Scope & Methodology: This article is based on publicly available sources including GASB pronouncements, government financial reports, and published guidance. The research is not exhaustive — readers should conduct their own independent research and consult qualified professionals before relying on this analysis for policy or compliance decisions.

GASB 84: Redefining Fiduciary Activities and Fund Accounting

For decades, government finance officers relied on GASB Statement 34 to determine which activities should be reported as fiduciary — a framework built around trust and agency funds that served reasonably well but left significant gray areas. GASB 84, issued in January 2016 and effective for fiscal years beginning after December 15, 2018 (generally FY2019 or FY2020), modernizes this framework entirely. The statement replaces the old trust/agency fund dichotomy with a principles-based definition of fiduciary activities and introduces custodial funds as the successor to agency funds. For most governments, this was the most significant financial reporting change since the GASB 34 government-wide statement implementation.

This article provides a detailed walkthrough of GASB 84, its criteria for identifying fiduciary activities, the four fiduciary fund types, and the practical implementation challenges that finance officers face.

The Purpose and Scope of GASB 84

GASB 84 was born from a straightforward observation: under GASB 34, governments were reporting a bewildering array of activities as fiduciary, even when those activities bore little resemblance to genuine fiduciary arrangements. The old framework relied heavily on the form of the arrangement (is it a "trust fund"?) rather than the substance (does this government actually control assets that belong to someone else?).

The statement's core purpose is to clarify when a government should report activities in fiduciary funds — that is, when the government acts in a custodial or fiduciary capacity and the underlying assets do not belong to the government itself. Unlike governmental activities, fiduciary activities do not appear in government-wide financial statements because the assets are not the government's economic resources. They appear only in fiduciary fund statements.

GASB 84 also introduced a significant structural change: the replacement of agency funds (which had a balance sheet but no statement of changes in fiduciary net position) with custodial funds (which have a full statement of additions, deductions, and changes in fiduciary net position). This change reflects the reality that many custodial arrangements persist over time and accumulate balances that require more robust financial reporting.

The Fiduciary Activity Test: Control Plus One of Four Conditions

The heart of GASB 84 is its test for determining whether an activity is fiduciary. An activity is fiduciary if and only if:

1. The government controls the assets, AND

2. One or more of these four conditions is met:

The assets are administered through a trust arrangement (the government is explicitly a trustee)
The beneficiaries are outside the government (individuals, organizations, or other governments for whom the assets are held)
The assets are for a pension or other employee benefit plan (OPEB, deferred compensation, etc.)
The government acts in a custodial or agency capacity with little or no administrative involvement

Let's examine each condition in detail.

Condition 1: Trust Arrangement

A trust arrangement exists when the government is explicitly designated as a trustee by a will, trust document, or similar legal instrument. The government holds and administers assets for specified beneficiaries. Examples include:

A scholarship trust established by a private donor, with the university serving as trustee
A community foundation where the city is a trustee managing assets for charitable purposes
An endowment held by a city for a cemetery trust

In these cases, the government controls the assets (it has legal authority to invest, disburse, and manage them) and acts as a fiduciary by law.

Condition 2: Beneficiaries Outside the Government

Assets held for the benefit of individuals, organizations, or other governments outside the reporting entity are fiduciary. This includes:

Unclaimed property held by the state (belongs to individuals or entities outside state government)
State employee tax withholdings held temporarily before remittance to federal/state revenue agencies
Deposits held on behalf of arrested individuals (bail, personal property)
Grants held temporarily before being passed to universities, nonprofits, or other governments

The key is that the government has no discretion to use the assets for its own purposes — they are held purely for the benefit of third parties.

Condition 3: Pension and Employee Benefit Plans

Assets held in a pension plan trust or other employee benefit plan (OPEB, deferred compensation, etc.) are fiduciary by design. The government controls the assets but they are held for the benefit of employees (and, in some cases, retirees). Pension and OPEB trusts are almost always reported as fiduciary component units under GASB 84. This is one of the clearest and most straightforward applications of the standard.

Condition 4: Custodial Capacity

This is the most subjective criterion and often the most debated. An activity is fiduciary if the government acts in a custodial or agency capacity with minimal administrative involvement — essentially, the government is holding assets briefly on behalf of third parties and remitting them with little discretion.

The classic examples are:

Tax collection: a city collects property taxes on behalf of the county, schools, and other entities, holding the assets briefly before distribution
Grant pass-through: the state receives a federal grant and is required to disburse it to local governments or nonprofits with minimal administrative discretion
Court-ordered deposits: a court holds bail, evidence, or settlement funds temporarily

However, if the government has substantial administrative involvement — for example, it must evaluate applications, determine eligibility, make awards discretionally, or manage the assets beyond a brief holding period — then the activity is likely NOT fiduciary. It becomes a governmental activity instead.

