The Financial Accounting Standards Board (FASB) issued an update to accounting standards on Feb. 28 that the board believes improves financial reporting about an employee benefit plan’s interest in a master trust.
In a master trust, a regulated financial institution serves as a trustee or custodian. The trust holds the assets of more than one plan sponsored by a single employer or by a group of employers under common control. The institution serving as trustee can be a bank, trust company, or similar financial institution that is regulated, supervised, and subject to periodic examination by a state or federal agency, the FASB states.
Accounting Standards Update (ASU) No. 2017-06, Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965): Employee Benefit Plan Master Trust Reporting, clarifies presentation requirements for a plan’s interest in the master trust and requires more detailed disclosures.
Current disclosure guidance about an employee benefit plan’s interest in a master trust in Topic 960, Plan Accounting—Defined Benefit Pension Plans, and Topic 962, Plan Accounting—Defined Contribution Pension Plans, requires a plan to disclose the following:
Fair value of investments held by the master trust by general type of investment.
Net change in the fair value of investments of the master trust.
Total investment income of the master trust by type.
A description of the basis used to allocate net assets, net investment income or loss, and gains or losses to participating plans.
The plan’s percentage interest in the master trust.
But stakeholders found the master trust disclosure requirements in GAAP to be “limited and incomplete,” especially relating to disclosures of the plan’s interest in the master trust, the ASU states.
Most financial statement preparers rely on the AICPA Audit and Accounting Guide, Employee Benefit Plans, to develop master plan disclosures in the plan’s financial statements, according to the FASB. Some stakeholders thought that master trust disclosures needed to be addressed in a standard because many employee benefit plans hold investments in these trusts.
The amendments in the ASU now require that all plans disclose the dollar amount of their interest in each general type of investment, which supplements the existing requirements in topics 960 and 962.
All plans also are required to disclose:
Their master trust’s other asset and liability balances, such as amounts due to brokers for securities purchased, accrued interest and dividends, and accrued expenses.
The dollar amount of the plan’s interest in each of those balances.
In addition, the amendments eliminate a redundancy concerning 401(h) account disclosures.
The guidance applies to reporting entities within the scope of topics 960, 962, and 965, Plan Accounting—Health and Welfare Benefit Plans.
The amendments go into effect for fiscal years beginning after Dec. 15, 2018. Early adoption is permitted. An entity should apply the amendments retrospectively to each period for which financial statements are presented.
Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.