Tim Lyons, CPA | Mauldin & Jenkins, LLC
Background: GASB Statement No. 84, Fiduciary Activities, was issued in January 2017, and is effective for reporting periods beginning after December 15, 2018. As such, GASB 84 is effective for entities with fiscal year ends of December 31, 2019 and continuing with entities of various year ends going forward.
Complications: In June 2019, Implementation Guide No. 2019-2, Fiduciary Activities, was issued and included two (2) specific questions that have caused issues – question 4.5 and 4.6 (excerpted from the Implementation Guide below).
In short, these questions state that if you have a pension or OPEB plan that does not have a separate governing board, the sponsoring government is considered financially accountable for the plan because it is considered to appoint a voting majority of the board for the plan. When you combine that fact with paragraph 7 of Statement No. 84 (“a primary government is considered to have a financial burden if it is legally obligated or has otherwise assumed the obligation to make contributions to the pension plan or OPEB plan”), the majority of pension or OPEB plans would meet the definition of a fiduciary component unit and thus would be required to be incorporated into the primary government’s financial statements – regardless of whether the plan is a defined benefit plan or a defined contribution plan. For many employer governments, this meant that 401a, 401k, and 403b plans (among others) would now be brought into the financial statements and included in the reporting entity as fiduciary activities.
Recent Developments: In response to feedback received from a wide variety of constituents regarding the cost benefit of the inclusion of these plans in government financial statements, the GASB is revisiting these two Implementation Guide questions (again, these questions can be found below) and paragraph 7 of Statement No. 84 specific to defined contribution pension plans, defined contribution OPEB plans, and other similar retirement plans (including 457 deferred compensation plans). At the GASB Board Meeting on February 11, 2020, the GASB held significant discussions regarding how best to address the issues identified. At this point in time, it appears likely that defined contribution pension plans, defined contribution OPEB plans, and other retirement plans will be specifically scoped out of these two Implementation Guide questions and paragraph 7 of Statement No. 84 via the issuance of a new GASB standard – which is expected in June 2020.
Effects and Takeaways: So, what does this all mean? Well, as with any good accounting standard, it depends! We think the important items to communicate at this point in time are as follows:
(1) If the only reason you were going to have to include a defined contribution pension or defined contribution OPEB plan in your financial statements is because it met the definition of a fiduciary component unit based on the criteria discussed above, it is now likely that you will NOT have to include the plan in your financial statements.
(2) Any new standard will not change the other criteria by which a defined contribution pension or OPEB plan could qualify as a fiduciary component unit (i.e., if the plan is legally separate, meets the fiscal dependency criteria and meets other financial benefit/burden criteria). Therefore, it is still possible for one of these plans to be included as a fiduciary component unit – although the number of plans meeting those criteria will be significantly less than before.
(3) Any new standard will not change the control criteria in paragraph 10 and 12 of Statement 84 and therefore, it is possible that these plans can still be brought into a government’s financial statements without being a component unit. However, as with #2 above, there will only be very limited circumstances when a government has control of the assets in one of these plans.
(4) None of the above discussions have any impact on defined benefit pension or OPEB plans or other, non-benefit plan component units.
If you have any questions about the above, please feel free to reach out to any of the Mauldin & Jenkins professionals in our Governmental Practice by clicking on the names above. We are happy to help you navigate through this issue .
Excerpted Questions from Implementation Guide 2019-2, Fiduciary Activities:
4.5. Q—A pension or OPEB plan that is administered through a trust that meets the criteria in paragraph 3 of Statement 67 or paragraph 3 of Statement 74, as applicable, does not have a governing board. Instead, another government (for example, a sponsoring government) performs the duties that a governing board typically would perform (for example, the government determines or amends the structure of the plan [vesting requirements and required contributions]). If that other government (for example, a sponsoring government) is legally obligated to make contributions to the pension or OPEB plan, should the plan be included as a fiduciary component unit of that other government?
A—Yes. In accordance with paragraph 21a of Statement 14, as amended, a government is financially accountable for a legally separate organization if it appoints a voting majority of the organization’s governing body and there is a potential for the organization to provide specific financial benefits to, or impose specific financial burdens on, the government. For purposes of that paragraph, a government (for example, a sponsoring government) that performs the duties of a governing board in the absence of one should be considered equivalent to a governing board for which the government appoints a voting majority. Furthermore, in accordance with paragraph 7 of Statement 84, a government is considered to have a financial burden if it is legally obligated or has otherwise assumed the obligation to make contributions to the pension or OPEB plan. As a result, the plan should be included as a fiduciary component unit of the other government (for example, a sponsoring government).
4.6. Q—Is the answer in Question 4.5 the same regardless of whether the pension or OPEB plan is a defined benefit plan or a defined contribution plan?
A—Yes. Regardless of whether the pension or OPEB plan is a defined benefit plan or a defined contribution plan, if (a) the pension or OPEB plan is administered through a trust that meets the criteria in paragraph 3 of Statement 67 or paragraph 3 of Statement 74, as applicable; (b) the other government (for example, a sponsoring government) performs the duties of a governing board in the absence of one; and (c) the other government is legally obligated or has otherwise assumed the obligation to make contributions to the pension or OPEB plan, the plan should be included as a fiduciary component unit of the other government.
