The document summarizes new accounting guidance from the National Association of Insurance Commissioners (NAIC) for pensions and other postretirement benefits for insurance companies. The new guidance adopts many of the provisions of ASC 715, such as including nonvested benefits in obligations, using fair value of plan assets to determine costs, and recognizing unfunded obligations on the balance sheet. However, it differs from ASC 715 in some areas like the treatment of gains/losses and transition rules. The guidance is aimed to simplify accounting compared to prior statutory standards, but recognizing unfunded obligations may burden some companies.

1. HRS Insight
2013, Vol. 25
www.pwc.com
New pension accounting for
insurance companies
November 25, 2013
In brief
The National Association of Insurance Commissioners (NAIC) has changed employers’ accounting for
pensions and other postretirement benefits. The new guidance applies the provisions of ASC 715,
Compensation — Retirement Benefits, to pension and other postretirement benefits accounting for
insurance companies, with several exceptions. This Insight describes the new accounting guidance.
In detail
Background
Insurance companies are
regulated on a state-by-state
basis in the United States. As
discussed in the NAIC’s
Statutory Accounting Principles
Preamble, each state has its own
regulatory framework generally
led by an insurance
commissioner. Insurance
commissioners are charged with
overseeing the financial
condition of insurance
companies doing business in
their jurisdictions and they
require meaningful financial,
statistical, and operating
information about the
companies.
This financial oversight is
designed to help ensure that
policyholders and claimants
receive the requisite benefits
from the policies sold,
oftentimes such products having
been sold years or decades prior
to when the benefits are due.
Frequently, this regulatory
perspective differs markedly
from the perspectives of other
users of insurers’ accounting
information. In recognition of
these special concerns and
responsibilities, statutory
accounting principles have been
established by statute and
regulation.
The objective of US GAAP
reporting differs in certain
respects from the objective of
Statutory Accounting Principles
(SAP). US GAAP is designed to
meet the varying needs of the
different users of financial
statements. SAP is designed to
address the concerns of
regulators, who are the primary
users of statutory financial
statements. As a result, GAAP
stresses the current financial
performance and operating
results of the entity, while SAP
stresses measurement of the
insurance company's ability to
pay claims in the future.
Insurance companies that
report financial results under
both US GAAP Accounting
Standards Codification (ASC)
and the NAIC Statements of
Statutory Accounting Principles
(SSAPs) need to ensure that
differences in accounting and
reporting for employee benefits
are appropriately considered.
While the NAIC's SSAPs are
primarily based on existing US
GAAP guidance, some
significant differences exist. For
employee benefits, some of the
more recent accounting
standards issued under US
GAAP such as FAS 158 had not
been adopted by the NAIC as
part of the SSAPs.
At its Spring 2012 National
Meeting, the NAIC adopted
Statement of Statutory
Accounting Principles No. 102
(SSAP No. 102), Accounting

2. HRS Insight
for Pensions, A Replacement of SSAP
No.89 and Statement of Statutory
Accounting Principles No. 92 (SSAP
No. 92), Accounting for
Postretirement Benefits Other Than
Pensions, A Replacement of SSAP No.
14. The more significant changes from
SSAP No. 89 and SSAP No. 14
include:
 Inclusion of obligations
attributable to nonvested benefits
in the determination of projected
benefit obligation (PBO) and
accumulated postretirement
benefit obligation (APBO) and net
periodic plan cost
 Requirement to use fair value of
plan assets in determining net
periodic pension plan costs
 Recognition of unfunded benefit
obligations in the statement of
financial position (surplus/non-admitted
assets)
 Recognition of unamortized
transition assets or obligations,
prior service costs and gains and
losses in unassigned funds
 Measurement date as of fiscal year
end.
Observation
For employers filing under US GAAP
as well as SAP, the new guidance
may simplify the process of
determining employee benefit
obligations and net periodic plan
cost, since the new SAP requirements
incorporate many of the provisions of
ASC 715 that had previously not been
included in the prior SSAPs.
However, the requirement to
recognize the unfunded benefit
obligation, including obligations for
nonvested plan participants, may
prove onerous for many employers,
especially employers who provide
other postretirement benefits, since
obligations for employees who are
not yet eligible to retire are generally
considered to be nonvested.
