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9.3 Defined contribution plan financial statements
Publication date: 30 Jun 2022
us Pensions guide
ASC 962, Accounting and Reporting by Defined Contribution Pension Plans, establishes standards of financial accounting and reporting for the financial statements of defined contribution plans of nongovernmental organizations. Financial statement requirements for a defined contribution plan are found in ASC 962-205-45-1, ASC 962-325-50-1 through ASC 962-325-50-2, and ASC 962-205-50-1. Further guidance can be found in Chapter 5 of the AAG-EBP.
9.3.1 Self-directed defined contribution plan accounts
Self-directed investment options in defined contribution plans allow participants to invest their account balances in any investment offered under the plan, subject to certain limitations as specified by the plan document and/or trustee service agreement. AAG-EBP 5.28-5.31 provides guidance and considerations for self-directed accounts.
9.3.2 Employee stock ownership plans
An employee stock ownership plan (ESOP) is a unique form of a defined contribution plan. An ESOP has the ability to borrow money and to concentrate plan investments in qualifying employer securities. An ESOP that has an obligation to a financial institution or a related party lender to repay money borrowed is considered a leveraged ESOP. The debt is collateralized by the sponsoring employer’s stock that is owned by the ESOP. The sponsoring employer commits to making future contributions to the ESOP in sufficient amounts to enable the ESOP to meet the debt service requirements.
Financial statements of a leveraged ESOP should segregate allocated and unallocated assets (and liabilities) that belong to plan participants from those that are still available as collateral for the ESOP loan. The debt of the plan should be shown as a liability of the plan, even though it is typically guaranteed by the sponsor.
In a nonleveraged ESOP, the employer contributes its own stock or cash to the ESOP. If cash is contributed, the ESOP then purchases the company’s stock on the open market or directly from the company. A nonleveraged ESOP would not segregate the net assets into allocated and unallocated categories.
AAG-EBP Chapter 5B provides guidance and considerations for ESOPs. Also see SC 11 for guidance on employers’ accounting for ESOPs.
PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
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