Accounting Revisions Proposed for Pensions' Master Trusts

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By Denise Lugo

July 28 — Financial Institutions such as banks or trust companies that oversee master trusts governing multiple employee benefit plans will get updated and consistent financial reporting under proposed revisions issued by the Financial Accounting Standards Board.

FASB issued the proposal July 28 to update presentation and disclosure rules related to master trusts—a type of investment structure that holds assets of more than one plan sponsored by a single employer, or a by a group of employers under common control.

The newly proposed information would be useful to the Department of Labor, the primary user of the information. If finalized, the rules would require retrospective application to all periods presented, according to the proposed revisions.

Bringing Consistency

To provide consistency in accounting, FASB proposes that a plan that holds investments in a master trust should present balances and activity of the master trust net, as a single line-item.

The proposal also adds to and clarifies footnotes disclosures. To provide more clarity around disclosures that are required when a plan has a divided interests in an individual investment of the master trust, the rules would require disclosure of both a list of the general types of investments held by the master trust and the dollar amount of their interest in each of those general types of investments.

Helping Users Understand

FASB also proposed a new disclosure relevant to a master trust's other assets and liabilities. Examples of those balances include amounts due from brokers for securities sold and amounts due to brokers for securities purchased. To help users understand the single line item presented in the statement of net assets available for benefits, all plans would be required to disclose:

  •  their master trust's other asset and liability balances;
  •  the dollar amount of the plan's interest in each of those balances.
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Lastly, to remove redundancy, investment disclosures related to 401(h) in the health and welfare benefit plan's financial statements would no longer be required, the proposal states.

Health and welfare benefit plans would, however, disclose the name of the defined benefit plan in which those investment disclosures are provided. This would enable participants to access easily those statements for information about the 401(h) account assets if needed, the proposal states.

Reason for Updates

The proposal was issued so that generally accepted accounting principles on the subject would be in alignment with current plan trends.

Employee benefit plan investments in master trusts may be held as divided interests, undivided interests, or a combination thereof. However, the evolution of employee benefit plans from mostly defined benefit plans to mostly defined contribution plans has resulted in more plans holding divided interest in master trusts.

This calls for current presentation and disclosure rules under GAAP related to master trusts to be updated, FASB said.

To contact the reporter on this story: Denise Lugo in Norwalk, Conn., dlugo@bna.com

To contact the editor responsible for this story: Steven Marcy at smarcy@bna.com

For More Information

For a copy of the proposal, including how to submit comments, go to http://src.bna.com/hdL.

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