GASB Aims to Mitigate Costs of Fiduciary Activities Standard

In June 2020, the Governmental Accounting Standards Board (GASB) issued Statement No. 97, Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans.

The new standard intends to reduce the financial-reporting complexities and ease the overall implementation costs of GASB 84, Fiduciary Activities—specifically when evaluating defined-contribution pension and defined contribution post-employment benefit plans—known as DC plans.

Implementation of GASB 97 is expected to minimize the number of DC plans that meet the criteria for reporting as a fiduciary component unit within a sponsoring government’s annual financial report.


Prior to GASB’s recent efforts to defer the effective date of GASB 84, many organizations with a calendar year-end reporting period were faced with implementing the standard. This included a full assessment of fiduciary activities.

If those organizations sponsored DC plans as part of their benefits package, finance teams had to evaluate whether those plans met the fiduciary component unit criteria. This resulted in many GASB reporters including DC plans as fiduciary component units in their audited financial statements for the first time.

Key Challenges

The fiduciary component unit concept and its impact on DC plans created numerous challenges for finance departments including:

  • Retrospective application that required two years of fiduciary-fund information to be included and audited
  • Difficulty accessing information kept by third-party custodians
  • Increased audit costs due to expanded audit scope
  • Additional time and effort for finance staff to research, gather information, and prepare fiduciary-fund statements
  • Confusion among management teams and governing bodies regarding the necessity of the additional DC plan information and schedules

GASB 97 Changes

As a result of these challenges, GASB received feedback that the cost of implementing the standard—and the additional audit costs incurred—outweighed the benefits of including certain DC plans as fiduciary funds. The feedback prompted the eventual issuance of GASB 97.

The new standard revises two main sections of the guidance within GASB 84 and GASB Implementation Guide No. 2019-2, Fiduciary Activities, which are common triggers for determining a DC plan met the fiduciary component unit criteria.

The criteria previously included:

  • Assets to be held in a legally separate, qualifying trust
  • Governing body of the sponsoring government is deemed to be financially accountable to the DC plan
  • Government is obligated to make employer contributions to the DC plan and meet the financial burden criteria in paragraph seven of GASB 84

Absence of Governing Body

With the application of GASB 97, sponsoring governments of DC plans no longer have to apply criteria that the absence of a governing body is considered the same as appointment of a voting majority when considering if they’re financially accountable. Under GASB 97, this criterion only applies to defined-benefit pension and other post-employment benefit plans.

Employer Contributions

GASB 97 revises paragraph seven of GASB 84 which specifies a sponsoring government meets the financial burden criterion if it’s assumed the obligation for making employer contributions to the DC plan. With these revisions, paragraph seven isn’t applicable for DC plans any longer.

Fiduciary Funds of Sponsoring Governments

Although these revisions are likely to reduce the number of DC plans that meet the fiduciary component unit criteria, there are other provisions within GASB 84 that could still prompt certain DC plans to be reported as fiduciary funds; a careful analysis must still be performed.

DC plans that don’t meet the fiduciary component unit criteria under GASB 84 and 97 may still be deemed fiduciary funds of the sponsoring government if the following criteria are met:

  • Assets of the DC plan are controlled by the sponsoring government
  • Assets aren’t derived from the government’s own source revenues

In addition, the assets must also meet one of the following:

  • Administered through a trust in which the government isn’t the beneficiary for the benefit of individuals, and the government doesn’t have administrative or direct financial involvement
  • Or, administered for the benefit of other organizations that aren’t part of the sponsoring government’s reporting entity

These criteria are included within paragraph 11 of GASB 84, and no exceptions have been included in GASB 97 to their applicability in DC plans.

If additional analysis is completed and the DC plans don’t meet all of these criteria, they wouldn’t be considered fiduciary funds of the sponsoring government and should be excluded from the annual financial report.

Through this analysis, some organizations may find certain DC plans were included as fiduciary component units in prior-period financial statements, and may be excluded in the next reporting period.

Effective Dates

GASB has fast tracked the effective date for this standard; it requires immediate implementation of paragraphs four and five that address the component unit criteria revisions.

All other sections of GASB 97 are effective for fiscal periods beginning after June 15, 2021.

Organizations that haven’t implemented GASB 84 will want to review the requirements of GASB 97 in tandem with the provisions of GASB 84 to apply the guidance for identifying and reporting required fiduciary activities correctly.

We’re Here to Help

For help navigating the impact of GASB 84, GASB 97, and other new GASB standards, contact your Moss Adams professional.

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