The last issue of our Tribal Finance Quarterly provided an overview of GASB’s Statement No. 84, Fiduciary Activities, and discussed the general criteria for determining a fiduciary activity, types of fiduciary funds, and other changes to the presentation and accounting for fiduciary funds in tribal financial statements.
This article reviews specific items tribes will need to consider while preparing to implement the new standard, which is effective for periods beginning after December 15, 2018.
Financial Statements for Tribal Casinos and Other Enterprises
The standard clarifies that stand-alone statements issued for business-type activities should present fiduciary funds, when applicable. This requires tribal casinos and other tribal enterprises that sponsor their own 401(k) retirement plans to evaluate whether those plans should be reported as fiduciary funds in the casino’s financial statements. Tribes will also need to evaluate any other potential fiduciary activities related to their operations.
The new standard likely won’t have an impact if the casino or enterprise is an enterprise fund of the tribe. However, if the casino or enterprise is a legal separate entity—also known as a component unit—of the tribe, an evaluation will need to be performed.
Most tribal 401(k) plans—assuming they’re qualified plans that have been established in a trust—will meet the criteria for pension and other postemployment benefits (OPEB) component units. As such, they’ll require reporting in the financial statements as a fiduciary activity.
Statement No. 84 clarifies that in performing a potential component-unit analysis, a tribe, casino, or other enterprise is considered to have a financial burden if it’s legally obligated or has otherwise assumed the obligation to make contributions to the plan. This means there’s likely a financial burden for purposes of component-unit analysis if, for example, a tribe has a required matching contribution or has historically made contributions to the 401(k) plan.
Because a tribe generally appoints the plan trustee and administrators, in many cases 401(k) plans will meet the criteria for inclusion as a component unit, and therefore, inclusion as a fiduciary fund in the tribe’s financial statements.
Minors Trust Accounts
When analyzing a minor’s trust account under the new standard, it’s important to determine whether or not it meets the definition of a component unit.
Meets Definition of a Component Unit
Most minors trust accounts that meet the definition of a component unit will be considered fiduciary as long as their assets meet the following requirements:
- Administered in a trust agreement
- Dedicated to providing benefit to recipients
- Legally protected from the creditors of the government
It’s important for tribes to read through their trust agreement. Some tribes, for example, include a provision that allows the trust’s assets to be available to general creditors of the tribe in certain limited conditions. In these cases, the activity wouldn’t meet the requirements for reporting as a fiduciary activity.
Doesn’t Meet Definition of a Component Unit
It appears that minors accounts that aren’t in a trust, or don’t otherwise meet the definition of a component unit, no longer meet the requirements to be reported as a fiduciary activity.
The requirements for activities evaluated under the “all other” category of the standard include the following:
- Assets can’t be derived from the tribe’s own source revenues
- Assets can’t be derived from the tribe’s provision of goods or services to those individual minors
Given the above requirements, per capita payments made to minors wouldn’t fall into the “all other” category.
Minors trust or accounts that don’t meet the requirements for fiduciary reporting will generally need to be reported as activities of a tribe’s governmental funds, with the appropriate restricted or committed fund balances.
We’re Here to Help
The flowcharts included in Appendix C of the statement are a great resource when assessing potential fiduciary activities. If you have additional questions about how the new standard will affect your tribe, contact your Moss Adams professional.