 |
|
||||
| Home | News | Help Desk | Membership | Library | About |
|
| Library | |
 |
|
| Stable Times | |
| Papers | |
| Fee Disclosure Template | |
| Key Principles | |
|
Home > Library > Stable Times > Volume 5, Issue 2  The quarterly publication of the Stable Value Investment Association Second Quarter 2001 • Volume 5 Issue 2 Update on Synthetic GICsBy Gina Mitchell, SVIA As you may recall, SVIA sent you a notice on May 8 indicating that the FASB Derivatives Implementation Group had concluded that synthetic GICs are derivatives under SFAS 133 for issuers. This Group (referred to as DIG) described this conclusion in a statement known as Issue A16. As noted in that May 8 communication, there is disagreement on FASB's classification of synthetic GICs as a derivative. Some points of disagreement are highlighted in the letter PRIMCO Capital Management sent to FASB. PRIMCO's letter is posted on the SVIA website. In general, issuers did not react to Issue A-16's conclusions. Under Issue A-16, issuers are required to report synthetics in corporate financial statements. From an issuers' perspective, members reported this change as having an immaterial impact on income statements. The implementation of SFAS 133 has resulted in questions relating to the appropriate accounting treatment for a defined contribution plan's investment in a synthetic GIC. Even though Issue A-16 did not apply to the purchasers of synthetic GICs, there has been some confusion with plan sponsors and auditors as to whether to apply SFAS 133's fair value criteria or SOP 94-4's book value accounting for the synthetic GIC. To date, four inquiries have been made to our stable manager members from plan sponsors and their auditors for defined contribution plans with June 30, 2001 year ends. All of these inquiries have been resolved and book value accounting was used for the plans' investment in the synthetic GIC. In light of these questions, SVIA has established a Working Group to address this issue. The list of SFAS 133 Working Group members is attached for your information. The Working Group is encouraging the AICPA to establish a Task Force to provide guidance on the application of SFAS 133 to synthetics held by defined contribution plans. The SVIA believes that synthetic GICS are not derivatives and that SOP 94-4, which upheld book value treatment for stable value funds, is appropriate for determining the reported value of synthetic GICS for defined contribution plan financial statements and plan participant statements. The Working Group has been successful in making the AICPA aware of the importance of the stable value industry's concerns on this issue. A project proposal is being developed by the Chairman of the AICPA's Employee Benefit Plans Expert Panel to study and formulate guidance on how SFAS 133 applies to synthetic GICs held by defined contribution plans. The proposal must be considered and approved by the AICPA's Executive Committee, known as AcSEC, to go forward. The AcSEC may consider the project proposal in late July. Updates will be provided on the project proposal and the work of SVIA's Working Group as progress is made. During this period, book value accounting as set forth in SOP 94-4 is and continues to be appropriate for reporting synthetic GICs in defined contribution pension plan financial statements and participant communications. Should you receive inquiries from your clients or auditors on synthetic GICs held in defined contribution plans, SVIA is here to assist you. Please call upon me at 202-261-6528. View a list of the SVIA SFAS 133 group members.
Read Next: Cash Flow 2001-1st Quarter Update
|
|
