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Once a decision to terminate a plan has been made, and liquidation is determined to be imminent, disclosure of the relevant circumstances is required in all subsequently issued financial statements. Once liquidation is imminent (for example, when the decision to terminate has been approved and is unlikely to be blocked by other parties or any regulatory entity), then the financial statements for the plan should be using liquidation basis of accounting under FASB ASC 205-30.

Note: A defined benefit pension plan may only terminate following certain rules and procedures, as set forth in Title 29 CFR part 4041 of ERISA. Therefore, these rules may affect assessment of whether the liquidation of a plan is imminent under this standard.

Changing to liquidation basis generally causes little or no change in asset values as most assets are already carried at fair values. Certain assets, such as insurance contracts carried at contract value, operating assets, or other assets that cannot be easily disposed of, should be adjusted to net realizable value. Adjustments should be made to reduce investments for penalties or charges as a result of termination.

Upon termination, participants become fully vested in all benefits. Therefore, accumulated plan benefits and benefit obligations should be determined on the liquidation basis by taking into consideration the fully vested rights. Beginning of year benefit information is no longer relevant once a plan is terminating, as it would have been based on assumptions for an ongoing plan. If the beginning of year benefit information is presented, and the plan terminated during the year presented in the financial statements (after the benefit information date), this would not eliminate the requirement to disclose the estimated effect of the amendment to terminate the plan, which was not reflected in the accumulated benefits presented.

Among the requirements for financial statements prepared on a liquidation basis is that the plan

 present relevant information about an entity’s expected resources in liquidation by measuring and presenting assets at the amount of the expected cash proceeds from liquidation;

 include in its presentation of assets any items not previously recognized under GAAP but that it expects to either sell in liquidation or use in settling liabilities;

 recognize and measure an entity’s liabilities in accordance with GAAP that otherwise applies to those liabilities;

 accrue and separately present the costs that it expects to incur and the income that it expects to earn during the expected duration of the liquidation, including any costs associated with sale or settlement of those assets and liabilities; and

 disclose an entity’s plan for liquidation, the methods and significant assumptions used to measure assets and liabilities, the type and amount of costs and income accrued, and the expected duration of the liquidation process.

Help desk. The AICPA issued Technical Question and Answer (Q&A) sections 6931.18–.30 (AICPA, Technical Questions and Answers) to provide nonauthoritative guidance related to the implementation of liquidation basis of accounting. Although the information in these Q&As is specific to single employer defined benefit and defined contribution plans, it may be useful when considering liquidation basis for other types of plans.