A fiduciary fund is the accounting category a state or local government uses when it holds or manages money that belongs to someone else. The rules come from Governmental Accounting Standards Board Statement No. 84, which identifies four fund types and requires them reported in dedicated fiduciary fund financial statements, separate from the government’s own operating budget.1Governmental Accounting Standards Board. Summary of Statement No. 84 – Fiduciary Activities The separation exists because fiduciary resources cannot be spent on the government’s own programs. The government is a steward, not an owner.
What Qualifies as a Fiduciary Activity
Two questions decide whether an activity is fiduciary: does the government control the assets, and who benefits from them?1Governmental Accounting Standards Board. Summary of Statement No. 84 – Fiduciary Activities Control exists when the government can direct how the resources are used or receive benefits from the assets. A county holding property tax collections for a school district has that control, even though the money is only passing through.
The source of the money matters just as much. Assets generated by the government’s own taxes, fees, or service charges are “own-source revenues” and belong in governmental or business-type activity funds. Sales and income taxes, property taxes, and charges like water or sewer fees fall in that bucket. The fiduciary classification applies only when the assets come from an outside party or are held for people and organizations outside the reporting government.
Administrative Involvement and Direct Financial Interest
Even when a government holds someone else’s money, the activity may not be fiduciary if the government has administrative involvement or a direct financial interest in the resources. Administrative involvement means playing an active role in deciding how the money is spent: setting specific spending guidelines, approving or rejecting expenditure requests, or monitoring compliance with program requirements. A school board that dictates exactly how student activity fees can be spent has that kind of involvement.
Routine housekeeping does not count. Designating who can sign checks, prohibiting illegal purchases, or applying broad security protocols are ordinary administrative tasks, not substantive control. When the beneficiaries themselves decide how the money gets spent, the government typically lacks the involvement that would pull the activity out of fiduciary reporting.
Trust Arrangements Versus Custodial Arrangements
Three of the four fiduciary fund types require a formal trust or something legally equivalent. A qualifying trust generally has to meet three conditions: the assets must be dedicated to providing benefits according to the trust terms, the assets must be legally shielded from the government’s own creditors, and the government or its designated agent must serve as trustee.1Governmental Accounting Standards Board. Summary of Statement No. 84 – Fiduciary Activities
The creditor-protection element is what separates trust funds from custodial funds in practice. If a government runs into financial trouble, assets held in a qualifying trust are off-limits to its creditors. Custodial fund assets lack that legal protection, which is why the reporting requirements and fund structure differ.
The Four Fiduciary Fund Types
GASB 84 recognizes four categories: pension and other employee benefit trust funds, investment trust funds, private-purpose trust funds, and custodial funds.1Governmental Accounting Standards Board. Summary of Statement No. 84 – Fiduciary Activities The first three require a trust or equivalent arrangement. Custodial funds cover everything else.
Pension and Other Employee Benefit Trust Funds
These funds manage retirement contributions, investment earnings, and benefit payouts for current and former government employees. They tend to be the largest fiduciary funds by dollar amount because they accumulate assets over decades to meet long-term obligations. The trust must meet the three conditions above, and the plan must follow minimum vesting standards that protect employees’ rights to their accrued benefits.2Office of the Law Revision Counsel. 26 USC 411 – Minimum Vesting Standards
The category also includes other postemployment benefit arrangements such as retiree health coverage, provided they are administered through a qualifying trust. Because the dollar amounts can be enormous, even small reporting errors here can misrepresent significant obligations, and auditors tend to look at these funds closely.
Investment Trust Funds
When a larger government pools investment dollars on behalf of smaller external entities, the portion belonging to those outside participants goes into an investment trust fund. A state treasurer running a pooled investment program for county governments is the standard example. Only the external portion is reported here. The government’s own share of the pool stays in its governmental or proprietary funds, which can require careful allocation of contributions and earnings between internal and external participants.
Private-Purpose Trust Funds
Private-purpose trust funds hold assets whose beneficiaries are specific individuals, private organizations, or other governments rather than the general public or the government’s own employees. Scholarship endowments, property held for private heirs, and funds dedicated to a specific charitable purpose fit here. The trust documentation has to restrict the government from redirecting these assets toward its own programs. What distinguishes these from pension trust funds is simply that the beneficiaries are not current or former employees receiving retirement or postemployment benefits.
