The GASB has issued an Exposure Draft, Internal Revenue Code Section 457 Deferred Compensation Plans That Meet the Definition of a Pension Plan and Supersession of GASB Statement 32.
This proposed statement would require that Section 457 plans that meet the GASB’s definition of a pension plan be accounted for as pension plans. This represents a departure from the accounting treatment in GASB Statement No. 32. At the time Statement No. 32 was issued in 1997, the GASB did not consider Section 457 plans to be pension plans but considered them to be similar to tax-deferred employee savings plans. However, in the two decades since Statement No. 32 was issued, the Internal Revenue Code as well as the usage of Section 457 plans have changed such that the GASB now considers these plans to be similar in nature to pension plans.
The definition of a pension plan is located in paragraph 51 of Statement No. 67 and paragraph 128 of Statement No. 73. Any plan meeting this definition that (a) issues stand-alone financial statements, (b) or is reported as a fiduciary activity of a government and is administered through a trust should apply all of the financial reporting and disclosure requirements for pension plans found in GASB Statement No. 67.
Similarly, the proposed statement would specify that all accounting and financial reporting requirements relevant to pensions be applied to benefits provided through Section 457 plans that meet the definition of a pension plan. Governments administering such plans would have to calculate and report a net pension liability pursuant to the requirements of GASB Statement No. 68 as well as the associated deferred inflows and outflows, pension expense, footnote disclosures and required supplementary information.
Finally, this proposed statement also would supersede the remaining provisions of Statement No. 32, regarding investment valuation requirements for Section 457 plans. This proposal would require investments of Section 457 plans to be valued as of the end of the plan’s reporting period in all circumstances. Statement No. 32 had permitted investments to be valued as of a point in time during the fiscal year or shortly thereafter if it was impractical to obtain valuation information from the plan administrator as of the balance sheet date.
The provisions of the Exposure Draft would be effective for fiscal years beginning after December 15, 2020. Earlier application is permitted.
Comments are due on the Exposure Draft by September 27, 2019.
The full text of the Exposure Draft is available here.
Readers should not act upon information presented without individual professional consultation.