Updated : December 18, 2018
Pension plan master trusts are investment entities. They are common in organizations that offer a number of different pension plans and, for the sake of efficiency, decide to pool their assets by creating a master trust mandated to invest pension plan funds in accordance with the pension plan investment policies. In doing so, these plans have access to investment vehicles that are usually exclusive to larger investors.
Which accounting framework should these master trusts use?
Pension plan master trusts have their legal documents and operational documents reviewed to evaluate whether they are publicly accountable, and if so, they must use IFRSs. A publicly accountable enterprise is an entity that “holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses.” A master trust that considers serving only a limited number of outsiders (i.e. the participating pension plans as such) may therefore elect to use ASPE or IFRSs.
It should be noted that pension plans are required to comply with IFRSs for the measurement and disclosure of their investments, as prescribed in CPA Canada Handbook Section 4600 (4600.19 and .32(a)(i)). This measurement and disclosure requirement is valid, regardless of the “secondary” accounting framework the pension plan will have elected to use (ASPE or IFRS) (4600.7). Also note that IFRS 7 requires disclosures about financial risks based on information provided internally to the entity’s key management personnel (IFRS 7.34(a)). When a significant part (if not all) of a plan’s investments is entrusted to a master trust and managed by or under the direct supervision of the community of participating pension plans, the expectation is that the information about the plan’s exposure to financial risks would be based on the master trust’s situation. However, plans within a master trust may have very diverse characteristics and financial commitments, leading to different investment policies for each plan. As a result, the investment mix could vary significantly from one plan to the next, and not necessarily have the same percentages as the investments of the master trust. Information about financial risks should therefore reflect the risks specific to the plan if they differ from those of the master trust.
Consequently, when the master trust follows ASPE, the pension plan will have to increase disclosures on investments, associated financial risks and the fair value hierarchy in order to comply with CPA Canada Handbook Section 4600.
The Order’s Sector-specific working group on pension plans