Custodial Funds
Custodial funds capture every fiduciary activity that lacks a qualifying trust arrangement. GASB 84 introduced this category to replace the older “agency fund” designation and broadened the reporting. Agency funds only reported assets and liabilities; custodial funds also report additions and deductions, making the flow of money visible.1Governmental Accounting Standards Board. Summary of Statement No. 84 – Fiduciary Activities
Tax collection is the most common custodial activity. A county that collects $5,000 in property taxes from a homeowner might owe $3,000 to the local school district. Between collection and distribution, the county records that $3,000 in a custodial fund. Pass-through grants and student activity fees where the government has limited control are other typical examples.
One exception trims the reporting load. A business-type activity that normally holds custodial assets for three months or less does not have to report those assets in a fiduciary fund.1Governmental Accounting Standards Board. Summary of Statement No. 84 – Fiduciary Activities The shortcut applies only to business-type activities. A general fund collecting taxes for another district cannot use it, however quickly the money moves through.
Where Section 457 Deferred Compensation Plans Fit
Deferred compensation plans organized under Internal Revenue Code Section 457 do not sit automatically in a familiar fund category. GASB Statement No. 97 requires each 457 plan to first be classified as a pension plan or another type of employee benefit plan, depending on whether it meets the definition of a pension plan. Once classified, the plan is then evaluated under GASB 84 to determine whether it should be reported as a fiduciary activity at all.3Governmental Accounting Standards Board. Summary of Statement No. 97 A government sponsoring a 457 plan cannot rely on tradition to place it; the current criteria decide.
Reporting Requirements
Separate From Government-Wide Statements
Fiduciary funds do not appear in a government’s government-wide financial statements. Because the resources cannot be used to finance the government’s own programs, they appear only in the fiduciary fund financial statements, a separate section of the comprehensive annual financial report.4Governmental Accounting Standards Board. Summary of Statement No. 34 – Basic Financial Statements and Management’s Discussion and Analysis for State and Local Governments Readers expecting to find pension assets on the same statements as tax revenue and infrastructure will not find them there.
Measurement Focus and Basis of Accounting
Fiduciary fund statements use the economic resources measurement focus and the accrual basis of accounting.5Governmental Accounting Standards Board. Summary of Statement No. 34 – Basic Financial Statements and Management’s Discussion and Analysis for State and Local Governments All assets and liabilities are reported, and revenues and expenses are recognized when earned or incurred, not when cash moves. That differs from the modified accrual approach used for governmental funds like the general fund, and the difference matters when reconciling fiduciary figures against other parts of the report.
The Two Required Statements
A government with fiduciary activities must present two statements. The Statement of Fiduciary Net Position lists all assets held for beneficiaries, including cash, investments, and receivables, minus any liabilities, producing the net position available to beneficiaries at a point in time.1Governmental Accounting Standards Board. Summary of Statement No. 84 – Fiduciary Activities
The Statement of Changes in Fiduciary Net Position tracks additions and deductions across the fiscal year. Additions include employer contributions and investment earnings. Deductions include benefit payments, refunds, and administrative costs. Together, the two statements let any interested party trace how the money was received, invested, and distributed.
When a Liability to Beneficiaries Gets Recorded
A government records a liability in a fiduciary fund when a specific event compels disbursement. Under GASB 84, that trigger occurs in one of two situations: the beneficiary has demanded the resources, or no further action or approval is required from the beneficiary to release them.1Governmental Accounting Standards Board. Summary of Statement No. 84 – Fiduciary Activities A pension fund does not record a liability for every retiree who might someday file a claim. The liability appears when the retiree submits a benefit application or when all eligibility conditions have already been satisfied and the payment is simply due.
Investment Risk Disclosures
Fiduciary funds that hold investments follow the same deposit and investment risk disclosure standards that apply to governmental and proprietary funds. GASB Statement No. 40 requires governments to disclose concentration of credit risk by identifying any single issuer whose investments represent 5 percent or more of total investments.6PwC Viewpoint. GASB Statement No. 40 – Deposit and Investment Risk Disclosures Investments issued or explicitly guaranteed by the U.S. government, along with positions in mutual funds and external investment pools, are excluded from the threshold.
For large pension trust funds with diversified portfolios, this gives beneficiaries and oversight bodies visibility into where risk is accumulating. If a single corporate bond issuer makes up 6 percent of the fund’s total investments, the notes to the financial statements have to flag it. Fiduciary fund types are specifically within the scope of these disclosures, so the same transparency standards apply to money held for others as to the government’s own resources.