FASB issues statement 133 implementation guidance for employee benefit plan contracts.

• Position: Accounting & auditing news - Financial Accounting Standards Board - Brief Article

According to the Financial Accounting Standards Board, questions have been raised regarding proper accounting for such contracts as insurance contracts, guaranteed investment contracts and synthetic GICs since issuance of its Statement No. 133 (Accounting for Derivative Instruments and Hedging Activities). Statement 110, Reporting by Defined Benefit Pension Plans of Investment Contracts, amends Statement No. 35, Accounting and Reporting by Defined Benefit Pension Plans, to require defined benefit plans to report insurance contracts "in the same manner as specified in the annual report filed by the plan with certain governmental agencies pursuant to ERISA" (i.e., at either fair value or contract value). AICPA Statement of Position 94-4, Reporting of Investment Contracts Held by Health and Welfare Benefit Plans and Defined-Contribution Pension Plans, indicates that a fully benefit-responsive investment contract should be reported at contract value and provides an example of a fully benefit-responsive synthetic GIC as an investment contract that is subject to SOP 94-4.

A potential conflict with Statement 133 arises because for some insurance contracts with embedded derivatives, Statement 133 requires that the insurance contract be bifurcated and the embedded derivative be accounted for separately (i.e., at fair value). In addition, Statement 133 Implementation Issue No. A16, "Synthetic Guaranteed Investment Contracts" which was cleared in Mar. 2001, concludes that synthetic GICs meet Statement 133's definition of a derivative instrument from the perspective...