On January 14, 2026, the Financial Accounting Standards Board (FASB or Board) adopted an Emerging Issues Task Force (EITF) recommendation to address how market-based cash balance plans measure liabilities for accounting purposes.
Why changes are needed
Market-based cash balance plans are economically similar to defined contribution plans but are accounted for as defined benefit (DB) plans under U.S. GAAP. U.S. Accounting Standards, as promulgated by FASB, provide limited guidance on how to measure the benefit obligation for these plans, particularly regarding the appropriate discount rate and attribution method. As a result, entities use different approaches, often resulting in reported benefit obligations that exceed the sum of participant account balances. This occurs when projected future interest credits are higher than the discount rate determined by matching plan cash flows to the yield of high-quality corporate bonds. The inconsistency in accounting practices results in reduced comparability and transparency in financial reporting, making it more difficult for users of financial statements to accurately assess and compare the economic obligations of different entities sponsoring otherwise similar plans.
The Board accepted the recommendations of the EITF regarding how to determine benefit obligations of market-based cash balance plans under the Accounting Standards Codification (ASC) because it concluded that the anticipated benefits of the changes would outweigh the associated costs.
The next steps will be for FASB staff to draft a proposed Accounting Standards Update (ASU) and allow for a 60-day comment period on the proposed ASU.
Type of cash balance plans impacted
The plans impacted by this change are market-based cash balance plans. Specifically, these are DB pension plans where participant benefits are communicated as an account balance, which include pay credits and interest credits based on one of the following investable market returns:
- The return on plans’ assets
- The return on a subset of the plans’ assets that approximates the associated cash balance liabilities
- The return on a regulated investment company
In addition, these plans allow participants to choose a lump-sum payout option.
By scoping the guidance narrowly to plans with specific market-based interest crediting features, FASB intends to avoid unintended consequences of including other economically similar plan designs (that exist today or that emerge in the future) and keep the solution focused on this type of plan. The Board intends to solicit feedback on whether other plans with similar economics (such as variable annuity plans) should be considered.
Discount rate would be set equal to the assumed interest crediting rate
All market-based cash balance plans meeting the above criteria would be required to set the discount rate equal to the assumed interest crediting rate when calculating the pension benefit obligation (PBO) under Topic 715. FASB also decided to make similar changes to the calculation of the accumulated benefit obligation (ABO) under Topic 960. This will result in benefit obligations that closely approximate the sum of participant account balances.
No additional disclosures would be required because of these changes.
Early adoption would be permitted on a prospective basis
Plan sponsors would apply the new pension accounting guidance prospectively, beginning with their next pension measurement date. They also have the option to adopt the changes early. Whichever timing they choose, sponsors must add a footnote that clearly describes both the nature of the new accounting method and the rationale for making the change consistent with ASC 250-10-50-1(a).
60-day comment period
The Board has instructed its staff to prepare a draft ASU to be circulated for Board approval and has set a 60-day comment period for stakeholders to comment on the exposure draft. Timing of when the proposed update will be issued is not yet known. We will provide updates as information becomes available.
May pave the way for more market-based cash balance plans
By enhancing clarity, consistency, and alignment with the underlying economics of these plans, the new FASB guidance may make market-based cash balance plans a more attractive and feasible option for a wider array of employers.
Please contact your Milliman consultant with any questions.