SSAP No. 102 and SSAP No. 92 adopt
the provisions of ASC 715 with the
following exceptions:
 In determining the expected
return on plan assets and the 10%
corridor for gain/loss
amortization, plan assets must be
valued at fair value (i.e. a
calculated value as permitted
under US GAAP will not be
permitted under SAP).
 All references to other
comprehensive income (OCI) and
accumulated OCI in US GAAP
have been revised to reflect
unassigned funds (surplus).
 Prepaid assets continue to be non-admitted.
In addition, the cost of
a participation right of an annuity
contract is also non-admitted.
 The reduced disclosure for non-public
entities permitted under
US GAAP is not permitted under
SAP.
 Classification in US GAAP of
unfunded obligations as current
or noncurrent is eliminated.
 Fair value of assets will continue
to be determined under statutory
guidance rather than under US
GAAP.
 Transition rules in applying the
new standards differ from
transition under US GAAP.
The effective date for both standards
is January 1, 2013, with the exception
of the effective date of January 1, 2014
for the required change in
measurement date. Early adoption is
permitted; however, early adoption
must be applied to all benefit plans of
the insurance company. The transition
rules including the following:
 Net periodic benefit cost will
include amortization of
unrecognized prior service cost
existing prior to adoption for
nonvested employees.
 Other unrecognized balances
(gains and losses, prior service
costs for vested and nonvested
employees, and transition
obligations or assets from initial
application of SSAP 89 and SSAP
14) are recognized in unassigned
funds as of December 31, 2012
(i.e. the date prior to the adoption
date of January 1, 2013) unless
the company elects to amortize
the transition surplus (i.e. the
alternative transition). The offset
to unassigned funds is reported
separately as an aggregate write-in
for other than invested assets
or for other liabilities.
 The insurance company may
either elect to recognize the entire
amount of transition surplus (i.e.
unrecognized balances described
above) in the year of adoption or
elect to amortize the transition
surplus into income over a period
of not more than ten years.
Companies who elect the
alternative transition must
disclose the entire transition
surplus.
 In transitioning to a fiscal year-end
measurement date,
companies will be required to
remeasure obligations and plan
assets at the beginning of the first
year that the measurement date
provisions are applied. The
remeasured amounts are used to
determine the effects of the
change in measurement date.
Alternative methods provided
under FAS 158 are not permitted
under SAP.
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3. HRS Insights
Determination of net periodic
plan cost
The determination of net periodic
plan cost under SSAP No. 102 and
SSAP No. 92 is similar to the
determination of net periodic plan
cost under ASC 715, with the
exception of the following:
 Fair value of plan assets is used to
determine the expected return
component and the 10% corridor
for gain/loss amortization. A
calculated value, as permitted
under ASC 715, is not permitted
under SAP.
 At transition, a new prior service
cost base equal to nonvested
benefit obligations is established.
Net periodic plan cost will include
amortization of the new prior
service cost over the vesting
period of the nonvested plan
participants.
Existing transition, gain/loss and
prior service cost bases will continue
to be amortized; however, the
amortization of gains and losses will
include nonvested benefit obligations
in the corridor and the future working
lifetime of nonvested plan participants
in the amortization period.
Observation
SSAP No. 92 has changed the
amortization period for gains and
losses and prior service costs. Unless
all or almost all the plan participants
are fully eligible for benefits, SSAP
No. 92 requires amortization of prior
service costs over the average
remaining years of service to full
eligibility of active plan participants
not yet fully eligible. For gains and
losses in excess of the corridor, the
minimum amortization period is the
average remaining service period of
active plan participants. Previously,
SSAP No. 14 defined the amortization
periods for prior service costs and
gains and losses as the average life
expectancy of the plan's fully vested
and retired plan participants.
Transition
For an insurance company adopting
the SSAPs on January 1, 2013, ‘a
transition surplus impact’ is defined
by the guidance as the unrecognized
items as of December 31, 2012 (i.e.
gains and losses, prior service costs,
including prior service costs for
nonvested plan participants, and
transition assets or obligations from
original application of SSAP No.89
and SSAP No. 14) which have not been
included as a component of net
periodic benefit costs. The
unrecognized items shall be
recognized in unassigned funds
(surplus) as of January 1, 2013, unless
the deferral option, described below,
is elected.
