GASB issued Statement 32, Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans, in 1997 due to tax code changes that required assets of 457 plans to be “held in trust for the exclusive benefit of participants and their beneficiaries.” At that time, GASB viewed 457 plans as tax-deferred employee saving plans rather than pension plans, citing the lack of employer contributions. As tax laws continue to change and 457 plans have evolved to include employer contributions, GASB recently re-evaluated its blanket conclusion that all 457 plans do not meet the pension plan criteria.
Under the proposal, all pension plan accounting and reporting requirements would apply to 457 plans and related benefits provided if the 457 plan meets the pension plan definition. Investments of all 457 plans would be valued as of the end of the plan’s reporting period in all circumstances. Currently, a government can use the plan administrator’s most recent report if it is impractical to get the valuations as of the government’s financial report date. As a result of these changes, Statement 32 would be completely superseded.
GASB believes that for 457 plans in which the amount received by an employee in retirement is solely based on the amount accumulated in the employee’s account during active service, the presence of employer contributions during the employee’s active service demonstrates that a benefit—in the form of retirement income—is being provided by the government and that the 457 plan would meet the pension plan definition. GASB continues to believe that an arrangement for which an employer or nonemployer contributing entity does not provide a benefit does not meet the pension plan definition.
Governments that have a 457 plan that meet the pension plan definition also should consider the reporting requirements of Statement 84, Fiduciary Activities, which is based on whether an arrangement is a pension plan.
Comments are due by September 27, 2019, and a final statement is currently planned for issuance in December 2019. If approved, the changes would be effective for fiscal periods beginning after December 15, 2020.
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