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The Governmental Accounting Standards Board (GASB) has issued an exposure draft, Internal Revenue Code Section 457 Deferred Compensation Plans That Meet the Definition of a Pension Plan and Supersession of GASB Statement 32, which would be effective in FY22 for public institutions.

The proposal requires that all financial reporting requirements for pension plans be applied to Section 457 plans. The proposal also requires market valuation for 457 plan investments at the end of the plan’s reporting period. These valuation requirements will supersede Statement No. 32, Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans —a rescission of GASB Statement No. 2 and an amendment of GASB Statement No. 31.

According to the exposure draft, a Section 457 plan is a pension plan for accounting and financial reporting purposes if it meets the definition of a pension plan per paragraph 51 of Statement No. 67, Financial Reporting for Pension Plans, or paragraph 128 of Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not Within the Scope of GASB Statement 68. The definition of pension plans per these paragraphs is:

Pension plans: Arrangements through which pensions are determined, assets dedicated for pensions (if any) are accumulated and managed, and benefits are paid as they come due.

Proposed Requirements

Pension reporting requirements exist in Statement 67, Statement No. 68, Accounting and Financial Reporting for Pensions—an amendment of GASB Statement No. 27, and Statement 73.  Additionally, Section 457 plans that are reported as fiduciary activities under Statement No. 84, Fiduciary Activities, and Section 457 plans that issue stand-alone financial statements would have to apply the valuation requirements in the exposure draft as well as pension accounting and reporting requirements in relevant pension standards.


Section 457 plans are tax-advantaged deferred compensation plans available to governmental employers. The governmental employer provides the plan and employees can defer compensation into the plan on a pre-tax basis. Such plans are not subject to the Employee Retirement Income Security Act. Assets in the plan belong to employees and can usually be withdrawn before retirement without penalty. All plan withdrawals (before retirement or post-employment) are subject to personal income tax.

It appears that Section 457 plans that allow employee withdrawals at any time may not meet the definition requirements because benefits are not paid as they come due. Public colleges and universities offering such plans are advised to review their plan documents.


Comments on the proposed changes are due by September 27. NACUBO's staff and Accounting Principles Council will be submitting comments and are interested in hearing from public institutions. NACUBO also encourages public institutions to submit comments directly to GASB.


Sue Menditto

Senior Director, Accounting Policy


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