In lieu of immediately recognizing the
entire surplus impact, companies may
elect, on a plan-by-plan basis, to
recognize the surplus impact over a
period not to exceed ten years. The
annual amount to be recognized is the
greater of:
1. 10% of the transition surplus
impact determined as of
December 31, 2012
2. Amortization of the unrecognized
items as of December 31, 2012,
following the existing
amortization schedules in effect
on the transition date (reflecting
accelerated amortization of these
amounts due to subsequent
settlements or curtailments)
3. For pension plans, unfunded ABO
as of December 31, 2012, less any
previously accrued amounts (any
prepaid pension asset is not
considered).
Any gain or loss or prior service cost
arising after the transition date is not
subject to the deferral option, but
must be immediately recognized in
unassigned funds. In addition, if
future gains or employer
contributions to the plan result in a
prepaid benefit cost or overfunded
status of that plan, the recognition of
the transition surplus impact shall be
accelerated to the extent the plan is
overfunded. If the plan experiences
subsequent gains that will be
recognized in earnings, an additional
amount of the remaining transition
liability must be recognized to offset
the gain.
The takeaway
The new SSAPs may simplify the
determination of obligations and net
periodic benefit cost for many
employers. However, the requirement
to record the unfunded benefit
obligations as a charge to surplus may
prove onerous. While the transition
rules may ease the financial burden of
transitioning to the new requirements,
the transition rules are complex and
require analysis based on the
attributes of each particular plan. You
may consider consulting with your
local PwC engagement team or the
authors on specific implementation
questions prior to year-end.
The attached Appendix provides a
comparison of the accounting for
defined benefit pensions and other
postretirement benefits under US
GAAP, prior SAP and amended SAP.
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4. HRS Insights
Appendix
Topic US GAAP — accounting
standards codification
Prior NAIC statements of statutory
accounting principles
Amended NAIC statements of
statutory accounting principles
Accounting for pensions and other postretirement benefits
Guidance ASC 715, Compensation —
Retirement Benefits, provides
guidance on the disclosure and
other accounting and reporting
requirements related to single-company
defined benefit pension
and other postretirement benefit
plans under US GAAP.
SSAP 89 - Accounting for Pensions, A
Replacement of SSAP 8 and SSAP 14 -
Postretirement Benefits Other Than
Pensions established statutory accounting
principles and related reporting for
companies’ pension and other
postretirement benefit plans. For defined
benefit plans, SSAP 89 and SSAP 14
adopted the provisions of FAS 87, FAS
106 and FAS 132 (R), with certain
modifications discussed below, but did not
include the provisions of FAS 158.
For defined benefit plans, SSAP
102 and SSAP 92 supersede the
guidance in SSAP 89 and SSAP
14, respectively. The guidance
incorporates the guidance from
FAS 158 with certain
modifications discussed below.
Pension asset/
liability
A company is required to recognize
on its balance sheet the funded
status of its defined benefit plans.
The funded status is measured as
the difference between the fair value
of plan assets and the defined
pension/other postretirement benefit
obligation on a plan-by-plan basis.
Accrued/prepaid pension or other
postretirement plan cost (similar to FAS
87/FAS 106 prior to application of FAS
158): A liability (unfunded accrued plan
cost) is recognized if the pension or other
postretirement plan expense exceeds
amounts the company has contributed to
the plan. An asset (prepaid plan cost) is
recognized if the pension or other
postretirement plan expense is less than
amounts the company has contributed to
the plan (see discussion of non-admitted
assets below).
For defined benefit pension plans, an
adjustment to reflect the additional
minimum liability (AML) may be required
(see discussion of AML below).
Same as US GAAP with
modifications for non-admitted
assets (see discussion of non-admitted
assets below). Transition
options are included in the
guidance.
Measurement date Fiscal year-end. Fiscal year end, or, if used consistently
from year to year, as of a date not more
than three months prior to fiscal year end.
If the measurement date is prior to the
Same as US GAAP.
