Mauldin & Jenkins Governmental Newsletter October 22, 2019
GASB 84, Fiduciary Activities - Pensions and OPEB
By Matt Hill, Mauldin & Jenkins
In case you were feeling nostalgic about the good ole days when GASB felt the need to issue guidance about Pension and OPEB plans about as often as the sun comes up, then you are in luck as GASB has issued its updated implementation guide to GASB 84, Fiduciary Activities, the Implementation Guide No. 2019-2, Fiduciary Activities. As you may recall, GASB 84, Fiduciary Activities, was issued in January, 2017, will be effective for fiscal years beginning after December 31, 2018, and addresses the way fiduciary activities are identified and reported. The standard identified four paths for determining whether an entity should report assets in a fiduciary fund. Two of those paths deal with postemployment benefits. One of those paths related to component units that provide postemployment benefits and another of those paths related to postemployment benefits that are not component units.
The Implementation Guide is made up of questions which intend to clarify some questions which the governmental accounting community had about the original guidance. We will be publishing additional newsletters addressing other areas of the Implementation Guide but this one will focus on the questions (and more importantly, answers) related to the postemployment benefits which will encompass our pension and OPEB plans. Most of the questions and answers are related to the determination of which postemployment benefit plans are considered component units, with one related to the identification of fiduciary activity. We’ve divided up the component unit discussion into a couple different categories and aim to point out the practical application of the Implementation Guide’s views on postemployment benefit plans.
Component Unit Determination
The first three questions in the Implementation Guide related to postemployment benefits are aimed at the determination of whether or not a postemployment benefit plan meets the definition of being a separate legal entity from the government. This is important in the determination of whether or not a plan will be considered a component unit. GASB 84 did not significantly change the criteria used in the determination of a component unit so those criteria outlined in GASB 14 as amended by GASB 61 should still be followed. The Implementation Guide noted the following in relation to determining whether an entity is legally separate:
Postemployment benefit plans administered through a trust that meet the criteria in GASB 67 (for pensions) or GASB 74 (for OPEB plans) are considered legally separate. As a reminder those criteria are that the contributions to the plan are irrevocable, the plan assets are dedicated to providing benefits in accordance with the plan terms, and plan assets are legally protected from creditors.
Postemployment benefit plans administered through a trust that meet the criteria in GASB 67 (for pensions) or GASB 74 (for OPEB plans) are considered legally separate regardless if they are defined benefit or defined contribution plans.
Postemployment benefit plans administered through equivalent arrangements (not in trusts, but operate like a trust) that meet the criteria of GASB 67 (for pensions) or GASB 74 (for OPEB plans) may or may not be legally separate. This is considered a legal issue and you should consider consulting your attorney if you are in this situation.
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Continuing on with the Implementation Guide’s views on the determination of component units related to postemployment benefit plans, the next few questions all laid out scenarios in an effort to clear up some other issues surrounding the criteria for determining which postemployment benefit plans qualify as component units. All the scenarios discussed below involved a postemployment benefit plan administered through a trust, or trust equivalent that is determined to be legally separate, that meets the criteria in GASB 67 (for pensions) or GASB 74 (for OPEB plans). Some items to keep in mind which were addressed in those questions and answers were:
A postemployment benefit plan in which a government appoints the initial governing body of the plan but is not able to appoint successor members to the governing body is not deemed to be financially accountable for the plan, and the plan is not a component unit of the government unless the government can unilaterally abolish the plan.
A postemployment benefit plan which does not have a governing body but another government performs the duties a governing body typically would perform (structure, vesting, contributions) and is legally obligated to make contributions to the plan would be a component unit of that other government. This is the case in either a defined benefit or a defined contribution plan.
While previously we noted GASB 84 did not significantly change the criteria for the determination of a component unit it did change the definition of a financial burden to note a legal obligation to make contributions to the plan or assumption of an obligation to make contributions to the plan constitutes a financial burden. Therefore, if a government has an obligation to make contributions to the plan and appoints a majority of the plan’s governing body, then the plan would be a component unit.
Please note that if a pension or OPEB plan meets the requirements to be a component unit, then it must be a fiduciary fund of the government as long as it meets the criteria previously discussed. Note that the above criteria indicate that many defined contribution plans, not previously reported as fiduciary funds, will now be required to be reported as such.
Arrangements That Are Not Component Units
In addition to the component unit determination questions, the Implementation Guide also addressed an issue related to postemployment benefit plans and what constitutes fiduciary activity. The situation involves a group of governments which form a multiple employer defined benefit plan not administered through a trust and is not a component unit of any of the governments. The Implementation Guide indicates there would be fiduciary activity for the government in the group that controls the assets held for the other governments which are not otherwise in its financial reporting entity. It is noted the government would not report its own share of the plan’s activity as a fiduciary activity, but rather in its governmental or proprietary fund financial statements.
When is this New Standard Effective?
The standard is effective for periods beginning after December 15, 2018, which means it will be effective for fiscal years ending December 31, 2019, June 30, 2020, and September 30, 2020.
Will You be Sharing More Information?
Yes! Please stay tuned for our upcoming newsletters which will provide more in depth discussion on custodial funds. Additionally, please see our previous newsletter from August 2, 2019 which provided a general overview of GASB 84. We also previously hosted a one-hour webinar on GASB 84. This webinar is archived and available at https://www.mjcpa.com/industries/governmental-entities/ under Resources.
If you have any questions on this new Standard or other topics, please let us know. We will be glad to help.
About Mauldin & Jenkins, LLC
Mauldin & Jenkins has provided audit, accounting and tax services since 1918. Our culture, from the beginning, has been to provide top quality service to every client. We have grown into one of the top 100 accounting firms in the nation.
The governmental sector represents a significant practice division for Mauldin & Jenkins. We provide over 100,000 hours of service to our governmental clients on an annual basis, and currently serve over 500 governmental entities, including:
Special purpose entities (water/sewer, airports, transit, gas, electric, etc.),
Governmental pension and other post-employment benefit plans,
Special service districts,
Public university foundations, and
Other governmental units.
Mauldin & Jenkins also serves approximately 128 governments that receive the Government Finance Officers Association (GFOA) Certificate of Achievement for Excellence in Financial Reporting, and, or the Association of School Business Officials (ASBO) Certificate of Excellence in Financial Reporting.