Pensions, post-employment benefits and other government funds must soon be reported under a new fiduciary activity standard, according to the Governmental Accounting Standards Board (GASB). In June 2017, GASB issued Statement No. 84 related to the treatment of fiduciary activities with the goal of increasing consistency and comparability across government entities. This standard is also intended to provide enhanced guidance for when certain activities should be reported as fiduciary activities and how (when) business-type activities should report fiduciary activities.
What will GASB Statement No. 84 mean for government financial statements?
GASB Statement No. 84 covers four different types of fiduciary funds which should be reported as such if specific criteria are met:
- Pension (and other post-employment benefit plans)
- Investment trust funds
- Private purpose trust funds
- Custodial funds
Will this impact my government entity?
RKL’s team of government advisors anticipate the biggest impact of the new standard on pension or other post-employment benefit plans that meet the following four criteria:
- The employer makes contributions to the plan
- Any earnings from the plan are irrevocable
- The plan assets are dedicated to providing benefits to the plan members
- Plan assets are protected creditors, nonemployer contributing entities and TPAs
When these four criteria are met, activities from defined benefit pensions and other post-employment benefit plans must be reflected in a fiduciary fund. In order to present comparative financials, your auditors should be doing the required testing/data gathering as a part of this years’ audit. Both periods presented would need to be restated in order to continue to present comparative financial statements.
Many organizations may not realize that this standard impacts them, and that many of their activities related to employee benefit plans or developer escrow deposits can trigger this reporting requirement.
Organizations that fall under the guidance of GASB Statement No. 84 will need to present a Statement of Fiduciary Net Position which would show cash, investments, receivables, other assets as well as liabilities and a restricted net position. They will also need to present a Statement of Changes in Fiduciary Net Position that would show contributions, investment earnings, investment costs, and other deductions.
When do these changes take effect?
Statement No. 84 is effective for fiscal years beginning after December 15, 2018, and applies to the financial statements of all state and local governments. However, these organizations should begin to adapt as early as possible to this accounting change.
How can governments adapt to this new standard?
This new standard is effective for state and local governments and reporting periods beginning after December 15, 2018. Therefore, this standard is already effective for those entities that had a December 31, 2018 year-end. Those with June fiscal year-ends have a bit more time to prepare. Either way, state and local governments should be proactive and contact their auditors and actuaries to ensure that the proper underlying data is available and ready for the upcoming audit cycle. Any information that is going to be presented in the fiduciary fund statements would need to be subjected to further audit procedures.
RKL’s Government Industry Group monitors these and other regulatory developments impacting the financial reporting of government entities. We’re ready to help your government prepare for this new reporting requirement. Contact us today to start the conversation.