In transitioning to a fiscal year end
measurement date, a company
remeasures plan assets and
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5. HRS Insights
Topic US GAAP — accounting
standards codification
Prior NAIC statements of statutory
accounting principles
Amended NAIC statements of
statutory accounting principles
financial statement date and an additional
minimum liability is required, any
contribution to the plan to fund that
additional minimum liability prior to the
financial statement date may be used to
reduce the additional minimum liability
recognized in the financial statements.
benefit obligations as of the
beginning of the fiscal year that
the new measurement date
provisions are applied. A company
uses those new measurements to
determine the effects of the
measurement date change as of
the beginning of the fiscal year
that the measurement date
provisions are applied. Other
approaches allowed under ASC
715 are not permitted under SSAP
102 and SSAP 92.
Non-admitted
assets
N/A under US GAAP. The prepaid asset that results from an
excess of the fair value of plan assets
over the pension or postretirement benefit
obligation is recorded as a non-admitted
asset.
Any intangible asset offsetting the
minimum pension liability (excluding the
unamortized transition obligation) is non-admitted
and charged to surplus (see
Intangible Assets section below).
Any prepaid asset resulting from
the excess of the fair value of plan
assets over the PBO is recorded
as a non-admitted asset. In
addition, the cost of a participation
right of an annuity contract is
recorded as a non-admitted asset.
Additional
minimum liability
(AML)
FAS 158 eliminated the AML
concept included in FAS 87.
For defined benefit pension plans, if the
accumulated benefit obligation (ABO)
exceeds the fair value of plan assets, the
company shall recognize a liability
(including unfunded accrued pension cost)
that is at least equal to the unfunded ABO.
SSAP 102 eliminated the AML
concept included in SSAP 89.
Intangible asset
(offset to AML)
N/A Under SSAP 89, if an AML is recognized,
an equal amount is recognized as an
intangible asset; however, the intangible
cannot exceed unamortized prior service
costs (including any unamortized
transition obligation). Only the portion of
the intangible asset in excess of the
unamortized transition obligation is non-admitted.
N/A
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6. HRS Insights
Topic US GAAP — accounting
standards codification
Prior NAIC statements of statutory
accounting principles
Amended NAIC statements of
statutory accounting principles
If an intangible asset generated by the
AML is recognized, only that portion in
excess of the unamortized incremental
liability associated with the transition
obligation shall be non-admitted. If an
additional liability required to be
recognized exceeds unrecognized PSC,
the excess shall be reported as a
component of unassigned funds (surplus),
net of any tax benefits that result.
When a new determination of the amount
of additional liability is made, the related
intangible asset and the balance
accumulated in unassigned funds
(surplus) shall be eliminated or adjusted
as necessary.
Measurement of
benefit obligations
The PBO for pension plans and the
APBO include obligations for all plan
participants and all benefits provided
under the plan, whether or not
vested.
Obligations attributable to nonvested
employees are excluded; obligations
attributable to partially vested employees
are included only to the extent of their
vested amounts.
Obligations for ancillary benefits (e.g.
death and disability benefits) are accrued
prior to the date of the triggering event
(e.g. date of death or disability) in
accordance with FAS 87. Obligations for
protected, nonvested benefits and for
nonvested, nonqualified benefits prior to
retirement when there is no longer a
substantial risk of forfeiture are accrued in
accordance with FAS 87.
Same as US GAAP.
Measurement of
plan assets
In determining the expected return
on plan assets and the 10% corridor
for gain/loss amortization, a market
related value of assets is used. The
market related value is either fair
value or a calculated value which
spreads asset gains and losses over
a period not greater than five years.
For pension plans: same as US GAAP.
For other postretirement benefit plans: In
determining the expected return on plan
assets and the 10% corridor for gain/loss
amortization, the fair value of assets is
used. The use of a calculated value is not
permitted.
In determining the expected return
on plan assets and the 10%
corridor for gain/loss amortization,
the fair value of assets is used.
The use of a calculated value is
not permitted.
Service cost The present value of benefits
attributed under the benefit formula
to employee service during the
current period.
The present value of benefits becoming
vested during the current period.
Same as US GAAP.
