Certain types of employee benefit plans with investments in master trusts may face increased disclosure requirements. The Financial Accounting Standards Board (FASB) issued a proposed accounting standards update on July 28, 2016, targeting the presentation requirements for master trust investments for defined benefit pension plans, defined contribution pension plans and health and welfare plans. The effective date of the proposed changes will depend on comments received on the exposure draft, which are due by September 26, 2016. Entities would be required to adopt the changes retrospectively for all periods presented.

Highlights of the Proposed Changes

A master trust holds assets of more than one plan sponsored by a single employer or a group of employers under common control. How employee benefit plans present their investments held in a master trust has historically varied depending on the type of employee benefit plan.

For example, defined benefit pension plans currently present investments in master trusts as a single line item. There is unclear guidance as to how defined contribution plans and health and welfare plans are required to report their interest in a master trust, thereby resulting in presentation and disclosure differences in the profession. The proposed update would require all three plan types to present the investment in a master trust as a single line item in the statement of net assets available for benefits and the change in its interest in the master trust in the statement of changes in net assets available for benefits.

Current disclosure requirements under generally accepted accounting principles (GAAP) for a defined benefit or defined contribution pension plan's interest in a master trust include the following:

  • The fair value of investments held by the master trust by general type of investment;
  • The net change in the fair value of each significant type of investment of the master trust;
  • The 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; and
  • The plan's percentage interest in the master trust.

The plan's percentage interest in the master trust proves problematic for many employee benefit plans if the plans have a divided interest in the individual investments within the trust. The proposed update would require all plans with divided interests in the individual investments in the master trust to disclose a list of the general types of investments they hold along with the dollar amount of their interest in each of the general types of investments.

The proposed update would also require all plans to disclose the master trust's other asset and liability balances and the dollar amount of the plan's interest in each of those balances. Other disclosures, such as the ones required by ASC Topic 815, Derivatives and Hedging and ASC Topic 820, Fair Value Measurement, will not be required. Currently 401(h) account assets are shown in the financial statement for both the defined benefit pension plan as well as the related health and welfare benefit plan. The proposed update would eliminate the requirement that the 401(h) account investment disclosures be shown in the health and welfare benefit plan financial statements. The only requirement would be for the health and welfare benefit plan to disclose the name of the defined benefit pension plan in which those investment disclosures are provided.

For More Information

If you have specific comments, questions or concerns, please share them with your local MHM professional or contact Linda Lauer, MHM's Midwest Region EBP Audit Leader and a member of our national EBP audit task force. She can be reached at 901.685.5575 or llauer@cbiz.com.

Published on August 16, 2016