Project Pages

Deferred Compensation Plans—Reexamination of Statement 32

Research Description: The initial objectives of this pre-agenda research are to evaluate the effectiveness of Statement No. 32, Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans, as amended, by (1) assessing the changes in the characteristics of the plans subject to Statement 32 (hereinafter referred to as Section 457 plans) since the issuance of Statement 32, and (2) considering whether existing requirements provide users of financial statements with essential information. As part of that evaluation, this research will consider whether Section 457 plans sufficiently differ from pension plans to warrant different financial reporting requirements. The pre-agenda research will provide the Board with the information necessary to determine whether standards setting is needed in this area.

Add to Current Agenda: April 2018

Deferred Compensation Plans—Reexamination of Statement 32

Background: Statement 32 was developed in response to a change in the Internal Revenue Code (IRC) requiring that deferred compensation plan assets be “held in trust for the exclusive benefit of participants and their beneficiaries.” One focus of Statement 32 is how a government that has fiduciary responsibility for a Section 457 plan should report that plan in its financial statements. For governments that report those deferred compensation plans, Statement 32 requires those activities to be presented in a pension (and other employee benefit) trust fund in the statements of fiduciary net position and changes in fiduciary net position. Statement No. 84, Fiduciary Activities, which is effective for reporting periods beginning after December 15, 2018, will supersede the fiduciary reporting requirements of Statement 32. Therefore, this research will not reassess aspects related to the fiduciary nature of these arrangements.

Statement 32 also establishes a requirement for governments that report Section 457 plans to apply the valuation provisions of Statement 31, as amended, to plan investments listed in subparagraph 2a through 2e of Statement 31, as amended. Statement 32 requires that all other plan investments be reported at fair value. Statement No. 72, Fair Value Measurement and Application, was issued in February 2015. As part of the project that resulted in Statement 72, the issue of investment valuation was reexamined. Statement 72 became effective for reporting periods beginning after June 15, 2015; therefore, this research will not reassess the valuation of investments held by Section 457 plans.

Instead, this research focuses on whether certain Section 457 plans are pension plans as defined by GASB literature and, therefore, whether the postemployment benefit literature should apply. The Basis for Conclusions of Statement 32 indicates that, at the time of the Statement’s issuance, Section 457 plans were not viewed as pension plans. At that time, the Board believed it would be inappropriate to require Section 457 plans to provide the disclosures for defined contribution plans that were required by Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, because Section 457 plans generally did not have required employer contributions. The presumption in Statement 32 that Section 457 plans are not pension plans served as the basis for implementation guidance that states that benefits provided through a Section 457 plan should not be reported in accordance with Statement No. 68, Accounting and Financial Reporting for Pensions. (That is, because Section 457 plans are not pension plans, the benefits provided through those plans are not pensions.)

Major Research Issues: The research is considering the following issues:
  • Are Section 457 plans that are reported in accordance with Statement 32, as amended, significantly different that pension plans that are reported in accordance with Statement No. 67, Financial Reporting for Pension Plans?
  • If the arrangements are significantly different, are the requirements of Statement 32, as amended, sufficient to meet the information needs of users of financial statements?
  • Pre-agenda research approved April 2018
  • Consultative group appointed? No
Current Developments: Staff has completed its review of relevant literature. Staff is conducting interviews with relevant stakeholders, developed a survey instrument, and is currently administering the survey.

Research Work Plan:

Board Meetings

Topics to Be Considered

September 2018: Continue to administer survey instrument
October–November 2018: Analyze results of research and draft research memorandum
December 2018 (T/C): Discuss research memorandum with the Board