Recent GASB pronouncements.

• Author: Gauthier, Stephen
• Position: Governmental Accounting Standards Board

The Governmental Accounting Standards Board (GASB) recently released final pronouncements on deferred compensation, property tax revenue recognition, and the appropriate categorization of custodial credit risk in situations involving bank holding companies.

Deferred compensation. Since the mid-1980s, governmental employers have been required to report on their balance sheet the assets of deferred compensation plans established in conformity with Internal Revenue Code (IRC) Section 457, even when the plan's assets are administered by an outside party (e.g., state). This requirement was based upon the unique status of IRC Section 457 deferred compensation plan assets, which legally remained the assets of the employer subject only to the claims of general creditors.

Recently, Congress amended IRC Section 457. Whereas the law previously had prohibited governments from placing plan assets in trust for the benefit of participants and their beneficiaries, the law henceforth will require that such assets be placed in trust. By making this change, Congress removed the key difference between IRC Section 457 plans and other types of deferred compensation plans, thus eliminating the need for the specialized treatment described earlier.

GASB Statement No. 32, Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans, rescinds the previous requirement that employers report the assets of IRC Section 457 deferred compensation plans on their balance sheet, unless they are acting as a fiduciary for those assets. Furthermore, GASB Statement No. 32 directs fiduciaries to use an expendable trust fund to account for plan assets.

Some have questioned when an employer should be considered to be acting as a fiduciary. The authoritative guidance on fiduciary fund accounting can be found in the National Council on Governmental Accounting's (NCGA) Statement 1, Governmental Accounting and Financial Reporting Principles, paragraph 26(3)(8). As a practical matter, governments generally have interpreted this guidance as not requiring the use of fiduciary funds in situations where assets are administered by a third party. Since most local governments rely upon third parties to manage plan assets, the likely result of GASB Statement No. 32 will be that many employers currently reporting such assets on their balance sheet will no longer do so.

The changes made by Congress take immediate effect for plans established subsequent to...