Understanding ASC 960-325: Fair Value Measurement in Pension Plans

Understanding ASC 960-325: Fair Value Measurement in Pension Plans

Posted In | ASC Education | Gridlex Academy

The Financial Accounting Standards Board (FASB) provides comprehensive guidance on accounting for different types of entities, including defined benefit pension plans, through its Accounting Standards Codification (ASC). One such guideline is the ASC 960-325, which pertains to plan accounting, specifically for defined benefit pension plans. This regulation specifically deals with the investment components of pension plans, focusing on the principles of fair value measurement transactions.


Fair Value Measurement

Fair value is defined by FASB as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurement in pension plans is critical because it provides an accurate assessment of an entity's financial position, thus helping stakeholders make informed decisions. Under ASC 960-325, defined benefit pension plans are required to measure their investments at fair value on a recurring basis. This is a fundamental aspect of plan accounting, ensuring the plan's financial statements accurately reflect the market conditions at the reporting date.

Accounting Entries

Now, let's examine how the ASC 960-325 would be applied in practice, using a hypothetical defined benefit pension plan that invests in various financial instruments. To demonstrate, we will use simple journal entries.

  1. Initial Investment Purchase:

    If the plan purchases an investment initially valued at $1,000,000, the following journal entry will be recorded:

    Debit: Investment in ABC Corp. Bonds $1,000,000 Credit: Cash $1,000,000

    This entry records the initial purchase of the investment.

  2. Year-end Fair Value Adjustment:

    Suppose that by the end of the fiscal year, the fair value of this investment increases to $1,050,000 due to market changes. A fair value adjustment is needed to reflect this.

    Debit: Investment in ABC Corp. Bonds $50,000 Credit: Unrealized Gain on Investment $50,000

    The investment's carrying value is increased to reflect the higher market value, and an unrealized gain is recorded, showing the increase in the investment's worth.

  3. Sale of Investment:

    If the plan then sells this investment for $1,060,000, it would record:

    Debit: Cash $1,060,000 Credit: Investment in ABC Corp. Bonds $1,050,000 Credit: Realized Gain on Investment $10,000

    Upon selling, the cash received is recorded, the carrying value of the investment is removed from the books, and any gain or loss from the sale (the difference between the selling price and the carrying value) is recorded as a realized gain or loss.

ASC 960-325 encourages transparency and provides a framework for consistently evaluating investments. The fair value measurement of these investments offers more accurate and timely information, enabling stakeholders to make informed decisions.


The ASC 960-325 guideline offers an essential accounting mechanism for defined benefit pension plans. It provides a framework for recognizing, measuring, and reporting the fair value of plan investments. The inclusion of market conditions and financial performance in accounting transactions ensures that the financial statements provide a true representation of the plan's current state. Hence, it's crucial for entities to understand and properly implement this accounting guideline.