Disclosures of a plan’s interest in a master trust
FINANCIAL REPORTING INSIGHTS |
A master trust is a trust for which a regulated financial institution (bank, trust company or similar financial institution that is regulated, supervised and subject to periodic examination by a state or federal agency) serves as a trustee or custodian and in which assets of more than one plan sponsored by a single employer or by a group of employers under common control are held. Many users of employee benefit plan financial statements believe the disclosures of a plan’s interest in a master trust have not evolved to keep pace with the changes in master trusts. For example, master trusts historically were held by defined benefit plans as undivided interests, whereas now it has become increasingly common for defined contribution plans to hold specific interests in the investments held by the master trust. In addition, the master trust disclosure requirements were inconsistent among plan types. To address these and other issues, the Financial Accounting Standards Board recent issued Accounting Standards Update (ASU) 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 Emerging Issues Task Force).
Regardless of plan type, for each master trust in which a plan holds an interest, ASU 2017-06 requires a plan’s interest in that master trust and any change in that interest to be presented in separate line items in the statement of net assets available for benefits and in the statement of changes in net assets available for benefits, respectively. All plans that hold an interest in a master trust are required to disclose (a) their master trust’s other asset and liability balances and (b) the dollar amount of the plan’s interest in each of those balances. The ASU removes the requirement to disclose the percentage interest in the master trust for plans with divided interests and requires that all plans disclose the dollar amount of their interest in each general type of investments, which supplements the existing requirement to disclose the master trust’s balances in each general type of investments.
The ASU no longer requires a health and welfare benefit plan’s financial statements to provide investment disclosures relating to 401(h) account assets that are redundant with those provided in the defined benefit pension plan financial statements. However, ASU 2017-06 does require the health and welfare benefit plan to disclose the name of the defined benefit pension plan in which those investment disclosures are provided.
ASU 2017-06 is effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. An entity should apply the ASU retrospectively to each period for which financial statements are presented.