FASB Proposed Accounting Standards Update – Classification of Certain Receipts and Cash Payments
On January 29, FASB issued a Proposed Accounting Standards Update applicable to the Statement of Cash Flows (Topic 230) that addresses the classification of certain cash receipts and cash payments. The proposed updates reflect the consensus recommendations of the Emerging Issues Task Force (EITF).
The proposal provides specific guidance for a number of specific types of cash flows for which there was previously either no or unclear guidance.
Noting that no guidance exists for COLI/BOLI cash flows, this proposal addresses the cash flow classification of both cash proceeds and premium payments of COLI/BOLI policies. Under the proposal, proceeds from COLI/BOLI would be classified as cash inflows from investing activities. Cash payments for premiums can be classified as outflows for investing activities, operating activities, or a combination of both. The guidance for COLI/BOLI would be added to the Codification by adding a new paragraph 230-10-45-21C.
The EITF considered other approaches for COLI/BOLI proceeds and premium payments, such as requiring a policyowner to break proceeds into a portion for operating activities and a portion for investing activities, and/or requiring that premium payments be aligned, from a categorization standpoint, with how the proceeds would be classified. Ultimately, FASB chose not to recommend these courses of action as they were deemed to be more complicated and largely immaterial to the financial statements as a whole.
The transition provisions in the proposal state that an entity shall apply the guidance retrospectively to all periods presented. However, it also includes a paragraph that may apply if it is deemed impractical to apply the guidance retrospectively (see 230-10-65-2).
Comments are due by March 29, 2016.
Regulators Release 2016 CCAR and DFAST Scenarios
On January 28, the Federal Reserve Board released the 2016 Supervisory Scenarios for Annual Stress Tests required under the Dodd-Frank Act Stress Testing Rules and the Capital Plan Rule. The Federal Reserve Board also released accompanying instructions.
Notably, the severely adverse scenario in the 2016 stress test is a severe global recession; this is characterized by U.S. unemployment rates rising to 10% and negative yields on short-term U.S. Treasury Securities.
CCAR capital plan submissions are due April 5, 2016.
The OCC also released its Dodd-Frank Stress Test scenarios for 2016 on the same day.
Basel Committee Releases Revised Market Risk Framework
On January 14, the Basel Committee released revised standards for Minimum Capital Requirements for Market Risk. One key feature of the revised framework was to revise the boundary between an institution’s trading book (subject to the market risk framework) and the banking book (not subject to the market risk framework). To date, it has been our understanding that BOLI programs have not been considered to be part of a trading book.
Paragraph 15 of the market risk framework identifies a series of instruments that must be assigned to the banking book. This list includes (emphasis added) “equity investments in a fund, including but not limited to hedge funds, in which the bank cannot look through the fund daily or where the bank cannot obtain daily real prices for its equity investment in the fund.”
The revised market risk framework comes into effect in January 2019.
NY COLI Franchise Tax Bills
As has been annual custom since 2009, New York State legislators Marcos Crespo (Assembly) and Ruben Diaz (Senate) have reintroduced the companion Assembly (A6732) and Senate (S141) bills for the 2015 session. The bills would impose a franchise tax on any company receiving benefits from life insurance policies it has obtained on its employees and/or retirees. The tax would be equal to 50% of the gross receipts from all proceeds received from such policies.
Both bills have been referred to committees. Historically, the bills have not received any further legislative action and it is unlikely they will garner discussion this year.
Senate Finance Committee Hearing on Helping Americans Plan for Retirement
On January 28, the Senate Finance Committee held a hearing titled Helping Americans Prepare for Retirement: Increasing Access, Participation and Coverage in Retirement Savings Plans. The general stance of the Senate Finance Committee seems to indicate a desire to increase participation of American employers and increase the amount of savings Americans have in their retirement funds. This stance is somewhat at odds with President Obama’s budget proposals, which have suggested implementing caps on the amounts that individuals can accrue in retirement plans.
The Joint Committee on Taxation (JCT) published a report for the Committee on past, present, and proposed legislation surrounding tax-favored retirement savings, and the JCT’s Chief of Staff testified at the hearing (see slides).
The legislative proposals discussed include:
- S. 606, 113th Cong., the Shrinking Emergency Account Losses (or SEAL) Act of 2013
- S. 1270, 113th Cong., the Secure Annuities for Employee (or SAFE) Retirement Act of 2013
- S. 1970, 113th Cong., the Retirement Security Act of 2014
- S. 1979, 113th Cong., the USA Retirement Funds Act
- S. 1212, 114th Cong., the Promotion and Expansion of Private Employee Ownership Act of 2015
- H.R. 2117, 113th Cong., the Retirement Plan Simplification and Enhancement Act of 2013
This legislation is broadly divided into 3 legislative goals: increasing access to retirement plans; increasing participation and contribution levels; and preserving saving and making it last through retirement.