A defined benefit plan audit hinges on how the plan sponsor measures its benefit obligation, and a new FASB proposal could change that measurement for one specific plan type: the market-return cash balance plan. On June 10, 2026, the Financial Accounting Standards Board issued a proposed Accounting Standards Update (an exposure draft, not a final standard) that would amend Subtopic 715-30, Compensation, Retirement Benefits, Defined Benefit Plans, Pension. The proposal is open for public comment through August 10, 2026. Sponsors of these plans, and the auditors who examine their financial statements, should understand what is on the table now, because the comment period is the window to weigh in.
Quick answer: FASB has proposed (not finalized) an amendment to ASC 715-30 that would require an employer with a market-return cash balance plan to use the plan’s assumed interest crediting rate as the discount rate when measuring the benefit obligation. Because the discount rate would equal the rate at which hypothetical account balances are projected to grow, the measured benefit obligation would generally equal the sum of participants’ hypothetical account balances. The proposal is an exposure draft with a comment deadline of August 10, 2026, and the effective date will be set later after FASB reviews feedback.
What FASB Actually Proposed
A cash balance plan is a defined benefit plan that expresses each participant’s benefit as a hypothetical account balance. The employer credits two things to that account: pay credits (a percentage of compensation) and interest credits. In a traditional cash balance plan, the interest crediting rate is a fixed rate or tied to a bond index. In a market-return cash balance plan, the interest crediting rate is tied to the actual return on plan assets or a designated market index, so the account grows or shrinks with investment performance.
Under existing ASC 715-30 guidance, an employer measures the benefit obligation by discounting projected future benefit payments using a discount rate based on high-quality corporate bond yields. That approach was designed for plans with fixed or formula-based benefits. When applied to a market-return plan, it can produce a benefit obligation that differs from the participants’ actual hypothetical account balances, even though those balances move with the market.
The proposed ASU would require entities to use the assumed interest crediting rate as the assumed discount rate for these plans. That rate reflects the expected growth in participant accounts under the plan’s market-based formula. When the discount rate equals the projected crediting rate, the present value calculation collapses, and the benefit obligation generally equals the current hypothetical account balance. FASB has framed this as a clarification intended to better reflect the economics of these arrangements rather than a wholesale change to pension accounting.
Why FASB Acted: Diversity in Practice
FASB did not raise this issue in isolation. It came through the Emerging Issues Task Force, which deliberated the matter and recommended clarifying ASC 715-30. The driving concern was diversity in practice: different employers with substantially similar market-return cash balance plans were measuring the benefit obligation in different ways, producing results that were not comparable across companies.
The core problem is a mismatch. If a plan credits participant accounts at the market return on plan assets, but the sponsor discounts the obligation at a corporate bond rate, the reported obligation can diverge from the balance the plan actually owes participants. Some preparers viewed that outcome as inconsistent with the substance of the benefit promise. Others applied the literal bond-rate guidance. The result was inconsistent reporting for economically similar plans.
By specifying that the discount rate should equal the assumed interest crediting rate, FASB aims to align the measured obligation with the hypothetical account balance and remove the variation. This is a narrow, targeted fix. It applies to certain market-return cash balance plans and does not rewrite the broader measurement model for traditional defined benefit pensions or traditional cash balance plans.
How the Proposal Would Affect Financial Reporting and Audits
If the proposal is finalized as drafted, the most visible effect for many sponsors would be a change in the measured projected benefit obligation, which could in turn shift the funded status reported on the balance sheet and the net periodic pension cost reported in earnings. Because the obligation would track the hypothetical account balances, volatility in the obligation would more directly mirror investment performance, and the abstraction layer created by a bond-based discount rate would be reduced for these specific plans.
Transition, as proposed, would be prospective at the entity’s next pension measurement date, and early adoption would be permitted. An adopting entity would be required to disclose the change in accounting principle in both the interim and annual reporting periods of adoption. The effective date itself is not set in the exposure draft; FASB has stated it will determine the effective date after considering stakeholder feedback.
