FASB Proposed ASU on ASC 715-30: Pension Discount Rate for Market-Return Cash Balance Plans (2026)

On June 10, 2026, the FASB issued a proposed Accounting Standards Update that would change how certain cash balance plans measure their benefit obligation under ASC 715-30. The comment deadline is August 10, 2026, 61 days from issuance. If your plan credits participant balances based on investable market returns, this proposal likely affects your next actuarial valuation.

Key takeaway: The proposed ASU would require qualifying market-return cash balance plans to use the assumed interest crediting rate as the discount rate for measuring the projected benefit obligation (PBO), replacing the current fixed-income-based rate. This is a clarification of existing guidance, not a new accounting model.

What Is ASC 715-30 and Why Does the Discount Rate Matter?

ASC 715-30 governs the measurement of defined benefit pension obligations under US GAAP. Under ASC 715-30-35-43, as cited in PwC's Viewpoint: "Assumed discount rates shall reflect the rates at which the pension benefits could be effectively settled." In practice, this means actuaries use high-quality fixed-income investment yields, typically derived from tools like hypothetical bond portfolios or third-party yield curves, to set the discount rate.

The discount rate is load-bearing in pension accounting. It determines the present value of projected future benefit payments, which sets the PBO on the balance sheet. A lower discount rate inflates the PBO; a higher one compresses it. The rate also drives the interest cost component of net periodic pension cost (NPPC) and feeds directly into the actuarial gain or loss that flows through other comprehensive income (OCI).

For most defined benefit plans, tying the discount rate to high-quality corporate bond yields makes sense: the plan's obligation is fixed, and the discount rate should reflect what it would cost to settle those fixed payments. Market-return cash balance plans are a different animal entirely.

What Is a Market-Return Cash Balance Plan?

A market-return cash balance plan is a type of defined benefit plan where participant account balances grow at a variable rate tied directly to investable market returns, not a fixed or Treasury-based rate.

To understand the distinction, consider the spectrum of cash balance plan designs:

In a traditional cash balance plan, the crediting rate is a plan provision independent of actual asset performance. The sponsor bears investment risk: if assets underperform the crediting rate, the sponsor funds the gap.

In a market-return cash balance plan, the crediting rate equals the actual return on the plan's assets (or a qualifying subset). All investment experience passes through to participants. As Groom Law Group explains, "the plan sponsor's financial obligation to the plan is equal to the aggregate total of the account balances. All investment experience is passed on to participants, so the sponsor is financially indifferent to the rate of return on plan assets."

The Pension Protection Act of 2006 clarified the legal basis for market-return crediting, and these plans have grown steadily since.

What counts as an "investable market return"?

The proposed ASU specifies three permissible forms:

1. The return on plan assets
2. The return on a subset of plan assets that approximates the associated cash balance liabilities
3. The return on a regulated investment company (RIC)

That third category deserves a plain-language note: a "regulated investment company" is defined under IRC Section 851 and refers to mutual funds and ETFs registered under the Investment Company Act of 1940. If your plan credits the return of a specific mutual fund or ETF, that qualifies as an investable market return under the proposal.

Plans that credit a fixed rate, a Treasury rate floor, or a non-investable index do not qualify, even if the rate is variable.

The Core Problem: Why the Current Discount Rate Misfires for These Plans

The mismatch is structural. Under current ASC 715-30-35-43, the actuary projects future account balances forward using the assumed interest crediting rate (tied to expected market returns), then discounts those projected balances back to present value using a high-quality fixed-income rate. These two rates are almost never the same.

As KPMG's FRV Defining Issues (June 2026) puts it: "Because the projection rate (tied to market returns) and the discount rate (when based on fixed-income yields) are not the same, the benefit obligation does not accurately reflect the true settlement cost or the plan's underlying economics."

The practical result: when expected equity-like market returns exceed corporate bond yields, the PBO overstates the sponsor's true obligation relative to the sum of participant account balances. The balance sheet carries a liability that is larger than what participants are actually owed in economic terms. This creates comparability problems across sponsors of otherwise identical plans, because some entities have interpreted the existing guidance to permit alternative rates while others have stuck to fixed-income yields.

The FASB's project page confirms the EITF flagged this directly in September 2025: "The EITF noted that there are different interpretations of the measurement guidance in Subtopic 715-30 ... related to the discount rates that could be used to measure the projected benefit obligation of market-return cash balance plans. As a result, the accounting may not reflect the economics of those plans."

The FASB added the project to its technical agenda in January 2026, five months before the exposure draft was issued.

Does Your Plan Qualify? A Two-Condition Test

Both conditions must be satisfied simultaneously. Failing either one means the proposed amendment does not apply.

Condition 1: Market-based crediting tied to an investable return

Pension benefits must be communicated to employees as an account balance comprising principal credits and interest credits based on one of the three investable market return forms listed above (return on plan assets; return on a qualifying subset; return on a RIC).

