GASB Releases Guidance on Who's Responsible for Pensions When There's No Board

Chris Gaetano
Published Date:
Jun 24, 2020
The Governmental Accounting Standards Board (GASB) released new guidance that outlines what should be done regarding pensions in the case when a legally separate government entity has no governing board.

The guidance notes that, in certain instances, there will be a governmental organization legally separate from the primary government entity that lacks a governing board. In such cases, the guidance said that if the primary government performs the duties that a governing board typically would perform, the absence of a governing board should be treated the same as the appointment of a voting majority of a governing board, except for a potential component unit that is a defined contribution pension plan, a defined contribution Other Post-Employment Benefit (OPEB) plan, or other employee benefit plan. The GASB noted that appointment of a voting majority is a criterion in existing standards used to determine whether a legally separate entity should be incorporated into the government’s financial statements.

The GASB guidance also provides that the financial-burden criterion in paragraph 7 of Statement No. 84, Fiduciary Activities, which says, "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," is applicable to only defined benefit pension plans and defined benefit OPEB plans that are administered through trusts that meet the criteria outlined in Statement 67 or Statement 74.

Further, the guidance says all Internal Revenue Code Section 457 plans should be classified as either pension or other employee benefit plans, depending on whether they meet the definition of a pension and that, furthermore, the aforementioned Statement 84, as amended in this guidance, applies to all arrangements organized under Section 457 in order to determine whether those arrangements should be reported as fiduciary activities.

Finally, because the statement supersedes the remaining provisions of Statement 32, Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans, when completing the valuation requirements for Section 457 plans, investments of all such plans should be measured as one at the end of the reporting period in all circumstances.

Overall, the GASB said that accounting for certain defined contribution pension plans, defined contribution OPEB plans and other employee benefit plans as fiduciary component units "do not justify the perceived costs" and so it thought it appropriate to make it so "a primary government not be subject to certain component unit criteria such that those arrangements should be reported as fiduciary component units only if other component unit criteria are met."

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