Accrued loan interest on schedule of assets held?

[Guest Carolyn Barnard]

I have received a listing from a well-known custodian in order to prepare the Schedule H, line 4i "Schedule of Assets (Held at End of Year)." They have included accrued interest in reporting the value of the loans and have told me that this is a new requirement for 2010 5500 reporting. Could anyone point me to this guidance?

[Tom Poje]

well, the instruction for line 2g say "although certaing participant loans deemed distributed are to be reported on line 2g of the schedule H or schedule I, and are NOT to be reported on the schedule H or Schedule I as an asset thereafter (unless the participant resumes repayment under the loan in a later year), they are still considered outstanding loans and are not treated as actual distributions for certain purposes.

This issue has been brought about because FASB says loans should now be shown as 'receivable'. but all I've read would seem to say that is for FASB purposes.

a check on the internet has a bulletin from Prudential ( http://www.retire.prudential.com/media/man...-FASB-loans.pdf ) which says

The Department of Labor (DOL) continues to require the unpaid balances of participant loans plus accrued but unpaid interest to be reported as investments on the supplemental schedule of assets held to be included in audited financial statements and annual Form 5500 reporting. It is unclear if the DOL will issue guidance on the reporting of participant loans in response to the FASB position.

Grant Thorton ( http://www.grantthornton.com/staticfiles/G...S%202010-28.pdf ) has a similar bulletin

Presentation of participant loans in Form 5500 and supplemental schedule

ASU 2010-25 does not change the current requirement to present participant loans as plan investments on Schedule H of Form 5500. Participant loans should still be reported as plan investments on Form 5500, as well as on the plan’s supplemental schedule – Schedule H, Line 4i – Schedule of Assets (Held at End of Year).

I've never seen anything indicating accrued interest on defaulted loans shoulbe shown on the schedule of assets, and since the instructions for the 5500 say such loans are not to be reported as an asset it would seem odd to me to report as such. (nor have I had an auditor request that as well)

[Guest Carolyn Barnard]

Thanks, Tom, for all the info, but I'm only talking about current loans that are reflected as assets held for investment on line 4i, not defaulted loans. We have never reported accrued interest with the loan balance on that attachment before. The information you cited does explain why this may now be an issue, but am wondering since there is no hard and fast guidance regarding a change in 5500 reporting, should I report as always (no accrued interest) and let the audit report reflect the balance + accrued interest and let them worry about a reconciling note in the audit report?

[Guest Dell]

Generally, accrued but unpaid interest should have been included in the value of participant loans all along; it is not something new. If you want to get technical, in the past the loans were valued at fair value for FS purposes and that value was generally used on the 5500 as well since both treated them as investments. Accrued but unpaid interest would be considered in the valuation, and usually the value determined was simply unpaid principal plus accrued but unpaid interest. If the interest rate was way out of line with current returns, the fair value might have been adjusted to something else. Reporting simply at unpaid principal balance was never acceptable, materiality taken in consideration though.

It could be that the accrued interest was previously reported on the line for receivables instead of being included in the investment value, that could be your situation.

[Guest Carolyn Barnard]

OK, yes, we have been handling it differently. Thanks for explaining

[TPApril]

Somewhat related to the topic at hand in Tom's response, about deemed loans in 5500's, so adding to this thread...

Small plan with 3 participants is terminating. Participant loan held in individual's account deemed in 2005. No access to prior 5500's before 2008 by prior tpas. On 5500 Loan reported in balance and compliance section continuously. 2010 prior tpa removed it from eoy assets in 5500SF, subtracted loan balance from 'Other Income' and still included the balance int he compliance section.

Is amending necessary for a seemingly minor issue? If so, is it enough to amend 2010 to show deemed amount in correct line item, and then reflect $0 in compliance part?