Your actuary hands you two numbers that should agree but do not. The plan statement says your participants' hypothetical account balances total $1.2 million — the sum of every principal credit plus interest credits, the amount you would actually pay out if everyone took a lump sum tomorrow. Your balance sheet, prepared under GAAP, reports a pension benefit obligation of $1.45 million. Same plan, same people, same promise — a quarter-million-dollar gap created entirely by the discount rate. In June 2026, FASB proposed ending that fiction for market-return cash balance plans: your liability would be measured with the same rate your plan credits, so the obligation on your books finally converges to the balances you communicate to employees.
This post explains why the two numbers diverge today, what the proposed change to ASC 715-30 would require, which plans qualify, and what a small-business sponsor should do while the proposal works its way toward a final standard.
Why your balance sheet disagrees with your plan statement
A cash balance plan looks like a 401(k) to your employees but is legally a defined benefit pension plan. Each participant has a hypothetical account. Every year the account grows by two things: a principal credit, typically a percentage of pay that can vary by age or years of service, and an interest credit, applied at a rate the plan document defines. That crediting rate is either fixed — say 4 percent a year — or variable. A market-return cash balance plan uses a variable rate tied to an investable market return, so the benefit promised at retirement or termination equals the principal credits plus the actual investment returns on them, subject to the legal guardrails that keep these plans qualified.
GAAP measures the obligation differently from how the plan communicates it. ASC 715-30-35-43 says the discount rate must reflect the rate at which the benefits could be effectively settled — in practice, rates implicit in annuity contract prices or yields on high-quality fixed-income investments. Your actuary projects the future credits, then discounts them back at that settlement rate. When the settlement rate differs from the rate the plan actually credits, the present value lands somewhere other than the account balance. For a market-return plan whose participants can take lump sums equal to their balances, that gap is pure measurement noise: the economics say you owe the balances, full stop.
Stakeholders told FASB exactly that, and FASB agreed the problem was real enough to fix. The result is the proposed Accounting Standards Update titled Application of Topic 715 to Market-Return Cash Balance Plans.
What the proposal would change
The core rule fits in one sentence: for a qualifying market-return cash balance plan, measure the benefit obligation using the assumed interest crediting rate as the discount rate. Because the same rate projects the credits and discounts them back, the math collapses — the obligation generally equals the hypothetical account balance. Nothing else in Subtopic 715-30 changes; service cost, interest cost, and the rest of pension accounting work exactly as before.
Two conditions must both hold for a plan to qualify:
- Benefits are communicated as an account balance made of principal credits plus interest credits based on an investable market return, in one of three forms: the return on plan assets, the return on a subset of plan assets that approximates the associated liabilities, or the return on a regulated investment company such as a mutual fund.
- Participants can elect a lump-sum payment. This is the condition that ties the accounting to the economics — if everyone can walk away with their balance, the balance is the obligation.
On process: FASB issued the exposure draft in June 2026 with a 60-day comment period that closed August 10, 2026. The board will set an effective date after digesting feedback, early adoption would be permitted, and adoption would be prospective — applied at your next pension measurement date, with no restatement of prior periods. The early signals point toward finalization: comment letters from major firms and actuarial consultancies, including EY, Mercer, and WTW, support using the crediting rate as the discount rate as the faithful representation of these plans' economics.
Why this matters more than a typical FASB proposal
Cash balance plans have quietly become the small-business retirement plan. The FuturePlan 2025 outlook report puts the numbers in perspective: cash balance plans grew more than 1,025 percent over two decades, now hold over $1 trillion in assets covering 9.5 million savers, and businesses with nine or fewer employees sponsor 56 percent of all plans. October Three's 2026 report adds that cash balance plans now make up 65 percent of all defined benefit plans in the United States — nearly 25,000 plans against fewer than 13,600 traditional pensions — and that 53 percent of sponsors use market-based crediting rates.
If your plan is in that market-return majority, the proposal changes your financial statements in ways a lender or buyer will notice:
- A liability that matches the check you would write. No more explaining to your bank why the pension obligation exceeds the balances on the participant statements, or why it swings when corporate bond yields move even though your promise never changed.