This condition excludes:

• Plans with a fixed crediting rate (e.g., 4% per year)
• Plans that credit a Treasury rate or LIBOR/SOFR-based rate
• Plans with a crediting rate tied to a non-investable index

Condition 2: Lump-sum election available to participants

Participants must have the option to elect lump-sum payments. This is a hard gate. Plans where participants can only receive annuity payments do not qualify, even if the crediting rate is fully market-based.

The lump-sum condition exists because it identifies the plans where the benefit obligation should most closely track the hypothetical account balance. When a participant can take a lump sum equal to their account balance, the account balance is effectively the settlement amount, and discounting at the interest crediting rate produces a PBO that matches that economic reality.

The hybrid-structure question

The proposed ASU is silent on plans with tiered or hybrid crediting structures, such as a plan that credits the greater of a fixed floor (say, 0% or 2%) and the return on plan assets. Whether such plans qualify is a genuine ambiguity in the exposure draft and a strong candidate for a comment letter question. If your plan has a preservation-of-capital floor above the statutory 0% minimum, or enhanced annuity options, the benefit obligation may still differ from the sum of account balances even after adopting the proposed rate, because those features add embedded value above the account balance.

Practitioner check: Run through the two conditions sequentially. If the crediting rate is the return on plan assets (or a qualifying subset or RIC) AND participants can elect a lump sum, you are in scope. If either condition fails, current ASC 715-30-35-43 continues to apply unchanged.

Financial Statement Impact: What Changes and in Which Direction?

The directional effect on the PBO depends on the relationship between the assumed interest crediting rate and the current fixed-income discount rate. This is the dynamic that existing SERP coverage misses entirely.

• When the assumed interest crediting rate exceeds the fixed-income discount rate (common in equity-heavy portfolios in a rising-return environment): switching to the interest crediting rate as the discount rate will decrease the PBO, improving funded status. The plan looks better on the balance sheet.
• When the assumed interest crediting rate is below the fixed-income discount rate (possible in periods of high bond yields or low expected equity returns): the PBO would increase, worsening funded status.
• When the rates are approximately equal: the PBO converges toward the sum of hypothetical account balances, which is the intended outcome.

For a fully funded plan where pay credits are fully funded and the crediting rate equals the return on plan assets, Milliman's analysis describes the steady-state outcome clearly: the market value of assets approximately equals the liability, the NPPC generally equals the pay credits, and interest cost is offset by the expected return on plan assets, producing a net effect on NPPC of approximately zero.

OCI implications

When the PBO changes at adoption, the offset goes to OCI as an actuarial gain or loss. The prospective transition means there is no cumulative catch-up to prior periods, but the first-year impact on OCI could be material for large plans. Model this before adoption, not after.

Interaction with the expected return on plan assets

Here is a subtlety that no current coverage addresses: if the plan assets are the same assets driving the interest crediting rate, the assumed interest crediting rate and the expected return on plan assets (EROA) assumption are conceptually linked. When the discount rate moves to match the EROA, the interest cost component of NPPC and the expected return on plan assets component tend to offset each other more cleanly. The net effect on NPPC is dampened. Your actuary needs to model both assumptions together, not in isolation.

Pension risk transfer considerations

If your organization is evaluating a pension risk transfer (PRT) or annuity purchase, the PBO measurement directly affects the accounting gain or loss recognized on settlement. A lower PBO under the proposed ASU could change the economics of a PRT transaction for qualifying plans. Factor this into any PRT feasibility analysis.

Transition Mechanics and Effective Date

Transition is prospective only. Entities apply the change at their next pension measurement date after adoption. There is no restatement of prior periods.

Key transition facts:

• Effective date: Not yet determined. The FASB will set it after reviewing stakeholder comments received by August 10, 2026.
• Early adoption: Permitted.
• Transition method: Prospective at the entity's next pension measurement date.
• Required disclosure: Entities must disclose the change in accounting principle in both the interim reporting period (if applicable) and the annual reporting period of adoption.

Note for non-calendar fiscal year entities: "the entity's next pension measurement date" means a December 31 fiscal year entity and a June 30 fiscal year entity will adopt at different calendar dates. This creates a transition-year comparability gap between peers that finance teams and analysts should flag.

As of June 2026, this remains an exposure draft. Only two ASUs have been formally issued in 2026 (ASU 2026-01 and ASU 2026-02); this proposal does not yet carry a numbered ASU designation and does not appear on FASB's issued ASU list.

Sample adoption disclosure language

The required "change in accounting principle" disclosure does not have a prescribed template, but it should cover:

• The nature of the change (discount rate for qualifying market-return cash balance plans)
• The reason for the change (to better reflect the economics of the plan and conform to the amended ASC 715-30 guidance)
• The effect on the PBO, funded status, and NPPC in the period of adoption
• That transition was applied prospectively at the measurement date

Prepare this language in coordination with your actuary and auditor before the measurement date, not after.

