Governmental Accounting Standards Board, Statement 84: Fiduciary ActivitiesJuly 1, 2019
By: Philip Marciano, CPA
WHOSE MONEY IS IT?
When people hear the word fiduciary, they associate several different activities with it, but mainly money or financial matters. The word, however, applies to any situation where someone places their confidence and trust in someone else. For example: attorneys and clients have a fiduciary relationship, since the attorney is always supposed to act in the best interest of their client. When we think of governmental accounting, fiduciary activities are reported within a fiduciary fund category, which may include pension trust funds, investment trust funds, private-purpose trust funds, or agency funds (soon to be renamed, as we will see later).
The word “trust” is an integral part of understanding the importance of operating in a fiduciary capacity. Governments who report fiduciary funds act as a trustee and are responsible for handling money that is not theirs. The money reported in these funds is not available for the operating use of the government, and is owed to other governments, agencies or people. For example, an agency fund may collect sales taxes for other governments which are in turn remitted to the appropriate government. The amount collected is not revenue of the government, but the government is responsible (and trusted) for remitting those amounts to the proper recipient.
GASB Statement 14, The Financial Reporting Entity, requires governments to include the activities of organizations that do not meet the requirements for inclusion in the financial reporting entity as fiduciary funds “if the primary government has a fiduciary responsibility for them.” The current standards, however, lack the needed guidance outlining the characteristics to be considered when deciding whether a government has a fiduciary responsibility. As a result, there have been many interpretations, limiting comparability between the financial reports of state and local governments.
GASB Statement 84, Fiduciary Activities, removes the ambiguity that has existed under the prior definition. Statement 84 provides the criteria for three types of activities:
- Fiduciary component units: Pension and Other Postemployment Benefits (OPEB) arrangements, and other activities
- Pension and OPEB arrangements that are not component units
- Other fiduciary activities
FIDUCIARY COMPONENT UNITS
An organization that is determined to be a component unit as characterized by Statement 14, as amended, is a fiduciary activity if it is one of the following arrangements:
- Pension plan administered through a trust
- OPEB plan administered through a trust
- Assets from entities that are not part of the reporting entity and are accumulated for pension purposes that are not administered through a trust
- Assets from entities that are not part of the reporting entity and are accumulated for OPEB purposes that are not administered through a trust
Let’s take a step back for a moment and review the GASB characteristics of a trust as defined in GASB Statements 67 and 74. The wording used by the Board to describe a trust (or equivalent arrangement, hereafter referred to as trusts) requires three criteria:
- Contributions and earnings are irrevocable.
- Plan assets are dedicated to providing benefits to plan members in accordance with benefit terms.
- Plan assets are legally protected from the creditors of employers, non-employer contributing entities, the plan administrator, and in the case of a defined benefit plan, protected from the creditors of plan members.
How does this apply? For pension and OPEB plans that are administered through trusts under GASB Statements 67 and 74, respectively, the majority will be separate legal entities. If it is determined that the separate legal entity does not meet the definition of a component unit, as defined in Statement 14, the government then needs to determine if they control the assets.
WHAT ABOUT COMPONENT UNITS THAT ARE NOT A PENSION OR OPEB ARRANGEMENT?
The criteria for determining whether they are fiduciary activities requires consideration of the attributes for a trust (as described above) and consideration of whether the assets are:
- for the benefit of individuals and the government does not have administrative or direct financial involvement with the assets.
- for the benefit of organizations or other governments that are not part of the financial reporting entity.
In both criteria above, the assets cannot be derived from the government providing goods or services to those individuals, organization or other governments. In determining whether a component unit is a fiduciary component unit (Pension, OPEB or other activities), control of the assets of the component unit is not a factor to be considered.
PENSION AND OPEB ARRANGEMENTS THAT ARE NOT COMPONENT UNITS
When considering whether pension and OPEB arrangements are fiduciary activities, we must consider whether the government controls the assets. GASB Statement 84 describes control as follows:
The government (a) holds the assets or (b) can direct the use, exchange, or employment of the assets in a manner that provides benefits to the specified or intended recipients. Restrictions from legal or other external restraints that stipulate the assets can be used only for a specific purpose do not negate a government’s control of the assets.
It is important to note that restrictions placed on the assets do not factor into whether the government has control. Once you have determined that control exists, the following pension and OPEB arrangements are deemed to be fiduciary activities:
- Pension plan that is administered through a trust under GASB Statement 67.
- OPEB plan that is administered through a trust under GASB Statement 74.
- Assets from entities that are not part of the reporting entity and are accumulated for pension purposes under GASB Statement 73, paragraph 116.
- Assets from entities that are not part of the reporting entity and are accumulated for OPEB purposes under GASB 74, paragraph 59.
OTHER FIDUCIARY ACTIVITIES
In the case of activities that are not for pension or OPEB purposes, the activity is deemed to be a fiduciary activity if all the criteria below are met:
- Assets associated with the activity are controlled by the government (as described above)
- Assets associated with the activity are not derived either:
- Solely from the government’s own-source revenues.