Four Fiduciary Fund Types Under GASB 84

GASB 84 recognizes four types of fiduciary funds, each with specific accounting and reporting requirements.

1. Pension (and Other Employee Benefit) Trust Funds

These funds account for assets held in trust for retirement plans, retiree healthcare plans (OPEB), deferred compensation plans, and similar employee benefit arrangements. The government is the plan sponsor and trustee, managing the investments and distributions on behalf of plan members and beneficiaries.

Reporting: Pension trust funds appear in fiduciary fund financial statements. They also appear as fiduciary component units in the government-wide statements if the plan is a legal entity and the government is a fiduciary for the plan. Most large government pension plans are reported as pension trust funds.

Measurement basis: Pension trust funds use the accrual basis of accounting. Investment income is recognized when earned. Pension benefit obligations are measured using actuarial methods.

2. Investment Trust Funds

Investment trust funds account for assets of external investment pools — pools of investments managed by a government for other governments, nonprofits, or external participants. The key distinction is that the government is investing on behalf of other entities, not for its own governmental or proprietary operations.

A common example is a state treasurer's investment pool that local governments can join. Another example is a municipal bond pool that combines issues from multiple issuers for more efficient trading and management.

Reporting: Investment trust funds appear in fiduciary fund statements and as fiduciary component units in the government-wide statements if the pool is a legally separate entity.

Measurement basis: Accrual basis. Investments are measured at fair value. Earnings are allocated to participants based on their pro-rata share.

3. Private-Purpose Trust Funds

Private-purpose trust funds account for assets held in trust for the benefit of individuals, organizations, or other governments outside the reporting government. The government is a trustee but the primary beneficiary is external.

Examples include:

A city holding a charitable trust established by a donor for a local nonprofit
A state holding assets in an endowment for a university (if the state is not the primary beneficiary)
A county holding assets for a cemetery trust for county residents (this one is borderline — if the county benefits from the trust, it may be private-purpose or governmental)

Reporting: Private-purpose trust funds appear in fiduciary fund statements.

Measurement basis: Accrual basis. These funds are measured at historical cost or fair value, depending on the nature of assets and the terms of the trust.

4. Custodial Funds (Replacing Agency Funds)

Custodial funds are the most significant innovation in GASB 84. These funds replaced the old "agency funds" and fundamentally changed how governments report temporary custodial arrangements.

Under GASB 34, agency funds were balance-sheet-only funds. They had an assets-and-liabilities statement but NO statement of changes in fiduciary net position. This made sense for true pass-through accounts with minimal balances and brief holding periods.

Under GASB 84, custodial funds have a full income statement — specifically, a Statement of Changes in Fiduciary Net Position showing additions (receipts, investment earnings) and deductions (payments made, administrative expenses). This change reflects the reality that many custodial arrangements persist over time and the government needs to report the flow of resources.

Examples of custodial arrangements:

Tax collection on behalf of other entities
Grant pass-through with minimal administrative involvement
Court-held deposits (bail, settlement funds)
Unclaimed property held by the state
Employee payroll withholdings held temporarily before remittance
Deposits from arrested individuals

The critical test: Is the government's role primarily custodial — that is, does it hold the assets briefly with minimal discretion? Or does it have substantial administrative involvement? If substantial involvement, the activity is governmental, not fiduciary.

Custodial Funds vs. Agency Funds: The Major Change

The replacement of agency funds with custodial funds is the most significant operational change in GASB 84 for most governments. Here's what changed:

Aspect	Agency Fund (GASB 34)	Custodial Fund (GASB 84)
Statement structure	Balance sheet only (assets = liabilities)	Balance sheet + Statement of Changes in Fiduciary Net Position
Fiduciary net position	None — balance is always zero	Yes — balances can accumulate over time
Additions/deductions	Recorded directly to liabilities	Recorded in Statement of Changes, increasing/decreasing fiduciary net position
When to use	Any custodial or pass-through arrangement	Only brief holding periods (< 12 months) where the government has minimal discretion; longer-term arrangements must show changes in net position
Reporting detail	Minimal — asset and liability categories only	More detailed — separate line items for additions (receipts, investment income) and deductions (payments, administrative costs)
Typical balances	Near-zero (in and out quickly)	Can be material if assets accumulate (e.g., unclaimed property)

The practical implication: Most governments had to convert their agency funds to custodial funds and add a Statement of Changes in Fiduciary Net Position. For some arrangements (true pass-through with zero balance), a custodial fund balance sheet with zero net position is acceptable. For others (tax collection with float balances, unclaimed property with accumulation), the government must report additions and deductions each period.

