Is your Plan having FUND in the sun or diving in the POOL this summer?

What is your plan invested in? Sometimes it is hard to tell by looking at the statements.  Is it a mutual fund, a pooled separate account (PSA) or something else? You have to know that before you determine how it is accounted for and disclosed. The employees at your organization may also want to know since they are planning their future based on these investments.

According to the SEC, “A mutual fund is a company that pools money from many investors and invests the money in stocks, bonds, short-term money-market instruments, other securities or assets, or some combination of these investments.”

Here are some helpful tips in determining if you’re invested in a mutual fund:

  • Mutual funds are generally traded publicly, which means you can look up the value on a securities exchange.
  • The shares in a mutual fund can typically be redeemed at any point in time. Therefore, the plan can generally sell the investment without any restrictions.
  • Investments within a mutual fund are generally managed by investment advisors that are registered with the SEC.

If you can find the investment value on a securities exchange, it has a readily determinable fair value.

Often, employee benefits plans are invested in PSAs, which are disclosed differently than a mutual fund in GAAP financial statements, so it is important to know the difference. According to the AICPA, “A Pooled Separate Account is an investment vehicle in the form of a ‘special account,’ that is separate from the general assets of an insurance company. A pooled separate account permits commingled investment of plan assets of employee benefit plans sponsored by unrelated employers.”

You are probably still wondering how to recognize the difference. Here are some helpful tips in determining if you’re invested in a PSA:

  • PSAs are not generally traded publicly but may be registered funds with the SEC. The value is generally determined based on the unit value.
  • They are part of an investment contract, generally with an insurance company.

Sometimes, PSAs are invested solely or primarily in publicly registered mutual funds, so the name of the PSA may be misleading. If you still aren’t sure, talk to your fund manager, who may help you understand the details behind your investments. Next, reach out to your auditor who can help you understand the guidance you need to follow to properly account for and disclose the investment in your plan’s financial statements.

Johnson Lambert
Johnson Lambert | Author