- From government-mandated nonexchange transactions or voluntary nonexchange transactions except for pass-through grants where the government does not have administrative or direct financial involvement.
- Assets associated with the activity have one or more of the following characteristics:
- Assets are (a) administered through a trust where the government is not a beneficiary, (b) dedicated to providing benefits to recipients in accordance with the benefit terms, and (c) legally protected from the creditors of the government (GASB 84, paragraph 11c (1)).
- Assets are for the benefit of individuals and the government does not have administrative or direct financial involvement with the assets, and the assets are not derived from the government’s provision of goods or services to those individuals.
- Assets are for the benefit of organizations or other governments that are not part of the reporting entity, and the assets are not derived from the government’s provision of goods or services to those organizations or other governments.
In reviewing the criteria above, in comparison with the criteria established for pension and OPEB activities, they are similar except for the consideration of the asset’s revenue source. GASB separately defines own source revenues as revenues generated by the government itself. Own-source revenues include exchange and exchange-like revenues (i.e. water and sewer charges) and investment earnings. Tax revenues (i.e. sales and income taxes) and imposed nonexchange revenues (i.e. property taxes) are also included.
HOW TO REPORT
Now that you have determined whether you have a fiduciary activity to be reported, the fiduciary fund used to report the activities must be determined.
Pension trust funds report fiduciary activities for pension plans and OPEB plans that are administered through a trust, meeting the criteria in paragraph three of GASB 67 and 74, respectively. Pension trust funds will also report fiduciary activities for other employee benefit plans that hold assets meeting the definition of a trust in GASB 84, paragraph 11c (1) and whose contributions and earnings are irrevocable.
Investment trust funds report fiduciary activities from the external portion of investment pools and individual investment accounts (as defined in GASB Statement 31) that are held in a trust meeting the definition in GASB 84, paragraph 11c (1).
Private-purpose trust funds report fiduciary activities that are not required to be in pension trust funds or investment trust funds and are held in trust funds meeting the definition in GASB 84, paragraph 11c (1).
Custodial funds report fiduciary activities that are not required to be reported in either of the other three categories mentioned above. In addition, the external portion of investment pools not held in a trust meeting the definition in GASB 84, paragraph 11c (1), are reported under this classification but in a separate fund column.
WHAT IS LIKELY TO CHANGE?
Governments will likely experience a change in how they report other fiduciary activities. It is very likely that, after considering the criteria regarding administrative and direct financial involvement, funds that were previously reported as “agency funds” will be reported as a fund of the government itself.
For example, if funds are managed by the government (internally or externally hired), those funds would not be considered fiduciary activities based on the criteria of administrative involvement. The reporting of those funds would move to the government’s own funds (governmental or enterprise).
FINANCIAL STATEMENT PRESENTATION
Agency funds have been eliminated and replaced by custodial funds. The four types of funds defined above are combined into one column for each type of fund when reported. The basic fund financial statements of fiduciary activities will include a statement of fiduciary net position and a statement of changes in fiduciary net position, with each statement containing the same elements. The statement of fiduciary net position will report assets, deferred outflows, liabilities, deferred inflows and fiduciary net position. The statement of changes in fiduciary net position will report additions and deductions.
Previous guidance only required agency funds to present assets and liabilities, and there was no requirement to provide a flows statement. The change to custodial funds requires the same presentation as the other fiduciary fund types. Therefore, instead of custodial funds recording an offsetting liability each time resources (assets) are received, a liability would only be recorded when the government is compelled to pay. It is important to note that GASB considers events that compel a government to pay to occur when a demand for resources has been made or when no further action, approval or condition is required to be taken or met by the beneficiary (i.e. taxes for other governments). The receipt of the resources would be reported as an addition in the statement of changes in fiduciary net position and reported as a component of fiduciary net position.
The statement of changes in fiduciary net position requires additions and deductions to be disaggregated by source and type, respectively. Custodial funds may report resources normally held and disbursed within three months in one line as additions and deductions.
The effective date for GASB 84 is for fiscal years beginning after December 15, 2018, and earlier implementation is encouraged. In other words, calendar year governments will implement GASB 84 with their 2019 annual statements and fiscal year governments beginning with the first year ending in 2020. By now, all governments should have already started evaluating the impact GASB 84 will have. For those governments that will need to move activities to or from fiduciary funds, consideration will need to be given as to how this will impact the budget process. The effective date for GASB 84 is for fiscal years beginning after December 15, 2018, and earlier implementation is encouraged. In other words, calendar year governments will implement GASB 84 with their 2019 annual statements and fiscal year governments beginning with the first year ending in 2020. By now, all governments should have already started evaluating the impact GASB 84 will have. For those governments that will need to move activities to or from fiduciary funds, consideration will need to be given as to how this will impact the budget process.