Fiduciary Activities Standards May Impact Financial Reporting for Tribal 401k Plans

If you prepare stand-alone tribal enterprise financial statements, you may need to adhere to Governmental Accounting Standards Board (GASB) Statement No. 84, which establishes criteria for identifying fiduciary activities of all state and local governments, including tribes. The standard may affect how you classify your tribal enterprises’ 401k plans.

Statement No. 84 Overview

Effective for reporting periods beginning after December 15, 2018, the statement determines the following:

  • Whether a government controls the assets of a fiduciary activity
  • The beneficiaries with whom a fiduciary relationship exists

This standard could impact your tribal enterprise because 401k plans will likely be included as a fiduciary activity in a casino’s financial statements if:

  • The casino is legally a separate entity and considered a component unit of the tribe
  • The legally separate casino sponsors its own 401k plan and performs activities typical of a governing body
  • The casino provides mandatory or discretionary contributions, including matching contributions, to employees of the plan

Considerations

GASB No. 84 doesn’t apply to a tribe’s separately issued enterprise-fund financial statements if the enterprise funds aren’t legally separate. However, a 401k plan may still be included in a tribal government’s statements, as we’ll review below.

To determine if a legally separate casino sponsors its own 401k plan, consider if the casino can amend the vesting schedules in the plan document, appoint trustees, select the custodian, choose the third-party administrator (TPA), and appoint other service providers of the 401k plan. If so, the 401k plan will likely be included as a fiduciary activity.

It’s also worth noting that if your tribal council is the governing body of the 401k plan, then the casino’s 401k plan would likely be reported in the tribe’s general-purpose financial statements rather than the casino’s statement.

Potential Challenges

Audit Scope

Historically, 401k plan audits may be performed with a limited scope as allowed under the Employee Retirement Income Security Act (ERISA), whereby the plan auditor provides no assurance on the 401k plan investments or investment income that’s certified by the custodian.

When including the 401k plan as a fiduciary activity in the casino’s stand-alone financial statements, however, it’s important to determine that the 401k plan audit must be a full-scope audit rather than a limited-scope audit.

Conducting a full-scope audit of the 401k plan can help avoid modifications to the audit report on the casino’s financial statements or additional work from your casino auditors.

Fiscal Years

Fiscal years often differ for the casino and 401k plan. If, for example, the casino’s fiscal year-end is September and the 401k plan’s fiscal year-end is December, it would be more practical to include the 401k plan’s prior year-end December 2019 financial statements in the casino’s September 2020 fiscal year-end financial statements.

However, if the casino’s year-end and the plan year-end are the same, you’ll need to determine how the 401k information can be provided and audited to meet the casino financial statement issuance dates. Those dates typically occur significantly earlier than when the plan audit is completed.

Option to Omit 401ks

A casino is allowed to exclude 401k plans from stand-alone financial statements even if it’s required to implement GASB No. 84 for fiduciary activities. However, management will need to consider the impact on the casino’s audit report.

When evaluating whether or not this option works for you, it’s critical to discuss which options you’re eligible for with your auditor. It’s also important to notify the primary users of the financial statements, such as the National Indian Gaming Commission (NIGC), lenders, or the tribe, in advance.

Report Modifications

If you exclude the 401k plan’s activities, your auditor’s opinion on the financial statements will likely be modified in one of the following manners with varying facts and circumstances determining the outcome.

Emphasis-of-Matter Statement

The auditor’s report could include an emphasis-of-matter paragraph that uses language noting that included financial statements aren’t intended to represent the casino as a whole because the statements exclude the casino’s 401k fund. Although this paragraph would be added to the casino’s audit report, it would not affect an otherwise unmodified audit opinion.

Adverse Opinion

The auditor’s report could also indicate the exclusion of the 401k plan in the casino’s financial statements and identify an adverse opinion. This modified audit report could have a negative effect with the primary users of the financial statements. 

We’re Here to Help

Incorporating the 401k plan into your casino’s stand-alone financial statements can be challenging. However, with advance planning and the right information, you can avoid implementation pitfalls. To learn more about classifying your 401k plan, contact your Moss Adams professional.  

Contact Us with Questions

Enter security code:
 Security code