Revisiting FASB’s Updated Master Trust Reporting Requirements

Three years ago, the Financial Accounting Standards Board (FASB) issued changes to the required financial statement disclosures of certain employee benefit plans with investments held in master trusts. Even amidst our new normal, these changes will be enacted to standardize and improve the usefulness of information provided to users of employee benefit plan financial statements due to the increased prevalence of employee benefit plans investing in master trusts today.
 
By now, plan sponsors should have received their investment statements from custodians and other service providers related to master trusts. While service providers have had time to prepare for the new disclosures’ effective date—the updated requirements are effective for fiscal years beginning after December 15, 2018—there is no guarantee that plan sponsors received master trust reporting that accurately reflects the updated requirements. As a result, plan sponsors should familiarize themselves with these updated reporting requirements and review financial statement disclosures to ensure they can provide appropriate reporting to plan participants.

 

Background on Master Trusts and Reporting Requirements

Master trusts are accounts held by a trust or banking institution on behalf of more than one plan sponsored by a single employer or group of employers under common control. Plans can have divided or undivided interests in a master trust.

• Divided interest: The plan has specific ownership interests in individual investments within that trust, and all of the benefits and costs from those interests are allocated to that plan.
• Undivided interest: The plan holds a proportionate interest in the master trust’s net assets but has no specific ownership interest in any of the individual balances of the master trust.

 
Historically, defined benefit plans most commonly held undivided interests in master trusts, and presentation and disclosure requirements were originally designed according to this reality. Defined contribution plans, which include 401(k) plans and represent the majority of plans today, are more likely to hold divided interests in master trusts. Because master trust disclosure requirements under Accounting Standards Codification (ASC) Topics 960, 962, and 965 previously were limited and incomplete, many financial statement preparers relied on the American Institute of Certified Public Accountants (AICPA) Audit and Accounting Guide for guidance.
 
FASB recognized the need to update reporting rules to better apply to employee benefit plans today. In February 2017, FASB issued Accounting Standards Update 2017-06 to help clarify the reporting requirements for a plan’s interest in a master trust.

 

Key Provisions of FASB’s Updated Master Trust Reporting Requirements

FASB’s updated master trust reporting requirements include the following key provisions:

1. The disclosure of the percentage interest in a master trust for plans with divided interest is no longer required.

2. All plans are required to disclose the total master trust investment amounts by general type and the dollar amount of their interest in each of the general types of investments of the master trust.

3. An employee benefit plan will also disclose a master trust’s other asset and liability balances and the dollar amount of the plan’s interest in each of those balances.

4. Health and welfare plans’ investment disclosures for 401(h) account assets have been eliminated. Instead, the plan financials will disclose the name of the defined benefit pension plan which includes such investment disclosures.

Example:

Example for items b and c above from The Financial Accounting Standards Board’s Accounting Standards Update 2017-06
 
 
The FASB’s updated master trust reporting requirements became effective for fiscal years beginning after December 15, 2018. Early adoption was permitted. It is important to note that the updated requirements also must be applied retrospectively to each period for which financial statements are presented.

 

BDO Insight: Take a Closer Look at Financial Statements This Year

There is no guarantee that plan sponsors received master trust reporting from custodians and other service providers that accurately reflects the updated FASB requirements, so plan sponsors should take a closer look at master trust reports this year. They should also be prepared to proactively communicate with service providers and custodians to help avoid potential challenges and inefficiencies during the financial reporting process. This advice applies in any year, but it is especially important for the first year when a change like this takes effect.
 
Your BDO representative can help you understand the updated master trust reporting requirements and what to look out for when reviewing your master trust financial statements.