Guidance is updated for benefit plans with master trust investments

Employee benefit plans that invest in master trusts must provide new information about their holdings, according to a FASB amendment to U.S. GAAP published on Feb. 27, 2017.

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 — A Consensus of the FASB Emerging Issues Task Force, is effective for fiscal years beginning after Dec. 15, 2018, the FASB said, and the amendments can be adopted ahead of the effective date. Businesses will have to implement the requirements using what the FASB calls a retrospective basis, meaning they will have to show prior years’ financial information using the new accounting so readers of financial statements can make accurate year-to-year comparisons.

The update covers reporting by an employee benefit plan for its interest in master trusts, which are managed for more than one benefit plan. Often a bank or other financial institution serves as the custodian or trustee.

The amendment to U.S. GAAP applies to businesses and organizations subject to Topic 960, Plan Accounting — Defined Benefit Pension Plans, Topic 962, Plan Accounting — Defined Contribution Pension Plans, or Topic 965, Plan Accounting — Health and Welfare Benefit Plans.

The FASB wants plans to present their interest in the master trust and changes in the interest as line items in the statement of net assets available for benefits and the statement of changes in net assets available for benefits, respectively. Plans will disclose the dollar value of their interest in each general investment class held by the trust and also disclose the master trust’s other assets and liabilities and the value of the plan’s balances from its trading activities, investment returns and expenses.

The update is a response to criticism that existing disclosure and presentation requirements, developed when benefit plans were largely centered around employer promises, are limited and incomplete, particularly regarding plans’ interests in master trusts.

Plan participants and regulators, such as those from the Department of Labor, the IRS, and the Pension Benefit Guaranty Corp., want to know more about the assets backing up the benefits so they can assess a plan’s current and future ability to make payouts, the FASB said when it was developing the update.

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