ASC 715 Actuary in Switzerland

The guarantees of the Swiss LPP/BVG make Swiss pension plans defined benefit under US GAAP as well. ASC 715-30 requires an actuarial valuation with rules of its own that differ from IAS 19: presentation of pension cost, expected return on plan assets, amortisation of actuarial gains and losses through AOCI (corridor method), prior service cost, settlements and curtailments.

We have prepared these valuations for many years for Swiss subsidiaries of US-listed groups — working directly with consolidation teams and group actuaries, in English.

ASC 715 “Compensation — Retirement Benefits” brings together, in the FASB Accounting Standards Codification, the US GAAP rules on retirement benefits. For a Swiss subsidiary, three subtopics matter:

• ASC 715-30: defined benefit pension plans, and therefore your LPP/BVG plan — projected benefit obligation (PBO), net periodic benefit cost, actuarial gains and losses, settlements and curtailments;
• ASC 715-20: the disclosures required for all defined benefit plans;
• ASC 715-60: other postretirement benefits (OPEB), such as retiree medical cover or life insurance after retirement. Rare in Switzerland, they are measured on the same principles where they exist.

Defined contribution plans (ASC 715-70) and multiemployer plans (ASC 715-80) do not require an actuarial valuation. A Swiss LPP/BVG plan generally falls into neither category, even when the employer is affiliated with a collective foundation.

An ASC 715 valuation does more than translate Swiss figures into dollars: it redefines how pension obligations are accounted for, often diverging significantly from the Swiss statutory accounts. The impact shows at three levels.

Balance sheet: recognising the funded status

ASC 715 requires the company to recognise on its balance sheet the difference between the present value of the obligations (projected benefit obligation, PBO) and the fair value of plan assets. If the plan is underfunded, the company records a liability; if overfunded, an asset may be recognised.

Worth noting: even where a Swiss pension fund is healthy under the LPP/BVG (coverage ratio above 100 %), the ASC 715 calculation can reveal a liability on the employer’s balance sheet — mainly because of different discount rates, based on high-quality (AA) corporate bonds.

P&L: the net periodic benefit cost

The valuation determines the annual charge to be booked, the net periodic benefit cost — often different from the contributions actually paid to the pension fund. It includes:

• the cost of services rendered by employees during the year (service cost);
• the interest cost on the obligation;
• less the expected return on plan assets.

Equity: managing volatility through OCI

Actuarial gains and losses — a sudden move in interest rates, unexpected market performance — are generally not charged immediately to P&L: they flow through other comprehensive income (OCI). This smooths earnings, but directly affects the level of consolidated equity.

An ASC 715 valuation thus provides an economic, fair-value view of your pension obligations. Our aim: help you anticipate these impacts and avoid excessive volatility in your consolidated financial statements.

• Full ASC 715-30 valuation at your reporting date
• Switzerland-specific assumptions aligned with group policy: CHF discount rate, expected return, mortality
• Net periodic pension cost (NPPC) and US GAAP journal entries
• ASC 715-20 disclosures, ready for the reporting package
• Event calculations: settlements, curtailments, plan amendments
• Direct exchanges with the group actuary and auditors, within their deadlines

For a financial year ending on 31 December, as at many US groups, a typical timetable looks like this:

• September and October: data requests (employees and pension fund), preliminary assumptions discussed with the group actuary;
• November: preliminary results projected to 31 December, for the group’s budget and early reporting;
• First days of January: update with the year-end discount rate and plan assets, ASC 715-20 tables for the reporting package;
• January and February: questions from the group auditors, next year’s net periodic benefit cost for the quarterly closings.

Listed groups file their annual report (Form 10-K) with the SEC 60 to 90 days after year-end, depending on their size; their internal deadlines are shorter. We adapt this timetable to each engagement.

Both standards start from the same data and the same projected unit credit method. The results still diverge on several points:

• Return on plan assets: IAS 19 applies the discount rate to the net obligation (net interest). ASC 715 uses an expected long-term rate of return, specific to the plan’s asset allocation, applied to the fair value of plan assets or to a smoothed market-related value.
• Actuarial gains and losses: under IAS 19 they go immediately and permanently to OCI. Under ASC 715 they accumulate in AOCI; the portion above the corridor (10 % of the greater of the PBO and the value of plan assets) is amortised to profit or loss over the average remaining service period.
• Plan amendments: IAS 19 recognises past service cost immediately in profit or loss. ASC 715 records prior service cost in AOCI and amortises it over the remaining service period — for example after a reduction of the conversion rate.
• Asset ceiling: IAS 19 limits the net asset recognised (asset ceiling, IFRIC 14). ASC 715 has no ceiling: a surplus is recognised in full.
• Lump sums and vested benefits: under ASC 715, a lump sum paid at retirement or a vested termination benefit (Freizügigkeitsleistung) is generally a settlement; when their total for the year exceeds service cost plus interest cost, part of the amounts accumulated in AOCI is recognised in profit or loss. IAS 19 treats them as benefits paid under the terms of the plan.
• Presentation: since ASU 2017-07, only service cost is reported in operating income; the other components (interest cost, expected return, amortisation) are presented outside operating income.

Many of our clients report under both frameworks — IFRS for a European sub-group, US GAAP for the American consolidation. We deliver both valuations from the same data, with a clear reconciliation of the differences. See also our IAS 19 actuary page.

See alsoIAS 19 actuaryIPSAS 39 actuaryAccredited pension fund expert