Changes to Classification & Measurement of Participant Loans
In September 2010, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2010-25, Reporting Loans to Participants by Defined Contribution Pension Plans. This ASU contained the following provisions:
- Plans affected - all defined contribution pension plans that allow participant loans
- Classification of Participant Loans - Participant Loans are to be classified as "Notes receivable from participants," a separate classification from investments
- Measurement of Participant Loans - Participant loans are to be measured at their unpaid principal balance plus any accrued but unpaid interest
- Effective Date - The ASU is effective for all fiscal years ending after December 15, 2010 and should be applied retrospectively to all prior periods presented. Early adoption is permitted.
Prior to the issuance of the ASU 2010-25, participant loans were classified as plan investments and were, therefore, required to be measured at fair value under Accounting Standards Codification ("ASC") Topic 820 and included in the required disclosures of the hierarchy of fair value measurement. The change in classification of participant loans from investments to receivables under ASU 2010-25 also eliminates the requirement to be included in the fair value measurement under ASC Topic 820 and therefore, inclusion in the required disclosures of the hierarchy of fair value measurement and the determination of whether participant loans are more appropriately level 1, 2 or 3 assets.
Note that classification for Form 5500 purposes has not changed. Participant loans will still be classified as investments in the Form 5500 Schedule H.
Call us if you would like further details or examples of these changes or need additional assistance.
Sincerely,
Kathy Musial, Audit Manager
BIK & CO, LLP
Phone (847) 281-3199
kmusial@bikcpa.com
www.bikcpa.com
