GASB releases guidance on deferred compensation plans

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The Governmental Accounting Standards Board issued guidance Tuesday to improve the reporting of Section 457 deferred compensation plans for state and local government employees.

The new guidance aims to decrease the costs and increase consistency and comparability in reporting state and local governments’ fiduciary component units. Statement No. 97, Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans, tries to mitigate the costs of reporting certain defined contribution pension plans, defined contribution other postemployment benefit (OPEB) plans, and other employee benefit plans, such as certain Section 457 plans. One of the goals is to enhance the reporting of Section 457 deferred compensation plans that meet the definition of a pension plan and for benefits provided through those plans.

Statement 97 requires that, for purposes of determining whether a primary government, such as a state or local government, is financially accountable for a potential component unit (except for a potential component unit that is a defined contribution pension plan, a defined contribution OPEB plan, or other employee benefit plan), the absence of a governing board should be treated the same as the appointment of a voting majority of a governing board if the primary government performs the duties that a governing board typically performs. Appointment of a voting majority is one of the criteria under GASB’s existing standards that’s used to determine whether a legally separate entity should be incorporated into the government’s financial statements.

In some circumstances, a financial burden on a state or local government is also considered to be one of the criteria under existing standards that’s used to decide whether a legally separate entity should be incorporated into the government’s financial statements. After GASB considered the perceived costs associated with applying existing standards (specifically, paragraph 7 of Statement No. 84, Fiduciary Activities), in the new Statement 97 GASB decided to limit the application of the financial burden criterion for contributions to postemployment benefit plans, restricting it to only defined benefit pension plans and defined benefit OPEB plans that are administered through trusts.

The previous GASB standards presumed that all Section 457 plans weren’t pension plans and, thus, weren’t subject to pension plan reporting requirements. Likewise, benefits provided through Section 457 plans weren’t reported as pension benefits. Under Statement 97, though, GASB said Section 457 plans should be classified as either a pension plan or other employee benefit plan, depending on whether the plan meets the definition of a pension plan. It also clarifies that Statement 84, as amended, should be applied to all arrangements organized under IRC Section 457 to determine whether those arrangements should be reported as fiduciary activities. Information on when the statement takes effect is discussed on pages three and four of the document.

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Accounting standards GASB Government accounting Pensions Compensation
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