Statement No. 97 Released
On June 23, 2020, the Governmental Accounting Standards Board (GASB) published a new Accounting Standard — Statement No. 97 Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans (an amendment of GASB Statements No. 14 and No. 84, and a supersession of GASB Statement No. 32).
This Statement amends the criteria for reporting governmental fiduciary component units — separate legal entities included in a government’s financial statements. The guidance will result in consent and comparable information about fiduciary component units and IRS Section 457 plans, two areas where accounting differences have bubbled up among governmental entities.
Under the main provisions, a primary government is financially accountable for its fiduciary component unit if there is no governing board over the unit and therefore the government takes up the role of a board.
That rule, however, would not apply to a component unit that is a defined contribution pension plan, a defined contribution and other postemployment benefit (“OPEB”) plan, or another employee benefit plan such as a Section 457 plan to which only employees contribute.
Moreover, this statement requires that the financial burden criterion in paragraph seven of GASB No. 84, Fiduciary Activities, be applicable to only defined benefit pension plans and defined benefit OPEB plans that are administered through trusts that meet the criteria in paragraph three of GASB No. 67, Financial Reporting for Pension Plans, or paragraph three of GASB No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, respectively.
A Section 457 plan will have to be classified as either a pension plan or another employee benefit plan, depending on whether the plan meets the definition of a pension plan, a text of the document states. GASB No. 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.
The rules are effective for reporting periods after June 15, 2021. Earlier application is allowed.
