OUR THOUGHTS ON:

Financial Statement Changes for Participant Loans

ERISA

By Mara Bruce

For defined contribution pension plans that allow participant loans, changes were made to the classification of these loans on financial statements for years ending after December 15, 2010. Until now, participant loans were classified as investments. Most investments held by a plan are required to be presented at fair value. In practice, most participant loans are carried at their unpaid principal balance plus any accrued interest, which was considered to approximate fair value. However, questions have arisen about whether this is a reasonable fair value measurement, and whether it is useful to the users of these financial statements.

With the Financial Accounting Standards Board’s (FASB) Accounting Standards Update 2010-25, FASB amended current guidance to require that participant loans of defined contribution pension plans be classified as notes receivable from participants, rather than investments on the Statement of Net Assets Available for Benefits. These loans are to be measured at their unpaid principal balance plus accrued unpaid interest. All prior periods presented will need to be reclassified to conform to this update.

Participant loans will not need to be measured at fair value, and the fair value disclosures will no longer apply.

These changes will not affect ERISA reporting purposes. Participant loans will continue to be considered investments on the Schedule of Assets (Held at End of Year) and Form 5500, Schedule H.

Please contact Mara Bruce, with any questions on this topic.

© 2011 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person any tax-related matter.

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at contactSD@schneiderdowns.com.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2018 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

comments