FASB Takes Key Step on Market-Based Cash Balance Plan Accounting
In this article, October Three provides commentary on FASB's approved recommendations that distinguish Market-Based Cash Balance plans from other DB plans.
On January 14th, 2026, the Board of the FASB took a big step towards clarifying the accounting treatment for Market-Based Cash Balance plans. Once finalized, these steps will mean that well-managed daily-valued Market-Based Cash Balance plans will be immune from the accounting risk and volatility typical of defined benefit pension plans. This is an important step forward in cementing the position of Market-Based Cash Balance plans as a best-of-both-worlds pension design that can provide meaningful benefit improvements for participants while protecting employers from artificial risk.
“This is great news!” says Idan Shlesinger, partner and leader of October Three’s PRIME initiative to bring Market-Based Cash Balance Plans into the corporate market as part of a superior next-generation retirement solution. “It will specifically distinguish Market-Based Cash Balance plans from other defined benefit plans, including non-market cash balance plans, and exempts just these plans from the volatility of regular pension accounting.”
Below is a summary of the issue, remedy, and current state. Note that this summary is intended to communicate the general state to a lay reader without delving into overly technical details. We recommend contacting October Three or another competent expert should you require more specific details.
The Issue
Pension accounting standards require earned pension benefits to be projected into the future based on plan rules and then discounted to the present day based on AA corporate bond yields.
Market-Based Cash Balance benefits are based on a notional account balance that grows over time, with reference to a pool of investable assets. Generally, though not always, this pool is expected to grow faster than AA corporate bonds.
Projecting the growth of benefits based on one rate and discounting them based on another rate creates a wild fluctuation in the liability for those benefits, because the ratio of each rate changes, even though the benefits are fixed to the value of the notional account and not directly impacted by these rates. These fluctuations create artificial volatility in the accounting impacts of these plans.
The Proposed Remedy
The FASB Emerging Issues Task Force (EITF) recommended that benefits that meet the strict definition of a Market-Based Cash Balance plan should be valued by setting the discount rate to be equal to the assumed interest crediting rate. This simple-sounding fix effectively eliminates the issue and allows benefits to be valued at the account balance with appropriate adjustments for specific, and usually minor, benefit provisions, such as the guarantee that benefits paid cannot fall below the accumulated pay credits to the plan.
The conditions a plan must meet for this new treatment would be:
Pension benefits are communicated to employees in the form of a current account balance that is comprised of principal credits and interest credits based on an investable market return in any of the following forms:
The return on the plans’ assets
The return on the plans’ assets that approximates the associated cash balance liabilities
The return on a regulated investment company
Participants have the option to elect lump-sum payments
These conditions limit the application of these new rules to properly designed and managed Market-Based Cash Balance plans, and specifically exclude non-market cash balance plans (those that provide a fixed or bond-yield-based interest credit) as well as traditional defined benefit plans.
Additional recommendations include that the change be required of all entities and that no additional disclosures be required.
Current Status
The FAS Board approved all of the recommendations of the EITF and instructed staff to draft a proposed Accounting Standards Update for vote by written ballot. The Board also decided on a 60-day comment period for the proposed update.
Given the strong support for the change expressed by the task force and the Board, we expect these changes to be quickly adopted and to eliminate once and for all the barrier that accounting uncertainty has posed to the broader adoption of Market-Based Cash Balance plans.
We thank FASB for taking on this important issue and believe it signals FASB’s acknowledgment that Market-Based Cash Balance plans represent a growing segment of the retirement plan market, and that these plans do not carry the same risks for employers as traditional defined benefit designs.
