Recent Developments in GASB 84: Fiduciary Activities

The Governmental Accounting Standards Board (GASB) met via teleconference on January 27, 2020 to discuss several topics, including the approval of GASB Statement No. 92, Omnibus 2020 and information on defined contribution plans and how those plans are to be recognized in accordance with GASB 84.  Both the Omnibus 2020 and the teleconference can be accessed from the GASB’s website at www.gasb.org.

 

During the teleconference, there was discussion on this topic based on an outreach project and interviews made with various governments, auditors, and users of government financial statements.  Key takeaways from the outreach project included:

 

  • Defined contribution plans (457; 403b; 401a) were believed to be legally separate entities.
  • Defined contribution plans, although not technically in a trust, are regulated in such a way that they would meet the definition of GASB 67, paragraph 3, and therefore, would be considered a fiduciary activity in accordance with GASB 84.
  • Based on the definition of “financial burden” in paragraph 7 of GASB 84, defined contribution plans would be considered component units, and therefore, would be considered a fiduciary component unit in accordance with GASB 84.
  • Adding fiduciary financial statements will be costly to governments.
  • One-third of users of government and fiduciary financial statements said that they had seen defined contributions reported as fiduciary activities, but the majority of these respondents said that they did not use the information.
  • A majority of users of government and fiduciary financial statements that have not seen defined contributions reported as fiduciary activities said that if it was included, they would not use the information in their analysis. 

 

This outreach project resulted in recommendations to the Board that two items be added to the current technical agenda on Deferred Compensation Plans – Reexaminations of Statement 32.  These two items are related to voting majority and financial burden.

 

  • The first addition, related to voting majority, asked whether the absence of a governing board satisfying certain component unit criteria should be defined, and if so whether it should be included in level A literature in the GAAP hierarchy and if it should be applicable to all arrangements.
  • The second addition, related to financial burden, stated the financial burden definition in GASB 84 paragraph 7 would be limited to defined benefit pension and OPEB plans within Statement 14 as amended. 

 

The Board voted to add these items to the current technical agenda.  It is anticipated an Exposure Draft will be issued in March 2020 and a Final Statement issued in June 2020.

 

What does this mean for your government?

  • Voting Majority – Under current standards, defined contributions plans may not have a governing board; in these cases, the government would be considered the board for which the government appoints a voting majority and the defined contribution plan would need to further consider whether the defined contribution plan was a component unit. If the recommended changes are approved in the future standard, defined contribution plans and those plans where only employee contributions are submitted, would be exempt from this definition.
  • Financial Burden – Under current standards, the government meets the definition of financial burden if it contributes to a defined contribution plan and therefore, makes defined contribution plans component unit fiduciary activities. If the recommended changes noted above are approved in the future standard, defined contribution plans would be exempt from this definition.
  • If approved, these changes do not necessarily remove defined contribution plans from being fiduciary activities; you will still need to review the Standard under non component unit guidance and evaluate to determine if your defined contribution plans should be considered fiduciary activities reported outside of a component unit. When making this evaluation, consideration should be given to the definition of control, specifically, “the ability to direct the use, exchange, or employment of the assets in a manner that provides benefits to the specified or intended recipients” and the idea that in isolation, these items may not constitute control; however, GASB noted that the entire relationship should be evaluated when determining if the control definition of GASB 84 has been met. 

 

What parts of the Implementation Guide No. 2019-2, Fiduciary Activities will change?

  • 4.3 will be adjusted in relation to the financial burden criteria mentioned
  • 4.5 will be adjusted for defined contribution plans relevance
  • 4.6 will be eliminated

 

What are the next steps?

  • If your government is a calendar year end and you have defined contribution plans that would be considered component unit fiduciary activities under GASB 84, you should evaluate whether you want to wait until further guidance as described above is available before issuing your audited financial statements.
  • For all other fiscal year government year ends that have defined contribution plans that would be considered component unit fiduciary activities under GASB 84, you should monitor the Exposure Draft that is expected to be issued in March 2020 and then the final Statement that is expected to be issued in June 2020 and evaluate timing of the issuance of your audited financial statements. 

 

If you have further questions or concerns regarding these recent developments, please contact your AHP representative or call our office at 1-888-754-8478.

 

Any accounting, business, or tax advice contained in this communication, including attachments and links to outside sources, is not intended as a thorough analysis of specific issues, nor a substitute for a formal opinion, nor was it written to be used to avoid tax related penalties.

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