include specific forms of investable market return and the ability to elect lump-sum payments.

Paragraph BC15 of the proposed ASU states, in part:

[T]he specified forms of investable market return included in the scope criteria are a subset of market rates of return defined by current regulations issued by the Employee Retirement Income Security Act and the Internal Revenue Service. Those regulatory requirements include specific criteria to assess each of those three forms of investable market return, and entities already apply that guidance to assess whether the design of a plan complies with the regulations.

Entities should consider consulting the regulatory requirements when determining whether their market-based cash balance plans are within the scope of the proposed amendments. In addition, because the proposal’s scope is narrow, entities are encouraged to discuss this matter with their legal and accounting advisers.

Subsequent Measurement

ASC 715-30-35-43A (added by the proposed ASU) would require entities with certain market-return cash balance plans to use the plan’s assumed interest crediting rate as the assumed discount rate when measuring the plan’s benefit obligation.

Outside of specifying the discount rate for entities to use when measuring the benefit obligation of in-scope market-return cash balance plans, the proposed amendments would not change how entities account for these plans under the current guidance in ASC 715-30.

Effective Date and Transition

Effective Date

The Board will determine the effective date after considering stakeholder feedback on the proposed ASU.

Transition

An entity would apply the proposed amendments prospectively as of its next pension measurement date under ASC 715-30 during the annual reporting period of adoption. Further, disclosure of the nature of and reason for the change in accounting principle would be required. Early adoption would be permitted at any time an entity performs its next pension measurement, regardless of whether such measurement is scheduled.

Contacts

	Aaron Shaw Audit & Assurance Partner Deloitte & Touche LLP +1 202 220 2122 aashaw@deloitte.com		Ignacio Perez Audit & Assurance Managing Director Deloitte & Touche LLP +1 203 761 3379 igperez@deloitte.com
	Kristin Bauer Audit & Assurance Partner Deloitte & Touche LLP +1 312 486 3877 kbauer@deloitte.com		Doug Jepsen Audit & Assurance Senior Manager Deloitte & Touche LLP +1 212 492 4213 djepsen@deloitte.com

Footnotes

FASB Proposed Accounting Standards Update (ASU), Compensation ― Retirement Benefits ― Defined Benefit Plans ― Pension (Subtopic 715-30): Discount Rate Used to Measure the Benefit Obligation for Certain Market-Return Cash Balance Plans.

For titles of FASB Accounting Standards Codification (ASC or “Codification”) references, see Deloitte’s “Titles of Topics and Subtopics in the FASB Accounting Standards Codification.”

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