Pension plan master trusts

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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?

The adoption of IFRSs by master trusts was delayed due to AcSB and IASB projects on investment entities. Up to now, master trusts were not required to adopt an accounting framework other than Part V of the Handbook, including AcG-18, Investment Companies, to account for their investments. Since the IASB has resolved the subsidiary consolidation issue of investment entities, an accounting framework choice is now required.

Pension plan master trusts have to review their legal documents and operations to evaluate whether they are publicly accountable, and if so, they will have to 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 it only serves a limited number of outsiders, 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 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.

Therefore, 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 Handbook Section 4600.

The pension plans’ disclosure strategy may also very well be to cross-reference to the master trust’s financial statements (IFRS 7.B6). If so, the trust should either elect IFRSs or ASPE by providing additional information in accordance with IFRS 7.

Daniel Coulombe, CPA auditor, CA, and the working group on pension plans