Component Units and Fiduciary Activities

GASB 84 clarifies the treatment of fiduciary component units — entities that are fiduciaries for the primary government (such as pension plan trusts or investment pools).

Key rule: Fiduciary component units are presented only in the fiduciary fund statements, NOT in the government-wide statements. This is by design — if an entity is fiduciary, its assets belong to others, so they are not part of the government's economic resources for government-wide reporting.

Example: A city has a pension plan trust that is a legally separate entity. The city is the fiduciary. The pension trust is reported in the fiduciary section of the city's comprehensive annual financial report (CAFR), but does not roll up to government-wide net position. The city's government-wide statements exclude the pension plan's assets and liabilities.

In contrast, a non-fiduciary component unit (such as a dependent university or authority) rolls up to government-wide statements and appears in the entity-wide Statement of Net Position and Statement of Activities.

The Pass-Through Grant Test: When Is Substantial Administrative Involvement?

One of the most challenging aspects of GASB 84 is the "substantial administrative involvement" test for pass-through grants. When does a federal grant pass through a government in a custodial arrangement, and when does the government have enough discretion that the activity is governmental?

Custodial (fiduciary) pass-through:

The government receives a federal grant and is required to remit it to local units or nonprofits with minimal discretion
The government does not evaluate applications, determine eligibility, or select recipients
The distribution is formulaic or dictated by the grantor
Example: Federal pandemic relief funds distributed to states with a formula for pass-through to local governments; the state has no choice in distribution

Governmental (not fiduciary):

The government receives a grant and must evaluate applications or determine eligibility
The government has discretion in selecting recipients or awarding amounts
The government incurs administrative costs in managing the grant program
Example: A state administers a discretionary grant program, receives applications, evaluates them, and makes awards based on merit or other criteria

The test in practice: If the government is essentially a mail carrier — receiving money and sending it out per the grantor's instructions — it's fiduciary. If the government is a manager — making decisions about who gets the money — it's governmental.

However, this test is subjective. Many arrangements fall in a gray zone. GASB guidance notes that some administrative involvement (verifying recipient eligibility, processing payments) does not automatically make an arrangement governmental. The key is whether the government has substantive discretion or merely performs ministerial functions.

For governments with numerous pass-through arrangements, this distinction can significantly impact financial reporting. A custodial arrangement reduces the government's reported revenue and expenses; a governmental arrangement increases both.

Practical Implementation: Identifying Fiduciary Activities

Here's how a government should implement GASB 84:

Step 1: Inventory all custodial arrangements. Meet with all departments and funds to identify every arrangement where the government holds assets on behalf of third parties. This includes tax collection, grant pass-through, court-held deposits, unclaimed property, escrows, and any trust arrangements.

Step 2: Apply the control test. Does the government control the assets (have legal authority to invest, manage, disburse)? If not, the activity may not be fiduciary, and careful analysis is needed.

Step 3: Apply the four fiduciary conditions. For each arrangement, determine which (if any) of the four conditions is met:

Is it a trust arrangement?
Are beneficiaries outside the government?
Is it for a pension or OPEB plan?
Is it custodial with minimal administrative involvement?

Step 4: Distinguish custodial from governmental. For arrangements that might be custodial, test whether the government has substantial administrative involvement. If yes, it's governmental. If no, it's custodial/fiduciary.

Step 5: Classify fiduciary fund type. For activities that meet the fiduciary test, determine which type:

Pension trust fund
Investment trust fund
Private-purpose trust fund
Custodial fund

Step 6: Set up accounting structure. Each fiduciary fund type has specific reporting requirements. Ensure the chart of accounts, financial statements, and disclosures are structured correctly.

Accounting and Reporting Mechanics

Once an activity is identified as fiduciary, the accounting depends on the fund type.

Custodial Fund Accounting

For a custodial fund (the most common fiduciary fund type for most governments):

Example: Tax collection on behalf of county and schools

Assume a city collects property taxes and must remit collections to the county and schools within 30 days of receipt. The city receives $10 million in tax payments, incurs $20,000 in collection costs, and remits $9.98 million to the other entities.

Journal entries in the custodial fund:

Account	Debit	Credit
Cash	10,000,000
Additions — Receipts from Others		10,000,000

Deductions — Administrative Costs	20,000
Cash		20,000

Cash		9,980,000
Deductions — Amounts Remitted to Other Entities	9,980,000

At the end of the period, the Statement of Changes in Fiduciary Net Position shows:

Beginning fiduciary net position: $0
Additions: $10,000,000 (receipts from others)
Deductions: $10,000,000 (administrative costs $20,000 + amounts remitted $9,980,000)
Ending fiduciary net position: $0

If the remittance is not made until after period-end, the liability remains on the balance sheet until paid.

