Posted 09 August 2010 - 10:58 AM
The accounting depends on the plan design.
Because these are nonqualified plans, the assets and benefit obligations are completely separate for accounting purposes. The amount of the asset might define the amount of the benefit account balances, but the accounting is separate (unlike plan assets for a qualified plan such as a 401(k) plan).
Suppose your nongovernmental 457(b) plan balances are fully vested elective deferrals measured according to the NAVs of mutual funds that finance the benefit. The investments are carried at fair value, and you probably run the market related change in fair value through your Statement of Activities. I assume you've designed the plan such that the asset balances define the benefit account balances. If the balances are fully vested and you're not crediting an above market rate, then the liability equals the account balances.
The journal entries are:
Debit investment, credit cash for the invested outlay.
Debit compensation expense, credit benefit liability for the deferral of compensation.
If the investments increase value, run both the investment gain and additional benefit obligation through your statement of activities. That creates an effective accounting hedge.
The 457(f) plan might be a little trickier. Even if you're crediting a market rate, the benefit is probably earned over the vesting period. If so, recognize a liability equal to the fair value of the account balance times the vesting percentage times the probability of payment. The vesting percentage is the service since the contribution over the required service. For example, if you credit the participant with $10,000 plus investment gains, and require five years of service, you would record a benefit obligation equal to 40% of the account balance after 2 years. The record keeping is a little more complicated if each contribution has its own vesting schedule. Some 457(f) account balance plans record the entire account balance as a liability if the amounts are not material.
If your 457(f) balance is payable upon voluntary termination and taxes haven't been paid, you might have a tax problem.