On September 16, 2010, the Financial Accounting Standards Board (FASB) approved the issuance of a new Accounting Standards Update (ASU), Reporting Loans to Participants by Defined Contribution Pension Plans. The ASU is effective for plan years ending December 15, 2010 and after. However, the FASB has permitted the early implementation of the ASU for those plans wishing to adopt the ASU for financial statements for years ended December 31, 2009.
Historically, loans to participants have been included as investments in plan financial statements, and these assets have been subject to fair value reporting and disclosure under ASC 820, Fair Value Measurements and Disclosures. However, under the new ASU, loans to participants will now be treated as notes receivable and reported at the unpaid principal balance of the loans plus any accrued interest. In the year of adoption, loans to participants should be reclassified out of investments for all years presented.
For IRS Form 5500 reporting, loans to participants should continue to be reported as plan investments on Schedule H. Loans to participants should also continue to be included as plan assets in the supplemental schedule of assets held, which is a required element for the audited financial statements. These plan assets are still subject to the limited scope audit approach option when the requisite certification is obtained.