Pension Trust Fund Accounting

Pension trust funds use accrual accounting and fair value measurement for investments. Journal entries recognize pension contributions, investment earnings, and benefit payments:

Example: City contributes to pension plan

Account	Debit	Credit
Cash	5,000,000
Additions — Employer Contributions		5,000,000

Investment earnings are recorded when earned (not when received):

Account	Debit	Credit
Investments (at fair value)	100,000
Additions — Investment Income		100,000

Benefit payments are recorded when due:

Account	Debit	Credit
Deductions — Benefit Payments	3,500,000
Cash		3,500,000

Common Pitfalls and Mistakes

Government finance officers frequently encounter challenges when implementing GASB 84:

Pitfall 1: Misclassifying Pass-Through Grants

The most common error is treating all grant pass-through as governmental revenue and expense. A state receives a federal grant to distribute to local governments per a formula. Is this government revenue?

Under GASB 84, if the state is merely a conduit — distributing the money per federal instructions with no substantive discretion — it is fiduciary, not governmental. The state records:

Additions (grant received): $100 million
Deductions (amounts remitted): $100 million
No net position increase

However, if the state has discretion to award grants to applicants, it is governmental revenue.

Finance officers must carefully analyze each grant program to determine the true nature of the arrangement.

Pitfall 2: Not Identifying All Custodial Arrangements

Governments often have custodial arrangements scattered across multiple departments and funds that are never formally documented as custodial. Tax collection is obvious. But escrow deposits held by the finance director, student activity funds held in the schools' name, or court-ordered deposits may be overlooked.

The remedy: comprehensive inventory of all arrangements.

Pitfall 3: Forgetting Salary-Related Withholdings

Employee payroll withholdings held temporarily (federal and state income tax, Social Security, health insurance premiums) are custodial. A government that fails to report these as a custodial fund understates fiduciary net position by the amount of the payroll liability.

Pitfall 4: Short-Term vs. Long-Term Custodial

Some governments argue that custodial balances are always zero or near-zero and therefore custodial funds are not necessary. However, if a custodial arrangement persists (e.g., unclaimed property or tax collection float), the balance can be material. Governments must report the full Statement of Changes in Fiduciary Net Position.

Pitfall 5: Confusing Custodial with Fiduciary Trust Funds

A custodial fund is not the same as a private-purpose trust fund. Custodial funds are for arrangements with minimal administrative involvement and brief holding periods (or formulaic pass-through). Private-purpose trust funds are for longer-term trusts where the government has discretion and ongoing responsibility.

Impact on Financial Statements

GASB 84 changed the presentation of government financial statements:

Fiduciary activities are excluded from government-wide statements. This is intentional — fiduciary assets are not the government's economic resources. A government with a $10 billion pension plan trust will not show that $10 billion in government-wide net position. Instead, it appears only in the fiduciary fund statements.

Fiduciary component units are presented separately. Pension plans and investment trusts that are legally separate entities roll up to fiduciary sections, not government-wide sections.

Custodial fund statement changes. Most governments added a Statement of Changes in Fiduciary Net Position for custodial funds, replacing the old agency fund model.

For users of government financial statements, understanding GASB 84 is essential to avoiding misinterpretation. A government's net position (assets minus liabilities in government-wide statements) does not include fiduciary assets. If you are analyzing a government's financial position, you must look at both government-wide net position and fiduciary fund balances to get the complete picture.

Conclusion

GASB 84 represents a significant maturation in government fiduciary fund accounting. By replacing the form-based agency fund framework with a principles-based test (control plus one of four conditions), the standard provides clearer guidance for identifying fiduciary activities.

The shift from agency funds to custodial funds — complete with a Statement of Changes in Fiduciary Net Position — reflects the reality that many custodial arrangements persist and accumulate balances. Finance officers must understand the four fiduciary conditions, the test for substantial administrative involvement, and the distinction between custodial and governmental activities.

For auditors, analysts, and bond rating agencies, GASB 84 means greater clarity and consistency in fiduciary reporting across governments. For finance officers, it means additional work in the initial implementation phase, but clearer guidance going forward.

Changelog

2026-03-19 — Initial publication.

Sources & QC

Primary sources: GASB Statement 84 (Fiduciary Activities), issued January 2016; effective December 16, 2018
All fiduciary activity criteria and fund types verified against GASB 84 text
Pension trust fund and custodial fund accounting examples reflect accrual basis and GASB reporting requirements
QC Status: Initial publication 2026-03-19

This analysis was prepared with AI-assisted research by DWU Consulting. It is provided for informational purposes only and does not constitute legal, financial, or investment advice. All data should be independently verified before use in any official capacity.