Читать книгу Auditing Employee Benefit Plans - Josie Hammond - Страница 66

Certain defined contribution plans allow participants to borrow against their vested account balance. Such participant loans are an extension of credit to a plan participant by the plan, in accordance with the plan document or the plan’s written loan policy. The loan is secured by the participant’s vested account balance. Participant loans should be classified as notes receivable from participants for reporting purposes, and should be measured at their unpaid principal balance plus any accrued but unpaid interest.

The fair value measurement guidance and disclosure requirements of FASB ASC 820 do not apply to participant loans. Also, the fair value disclosure requirements for financial instruments under FASB ASC 825-10-50-10 through 50-16 are not required for participant loans. In addition, participant loans are excluded from the definition of financing receivables under FASB ASC 310-10-50-5B and 310-10-50-7B. Therefore, these loans would not be subject to the requirements of FASB ASC 310-10.

Help desk. Participant loans should continue to be reported as plan investments on Form 5500, Schedule H (and, therefore, on the supplemental schedule of investments held attached to the audited financials), at the unpaid principal balance.

Participant loans in which the participant has a distributable event (such as employment termination, death, or disability) would be considered distributions. At such point, the loan is recorded as a distribution and removed from net assets available for benefits.

Where a distributable event has not occurred, a participant may miss or become delinquent in loan repayments. Such delinquent loan would be considered a “deemed distribution” for tax and Form 5500 purposes. A delinquent loan generally does not become a deemed distribution until the end of the calendar quarter following the quarter in which the repayment was missed. Delinquent loans (although they may be “deemed distributions” for tax purposes) are considered to be assets of the plan for financial statement purposes, and continue to accrue interest, until they are determined to be uncollectible or cancelled in the event the loans go into “default.” Therefore, this may result in a reconciling item between Form 5500 and financial statements.

The fact that the participant pays tax on the amount of the delinquent loan does not necessarily mean that a distributable event has occurred or that the loan is considered to be canceled. An active participant may still have an opportunity to make the delinquent payments. The plan’s terms will generally specify how the plan handles a delinquent loan and when it may be considered in default. Once a delinquent loan is determined to be in default, the loan may then be written off or an allowance may be recorded against it.