FASB ASU 2017-06 – Employee Benefit Plan Master Trust Reporting

On February 27, 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2017-06. The update clarifies the presentation and disclosure requirements for an employee benefit plan’s interest in a master trust. 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 in which assets of more than one plan sponsored by a single employer, or by a group of employers under common control are held.

Currently, Topic 960, Plan Accounting – Defined Benefit Pension Plans and Topic 962, Plan Accounting – Defined Contribution Pension Plans have requirements for the disclosure of certain items. They include: the fair value of investments held by the master trust by a general type of investment, the net change in the fair value of investments 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. Nonetheless, many stakeholders find these disclosure requirements to be limited and incomplete. They believe more consistency is needed. In response, the FASB issued Update 2017-06; the amendments of which apply to reporting entities within the scope of Topic 960, Topic 962, or Topic 965, and Plan Accounting – Health and Welfare Benefit Plans. The main provisions of the Update are as follows:

  • For each master trust in which a plan holds an interest, the plan’s interest in that master trust and any change in that interest must 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.
  • Plans with divided interests are no longer required to disclose the percentage interest in the master trust. Instead, all plans are required to disclose the dollar amount of their interest in each of those general types of investments. This supplements the existing requirement to disclose the master trust’s balances in each general type of investment.
  • All plans are required to disclose: (1) Their master trust’s other asset and liability balances, (e.g., amounts due to brokers for securities purchased, accrued interest and dividends, and accrued expenses), and (2) The dollar amount of the plan’s interest in each of those balances.
  • To avoid redundancy, required investment disclosures relating to 401(h) account assets are no longer required to be included in the health and welfare benefit plan financial statements. The health and welfare benefit plan is only required to disclose the name of the defined benefit pension plan in which those investment disclosures are provided. This is so that participants can easily access those statements for information about the 401(h) account assets, if needed.

The amendments in the Update are effective for fiscal years beginning after December 15, 2018 however, early adoption is permitted. The amendments should be applied retrospectively to each financial period for which financial statements are presented.