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7. HRS Insights
Topic US GAAP — accounting
standards codification
Prior NAIC statements of statutory
accounting principles
Amended NAIC statements of
statutory accounting principles
Amortization of net
gain or loss
Minimum amortization of a net
unamortized gain or loss (excluding
plan asset gains and losses not yet
reflected in market-related value) is
the excess of the net unamortized
gain or loss over a corridor equal to
10% of the greater of the PBO or
APBO and the market-related value
of plan assets, divided by the
average remaining service period of
active plan participants.
If all or almost all of a plan's
participants are inactive, the
amortization period is the average
remaining life expectancy of the
inactive participants.
Gains and losses that are not
recognized immediately as a
component of net periodic
postretirement benefit cost are
recognized as increases or
decreases in OCI as they arise.
For pensions, same as US GAAP.
For other postretirement benefits, same
as US GAAP, except that the amortization
period is equal to the average life
expectancy of retirees and fully vested
actives, whether all or almost all of the
plan participants are inactive or not. In
addition, the corridor is based on the
greater of the benefit obligation or the fair
value of assets. A calculated value is not
permitted.
Same as US GAAP, except that
the corridor is based on the
greater of the benefit obligation or
the fair value of assets. A
calculated value is not permitted.
Gains and losses that are not
recognized immediately as a
component of net periodic
postretirement benefit cost are
recognized as increases or
decreases in unassigned funds as
they arise.
Plan amendments Prior service costs are amortized
over the average remaining service
period (pensions) or average
remaining period to full eligibility
(other postretirement benefits). If all
or almost all of the plan participants
are inactive (for pension plans) or
fully eligible (for other postretirement
plans), the amortization period is the
average remaining life expectancy of
the inactive or fully eligible plan
participants.
Prior service costs that are not
recognized immediately as a
component of net periodic
postretirement benefit cost are
recognized as increases or
decreases in OCI as they arise.
Same as US GAAP except that plan
amendments are only reflected for vested
participants. Note that for other
postretirement benefits, the amortization
period is equal to the average life
expectancy of the company's fully vested
and retiree group.
Same as US GAAP.
In the year of adoption of the new
standards, any prior service cost
attributable to nonvested
employees and recorded in
unassigned funds is amortized as
a component of expense over the
average remaining service period
of the nonvested employees who
were active at the time of the
amendment.
Gains and losses that are not
recognized immediately as a
component of net periodic
postretirement benefit cost are
recognized as increases or
decreases in unassigned funds as
they arise.
Timing of
settlements and
curtailments
If a settlement occurs, the gain or
loss is recognized when the
transaction is irrevocable, e.g. when
annuities have been purchased or
lump sums have been paid.
If a settlement occurs and the net result is
a loss, the loss is recognized at the time
of the settlement. If a settlement occurs
and the net result is a gain, the gain is not
recognized until the proceeds are
Same as US GAAP.
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8. HRS Insights
Topic US GAAP — accounting
standards codification
Prior NAIC statements of statutory
accounting principles
Amended NAIC statements of
statutory accounting principles
If a curtailment occurs and the net
result is a loss, the loss is
recognized when it is probable that
the curtailment will occur and that
the effects can be reasonably
estimated. If the net result is a gain,
the gain is not recognized in
earnings until the employees
terminate or the plan suspension or
amendment is adopted.
received by the reporting entity.
Similarly, if a curtailment occurs and the
net result is a loss, the loss is recognized
when it is probable that the curtailment will
occur and that the effects can be
reasonably estimated. If the net result is a
gain, the gain is not recognized in
earnings until the employees terminate or
the plan suspension or amendment is
adopted and the proceeds are received
by the reporting entity.
Disclosures ASC 715-20 (FAS 132(R)) was
effective for fiscal years beginning
after December 15, 1997. ASC 715-
20 provides for reduced disclosure
requirements for nonpublic entities.
Same as US GAAP, except that the ASC
715 -20 disclosure requirements apply to
only vested employees. Obligations
related to nonvested or employees are
disclosed separately. In addition, the
reduced disclosure requirements for
nonpublic entities under ASC 715-20 do
not apply. All companies are required to
follow the disclosure requirements
included in ASC 715-20-50-1 & 50-2.
