To All Depository Institutions and Others Concerned in the Second Federal Reserve District:
In a supervisory letter (SR 04-4), dated February 11, 2004, the Federal Reserve Board and other bank and thrift regulatory agencies issued an advisory providing guidance on the appropriate accounting treatment for deferred compensation agreements that banks and thrift institutions (institutions) enter into with employees.
The advisory highlights the appropriate accounting for obligations under a type of deferred compensation agreement commonly referred to as a revenue neutral plan or an indexed retirement plan. Institutions often purchase life insurance in conjunction with establishing deferred compensation programs. Therefore, this advisory also addresses the appropriate accounting treatment for bank-owned life insurance (BOLI). The agencies believe the guidance is consistent with generally accepted accounting principles (GAAP).
Institutions should review their accounting for deferred compensation agreements to ensure that obligations under the agreements have been appropriately measured and reported. Banks should reflect any necessary changes for these agreements in their March 31, 2004 Call Reports as described in the guidance. Banks are not required to file amended Call Reports unless specifically directed by their Reserve Bank. While the interagency advisory applies to banks, it should also be followed by bank holding companies and U.S. branches and agencies of foreign banking organizations that file GAAP-based regulatory reports.