Companies with employee benefit plans held in master trusts have some new accounting rules to learn and observe, courtesy of the Financial Accounting Standards Board.
The changes apply to benefit plans held in master trusts, where a regulated financial institution serves as the trustee or custodian for the assets of more than one plan sponsored by a single employer or a group of employers under common control. While the Financial Accounting Standards Board has targeted employee benefit plan accounting as an area for simplification, this change to accounting adds some new requirements.
The FASB issued Accounting Standards Update No. 2017-06 to clarify presentation requirements around an employee benefit plan’s interest in a master trust and to establish more detailed disclosure requirements. The board says its new accounting rules also remove a redundancy relating to certain investment disclosures by health and welfare benefit plans.
Historic accounting requirements for such plans have required disclosure of items such as the fair value of investments by type, net changes in the fair value of investments, total investment income by type, a description of the basis used to allocate net assets, net investment income or loss, gains or losses to participating plans, and the plan’s percentage interest in the master trust.
Stakeholders who relied on such disclosures said they didn’t meet the mark in terms of providing adequate information, especially disclosures around the plan’s interest in the master plan. That prompted the FASB’s Emerging Issues Task Force to investigate and recommend some changes.
The new standard says for each master trust in which a plan holds an interest, the plan’s interest and any change must be presented in a separate line item in the statement of net assets available for benefit and in the statement of changes in net assets available for benefit. The new standard also contains provisions to flesh out percentage interest in master trusts for plans with divided interests, requiring all plans to disclose the dollar amount of their interest in each of those general types of investments.
The amended guidance requires all plans to disclose their master trust’s other asset and liability balances as well as the dollar amount of the plan’s interest in each of those balances. The amendments also remove some provisions that led to redundant disclosures.
The new standard takes effect for public companies in 2019, with early adoption permitted.