Change in Reporting for Participant Loans

In September 2010, the Financial Accounting Standards Board issued Accounting Standards Update No. 2010-25, Plan Accounting – Defined Contribution Pension Plans. This new standard requires that defined contribution pension plans report participant loans as Notes Receivable from Participants and classify the loans outside of investments on the plan’s statement of net assets available for benefits.

Previously, participant loans were usually classified as an investment. The general disclosures regarding participant loans will continue to be included in the notes to the financial statements and may include additional disclosures required about receivables. Any information about participant loans previously included in a plan’s fair value measurement disclosures will be removed.

Participant loans will be measured at their unpaid principal balance, plus any accrued interest, which is how most plans currently calculate the participant loan balance.

On a plan’s Form 5500, participant loans will continue to be reported within investments. However, a reconciliation between investments as reported in the financial statements and Form 5500 is not required, as total net assets reported on both the financial statements and Form 5500 will not be changed by this reclassification.

This change is effective for all plan years ending after December 15, 2010 and will apply retrospectively to all periods presented. Early adoption is also allowed.

As you begin to prepare for your plan’s upcoming audit and reporting requirements, the new standard will not significantly change the information that your auditors will require or the scope of their audit procedures surrounding participant loans. This change should affect only the presentation and disclosure on the plan’s financial statements.