Under ASC 960, plan investments are valued at fair value except for which contracts?

Under ASC 960, plan investments are valued at fair value except for which contracts?

• A. Mutual funds
• B. Government securities
• C. Insurance contracts
• D. Corporate bonds

Answer: (C)

Under ASC 960, plan investments are generally measured at fair value because that reflects the most current market-based value of the assets the plan holds. However, there is an important exception for contracts that are insurance contracts issued by life insurers, such as guaranteed investment contracts and similar fixed contracts. These contracts don’t have readily observable market prices and their value is driven by the terms of the contract—guaranteed principal and credited interest—rather than a daily market quote. Because of that, they’re carried at contract value rather than fair value, with any changes reflected through the contract’s value rather than through typical fair value gains or losses. Mutual funds, government securities, and corporate bonds are typically traded in active markets or have readily determinable net asset values, so they are valued at fair value for the plan's financial statements. Insurance contracts, by contrast, remain at contract value, which is why they are the correct exception here.

Under ASC 960, plan investments are generally measured at fair value because that reflects the most current market-based value of the assets the plan holds. However, there is an important exception for contracts that are insurance contracts issued by life insurers, such as guaranteed investment contracts and similar fixed contracts. These contracts don’t have readily observable market prices and their value is driven by the terms of the contract—guaranteed principal and credited interest—rather than a daily market quote. Because of that, they’re carried at contract value rather than fair value, with any changes reflected through the contract’s value rather than through typical fair value gains or losses.

Mutual funds, government securities, and corporate bonds are typically traded in active markets or have readily determinable net asset values, so they are valued at fair value for the plan's financial statements. Insurance contracts, by contrast, remain at contract value, which is why they are the correct exception here.