Actuarial Coordination: What Needs to Change

This is the operational challenge that practitioners will hit first. Actuaries currently set the ASC 715-30 discount rate using fixed-income yield curves, such as the Citigroup Pension Discount Curve or the Mercer Yield Curve, calibrated to high-quality corporate bond yields. Switching to the assumed interest crediting rate requires a fundamentally different methodology.

Specifically:

1. The actuary must determine the assumed interest crediting rate for the plan's specific market-return formula. For a plan crediting the return on plan assets, this is the EROA assumption. For a plan crediting the return on a specific RIC, it is the expected return on that fund.
2. The discount rate and EROA become the same number for qualifying plans, which simplifies one assumption but requires careful documentation of the basis for that assumption.
3. The yield curve methodology is retired for the benefit obligation calculation on these plans. Actuaries who have built their valuation models around fixed-income curves will need to restructure the calculation.
4. Engage your actuary now, before the final ASU is issued, to model the PBO impact under the proposed rate and stress-test the funded status under different market return scenarios.

The interaction with ASC 820 fair value measurement is also worth noting: plan assets are measured at fair value under ASC 820, and if the discount rate is now the return on those same assets, there is a conceptual link between the plan asset fair value and the discount rate assumption. Document this linkage in your actuarial assumptions memo.

IFRS Parallel: A US GAAP Divergence to Flag for Multinationals

IAS 19, the IFRS equivalent of ASC 715, requires a high-quality corporate bond discount rate for all defined benefit plans regardless of plan type. There is no market-return exception under IFRS. If the FASB finalizes this proposed ASU, it will create a US GAAP/IFRS divergence for multinational companies that report under both frameworks.

For a company with US GAAP consolidated financials and IFRS subsidiary reporting (or vice versa), the same plan will carry different PBO measurements under each framework. Reconciliation disclosures and management commentary will need to address this gap explicitly.

Should You Submit a Comment Letter by August 10, 2026?

Any stakeholder has standing to comment on a FASB exposure draft. You do not need to be a standard-setter, auditor, or industry association. Plan sponsors, CFOs, controllers, actuaries, and benefits counsel all have relevant perspectives that the FASB actively wants to hear.

The FASB will begin redeliberations after the comment period closes, and comment letters directly influence the final standard's scope, transition provisions, and effective date.

Issues most likely to attract FASB attention

• Definition of "investable market return": Is the three-category list exhaustive? What about plans crediting a custom blended benchmark?
• The lump-sum condition: Is it the right scoping criterion? Should plans with both annuity and lump-sum options qualify in full or only for the lump-sum portion?
• Hybrid crediting structures: How should plans with a fixed floor plus a market-return component be treated? The exposure draft is silent.
• The EROA linkage: Should the FASB provide explicit guidance on the relationship between the discount rate and the EROA assumption for qualifying plans?
• Transition timing: Should the FASB consider a retrospective option for entities that want to restate prior periods for comparability?
• ERISA and PBGC alignment: As Groom Law Group notes, a similar mismatch may exist in ERISA minimum funding requirements and PBGC premium calculations. The FASB's jurisdiction is limited to accounting, but comment letters can flag the broader regulatory coherence issue.

To submit, visit the FASB exposure documents page and use the comment letter portal for exposure draft 2026-ED100.

FAQ

What is ASC 715-30? ASC 715-30 is the FASB codification subtopic governing the measurement and recognition of defined benefit pension obligations and net periodic pension cost under US GAAP. It covers the discount rate, service cost, interest cost, actuarial gains and losses, and plan asset return assumptions.

How does the discount rate affect pension expenses? The discount rate determines the present value of projected future benefit payments, setting the PBO. It also drives the interest cost component of NPPC (interest cost equals the beginning PBO multiplied by the discount rate). A higher discount rate lowers the PBO and reduces interest cost; a lower rate does the opposite. Changes in the discount rate between measurement dates generate actuarial gains or losses that flow through OCI.

Does this proposed ASU affect traditional cash balance plans? No. The proposal is narrow-scope and applies only to market-return cash balance plans meeting both qualifying conditions. Traditional cash balance plans with fixed or Treasury-based crediting rates continue to use the existing ASC 715-30-35-43 fixed-income discount rate methodology.

Can we adopt early before the final ASU is issued? No. Early adoption is permitted once the final ASU is issued, not during the exposure draft stage. The FASB will set the effective date after reviewing comments. Until then, current ASC 715-30 guidance remains in effect.

What if our plan has a preservation-of-capital floor? A plan with a floor above the statutory 0% minimum may still qualify under the two conditions, but the benefit obligation may exceed the sum of hypothetical account balances because the floor adds embedded value. Milliman notes this explicitly: the PBO will differ from account balances when the plan includes features that increase the inherent value of the benefit above the account balance. Model the floor's impact separately.

Does this affect our SAB 74 disclosures for pending accounting changes? Potentially yes. Once the final ASU is issued with an effective date, entities that have not yet adopted it will need to assess whether the impact is material and provide SAB 74 disclosures in their SEC filings. Start modeling the PBO impact now so the disclosure is ready when needed.