For pension plans, disclosures relating to
OCI in ASC 715-20-50-1 apply to
unassigned funds (surplus) on a statutory
basis. Other postretirement benefit
disclosures relating to OCI in ASC 715-
20-50-1 apply to income on a statutory
basis.
Same as US GAAP except that
the reduced disclosure for non-public
entities permitted under US
GAAP is not permitted under SAP.
Consolidated/holdi
ng company plans
In a parent-subsidiary arrangement,
where the subsidiaries issue
separate financials, for each
subsidiary's separate financial
statements the arrangement should
be accounted for as a multiemployer
pension plan.
Accounting for the postretirement
benefit plan as a multiemployer plan
requires that a subsidiary's
contribution for the period be
recognized as net periodic
The employees of many reporting entities
are eligible for certain postretirement
benefits provided by a parent company or
holding company. A reporting entity with
employees who are eligible for those
benefits and is not directly liable for those
related obligations shall recognize an
expense equal to its allocation of:
 postretirement benefits other
than pensions earned during the
period. A liability shall be
established for any such
No material changes from SSAP
89 and SSAP 14.
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9. HRS Insights
Topic US GAAP — accounting
standards codification
Prior NAIC statements of statutory
accounting principles
Amended NAIC statements of
statutory accounting principles
postretirement benefit cost. A liability
would be recognized for any
contributions due and unpaid. Each
subsidiary should provide the
disclosures required by ASC 715-80
as well as any related-party
disclosures required by ASC 850,
Related Party Disclosures.
amounts due, but not yet paid.
 the required contribution to the
pension plan for the period. A liability
shall be established for any such
contributions due and unpaid.
The reporting entity shall disclose in the
financial statements that its employees
participate in a plan sponsored by the
holding company for which the reporting
entity has no legal obligation. The amount
of the postretirement benefit expense
incurred and the allocation methodology
utilized by the provider of such benefits
shall also be disclosed.
If the reporting entity is directly liable for
postretirement benefits, then the reporting
entity should apply the guidance
described in SSAP 14 and SSAP 89.
Tax considerations The pension asset or liability that is
recognized may result in a
temporary difference, as defined in
ASC 740, Income Taxes (formerly
FAS 109). The deferred tax effects
of any temporary differences shall
be recognized in income tax
expense or benefit for the year and
shall be allocated to various financial
statement components, including
other comprehensive income,
pursuant to ASC 740-45 (formerly
paragraphs 35–39 of Statement
109)
Pension accruals typically are not
deductible for tax purposes unless they
are funded during the tax year or before
the filing of the tax return for the year of
accrual. To the extent unfunded, pensions
create deductible temporary differences.
If pension accounting results in a prepaid
asset for SAP purposes, a taxable
temporary difference may result.
However, the prepaid asset will likely be
non-admitted, meaning that the SAP basis
is zero. The tax basis is also zero as the
tax law does not recognize such an asset.
No material difference from
current SSAP.
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10. HRS Insights
Let’s talk
For more information, please contact our authors:
Ken Stoler, New York
(646) 471-5745
ken.stoler@us.pwc.com
Debbie Rudin, New York
(646) 471-3087
debbie.rudin@us.pwc.com
or your regional Human Resource Services professional:
Charlie Yovino, Atlanta
(678) 419-1330
charles.yovino@us.pwc.com
Craig O’Donnell, Boston
(617) 530-5400
craig.odonnell@us.pwc.com
Pat Meyer, Chicago
(312) 298-6229
patrick.meyer@us.pwc.com
Terry Richardson, Dallas
(214) 999-2549
terrance.f.richardson@us.pwc.com
Todd Hoffman, Houston
(713) 356-8440
todd.hoffman@us.pwc.com
Carrie Duarte, Los Angeles
(213) 356-6396
carrie.duarte@us.pwc.com
Ed Donovan, New York Metro
(646) 471-8855
ed.donovan@us.pwc.com
Bruce Clouser, Philadelphia
(267) 330-3194
bruce.e.clouser@us.pwc.com
Jim Dell, San Francisco
(415) 498-6090
jim.dell@us.pwc.com
Scott Pollak, San Jose
(408) 817-7446
scott.pollak@Saratoga.PwC.com
Nik Shah, Washington Metro
(703) 918-1208
nik.shah@us.pwc.com
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