Every year, business owners receive two documents that describe the same retirement plan. One is the investment account statement from the custodian. The other is the annual government filing prepared by the administrator. Most people reasonably expect these two documents to agree.
Very often, they do not agree at all. The filing may show more assets than the statement, sometimes by a large margin. This discrepancy prompts calls to the administrator and occasionally to the accountant. Many people assume someone made a mistake somewhere in the process.
In nearly every case, no mistake was made by anyone. The two documents are prepared under different accounting conventions. Understanding that distinction removes almost all of the confusion. This article explains the difference and where it shows up on the filing.
Two Accounting Methods, One Retirement Plan
Accounting recognizes two primary methods for recording financial activity. The first is the cash method, which follows actual money movement. The second is the accrual method, which follows economic obligations. Both are legitimate, and both are used in retirement plan reporting.
Your custodian prepares statements using the cash method almost without exception. Your administrator usually prepares the annual filing using the accrual method. Neither party is wrong, and neither is trying to confuse you. They are simply answering slightly different questions about the plan.
The custodian answers what money is physically sitting in the account. The administrator answers what the plan is entitled to receive. Those two answers can differ substantially at any given year-end. The gap is usually temporary and closes within a few months.
What Cash Basis Reporting Actually Captures
Cash basis reporting is intuitive because it mirrors a checking account. A deposit counts on the day it clears the account. A withdrawal counts on the day the funds leave. Nothing is counted before it actually happens.
Under this method, your December 31 balance is simply what exists. It includes every contribution received during the plan year. It includes every distribution, fee, and investment gain recorded during that period. Money contributed in the following year belongs to the following year.
This makes the statement easy to read and easy to verify. You can trace every number back to a transaction confirmation. But it does not always tell you whether the plan is fully funded. That limitation is precisely why accrual reporting exists.
What Accrual Basis Reporting Actually Captures
Accrual basis reporting organizes activity around the plan year itself. Amounts that relate to the plan year get counted in that year. The timing of the actual deposit becomes far less important. What matters is which plan year the contribution was intended to fund.
Retirement plans have contribution deadlines that extend well past year-end. A defined benefit or cash balance contribution may be deposited months later. That contribution still belongs to the prior plan year. Accrual reporting reflects that reality on the filing.
The amount owed but not yet deposited becomes a receivable. A receivable represents money the plan is owed at year-end. It is recorded as a plan asset even though it is undeposited. This is standard accounting practice, not an aggressive interpretation.
A Straightforward Example of the Difference
Assume your investment account statement reads $100,000 as of December 31, 2025. In 2026, you deposit $30,000 attributable to the 2025 plan year. The filing would report end-of-year assets of $130,000. Your statement for that same date still reads $100,000.
The $30,000 difference is the contribution receivable. It represents an obligation the plan sponsor owed at year-end. Reporting it as an asset shows the plan’s true funded position. Ignoring it would understate the plan and misstate the contribution deduction.
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Once the deposit clears the custodian, the statement reflects it. At that point, the two documents effectively reconcile with each other. The apparent discrepancy was never a discrepancy in substance. It was purely a matter of timing between two reporting conventions.
Where the Accrual Adjustment Shows Up on the Filing
The receivable affects more than a single line item. Beginning-of-year assets are affected, because last year’s receivable was already reported. If prior-year receivables existed, the opening balance exceeds the January statement. Sponsors frequently notice this before they notice anything else.
End-of-year assets are affected for exactly the same reason. Current-year receivables increase the closing balance above the statement figure. This creates the most visible and most commonly questioned difference. It is also the easiest difference to explain and verify.
Contributions reported for the year follow the plan year, not the deposit date. A deposit made in September 2026 may appear on the 2025 filing. This can look wrong when compared against bank records. Your administrator should provide a schedule tying deposits to plan years.
Investment gains and losses are affected as well. A receivable sits unfunded and therefore earns no market return. Reported earnings may differ from the performance percentage on your statement. Your actual investment results are unchanged by any of this.
Why Consistency Matters More Than the Method
Cash basis filing is permitted in certain circumstances, and some preparers use it. The method itself is less important than applying it consistently. Switching methods between years creates beginning balances that appear incorrect. Those unexplained swings can invite questions during an audit or review.
Consistent accrual reporting produces a clean year-over-year progression. Beginning assets tie to prior-year ending assets without adjustment. Contributions tie to the deduction claimed on the tax return. That alignment is exactly what reviewers expect to see.
Is a Cash Balance or Defined Benefit Plan Right For You?
If your plan changes administrators, ask about the method used previously. A transition between preparers is where inconsistencies most often appear. A brief reconciliation at takeover prevents years of confusing comparisons.
Bottom Line
A mismatch between your filing and your statement is usually expected. The difference almost always traces to contributions deposited after the plan year ended. Those amounts are recorded as receivables and reported as plan assets. This is correct accounting rather than an error.
If the gap seems unusually large, ask for a reconciliation schedule. Your administrator should show each receivable and the date it was funded. That single document resolves nearly every question sponsors raise. Understanding the timing difference makes both documents far easier to read.