- Cleaner audits and due diligence. An obligation equal to the account balance is trivially verifiable against the recordkeeper's statements. In an acquisition, it removes a purchase-price adjustment argument before it starts.
- More stable leverage ratios. Settlement-rate discounting injects bond-market volatility into your balance sheet. Crediting-rate discounting moves with the plan's own economics instead.
One important caveat: fixed-rate plans are untouched. More than 90 percent of micro-business plans credit a fixed rate, and those keep today's settlement-rate measurement. The proposal also does nothing to your funding obligation, your tax deduction, or your Form 5500 annual return — it is a GAAP measurement change only. Your required contributions are set by federal pension funding law (ERISA) and your actuary, not by ASC 715.
What to do before this becomes final
You do not need to amend your plan today, but there are four conversations worth having now.
Ask your actuary whether you qualify
Send your plan document's crediting-rate definition and distribution provisions to your actuary and ask two questions: does our crediting rate count as an investable market return in one of the three permitted forms, and do all participants have a lump-sum option? Then ask for a pro forma: what would our obligation have been last measurement date under the proposed method? That number tells you the size of the balance-sheet change — and whether early adoption is worth discussing.
Talk to your auditor about timing
Because adoption is prospective at the next measurement date, the timing of your fiscal year-end relative to the final standard's effective date determines when the change hits your statements. If you are mid-negotiation on a loan covenant or a sale, knowing which basis your next audited statements will use matters. Ask your auditor now how they plan to handle early adoption for calendar-year sponsors.
Keep funding and accounting in separate mental buckets
The most common mistake sponsors make with pension news is assuming a smaller GAAP liability means smaller contributions. It does not. Keep funding the plan on your actuary's schedule, keep taking the deduction your tax advisor computes, and let the accounting change do nothing more than make your balance sheet honest.
Track the plan's economics in your own books
Your recordkeeper tracks participant balances, but your general ledger should still show the annual story: service cost for the year's principal credits, interest cost for the year's interest credits, and the employer contribution that funds the trust. A small sponsor can keep this in plain-text books with three postings a year:
2026-01-01 open Assets:Cash:Operating USD
2026-01-01 open Expenses:Pension:Service-Cost USD
2026-01-01 open Expenses:Pension:Interest-Cost USD
2026-01-01 open Liabilities:Pension:Benefit-Obligation USD
2026-12-31 * "Actuary" "2026 principal credits, owner plus staff"
Expenses:Pension:Service-Cost 185000.00 USD
Liabilities:Pension:Benefit-Obligation -185000.00 USD
2026-12-31 * "Actuary" "2026 interest credits at the plan's actual market return"
Expenses:Pension:Interest-Cost 74400.00 USD
Liabilities:Pension:Benefit-Obligation -74400.00 USD
2026-12-31 * "Plan trustee" "2026 employer contribution to the cash balance trust"
Liabilities:Pension:Benefit-Obligation 210000.00 USD
Assets:Cash:Operating -210000.00 USDWhen the final standard arrives and the measured obligation converges to the account balances, the one-time catch-up is an actuarial gain or loss — recorded against the liability with the offset in other comprehensive income, not in current-year pension expense:
2026-01-01 open Equity:OCI:Pension-Actuarial USD
2027-01-01 * "Actuary" "Adopt market-return discount rate, liability converges to account balances"
Liabilities:Pension:Benefit-Obligation 38500.00 USD
Equity:OCI:Pension-Actuarial -38500.00 USDSeparating service cost, interest cost, and the adoption adjustment into distinct accounts means that when your lender asks why the pension liability moved, the answer is readable straight from the ledger. If you keep your books in Beancount, the Fava dashboard renders the liability account's balance over time, so the convergence shows up as a visible step-down in the year you adopt. The documentation covers balance and journal queries if you want to reconcile the ledger against the actuary's valuation report line by line.
The bottom line
FASB's proposal does something standard-setters rarely do: it makes the accounting simpler and more truthful at the same time. A market-return cash balance plan promises account balances payable as lump sums, so measuring the obligation at anything other than those balances was always an artifact of a discount-rate rule written for traditional annuities. Get the pro forma from your actuary, align with your auditor on timing, and keep funding the plan the way you always have — and when the final ASU lands, your balance sheet will finally agree with your plan statement.