For the audit, this changes the substance of what the engagement team tests. In a defined benefit plan audit and in the audit of the sponsor’s financial statements, auditors evaluate the reasonableness of the discount rate, the actuarial assumptions, and the resulting obligation. Under the proposed model for market-return plans, the focus would shift toward confirming that the plan is in scope, that the assumed interest crediting rate is determined and applied correctly, and that the obligation reconciles to the hypothetical account balances. Auditors and sponsors should coordinate early with the plan actuary, because the actuarial valuation drives the numbers that flow into the financial statements. Firms that provide audit and assurance services will want to plan procedures and documentation around whichever measurement basis applies in the relevant period, and to track whether the standard is still a proposal or has been finalized.
There is also a reporting-process dimension. Adoption would require new disclosures and may affect comparative presentation, deferred tax considerations, and any debt covenants or compensation metrics tied to pension figures. Sponsors that lean on outside support for their close and reporting, including client accounting services, should flag this proposal now so the accounting team can model the potential impact before any effective date arrives.
What Plan Sponsors Should Do During the Comment Period
The single most important point is that this is a proposal. Nothing is required today, and the guidance could change before it is finalized. Sponsors should resist the urge to restate or remeasure based on the exposure draft alone. The right posture during the comment period is preparation and engagement, not premature adoption.
First, determine whether you sponsor a market-return cash balance plan that would fall within the proposal’s scope. Plans with fixed or bond-indexed interest crediting are not the target; plans that credit interest based on actual asset returns or a market index are. Your actuary can confirm the plan design and whether the proposed measurement basis would meaningfully differ from your current approach.
Second, model the potential effect. Ask your actuary to estimate what the benefit obligation would look like if measured at the assumed interest crediting rate versus the current discount rate. Understanding the directional impact on funded status and net periodic cost lets you brief management, the audit committee, and lenders before any change takes effect.
Third, consider submitting a comment letter to FASB by August 10, 2026. The comment period exists so that preparers, actuaries, and auditors can identify operational concerns, scope ambiguities, and unintended consequences. You can review the official proposal and the comment process through the FASB news release on the proposal and follow ongoing coverage through the Journal of Accountancy news section. FASB has also stated the effective date and transition will be informed by the feedback it receives, which makes substantive comments worth the effort.
Frequently Asked Questions
Is this FASB proposal final, and do I have to apply it now?
No. It is a proposed Accounting Standards Update, also called an exposure draft, issued June 10, 2026, with a comment deadline of August 10, 2026. It is not authoritative GAAP, the effective date has not been set, and you are not required to apply it now. FASB will decide on a final standard, its provisions, and timing after reviewing comments.
Which plans does the proposal affect?
It targets certain market-return cash balance plans, meaning defined benefit cash balance plans whose interest crediting rate is based on the return of plan assets or a designated market index. Traditional defined benefit pensions and cash balance plans with fixed or bond-indexed crediting rates are not the focus of this amendment to ASC 715-30.
How would the proposal change the benefit obligation?
It would require using the plan’s assumed interest crediting rate as the discount rate. Because the discount rate would equal the rate at which hypothetical account balances are projected to grow, the measured benefit obligation would generally equal the sum of participants’ hypothetical account balances, rather than a present value based on a separate corporate bond discount rate.
How should this affect audit planning for a defined benefit plan?
Auditors and sponsors should identify whether the plan is in scope, coordinate early with the plan actuary, and prepare to test the assumed interest crediting rate and the reconciliation of the obligation to hypothetical account balances if the standard is finalized. Until then, audit procedures continue to follow current ASC 715-30 measurement, while teams monitor the proposal’s status.
Where This Leaves Sponsors
FASB’s proposal is a focused effort to fix an inconsistency in how market-return cash balance plans measure their benefit obligation, replacing a corporate bond discount rate with the plan’s assumed interest crediting rate for these plans. If finalized, it would generally bring the reported obligation in line with participants’ hypothetical account balances and remove the diversity in practice that prompted the project. For now, it remains an exposure draft open for comment through August 10, 2026, and the prudent step is to scope your plans, model the impact with your actuary, and decide whether to submit feedback before the deadline.
