GASB 68 - PowerPoint Presentation

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GASB 68 Year 1What you really want to know

James Marta CPA, CGMA, ARPMKen Hearnsberger, Finance Manager NBSIAMatt Nethaway, CPA

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Government wide will recognize pension liability (asset) Employers with DB pension plans administered through irrevocable

trusts Agencies participating in CalPERS & other California retirement systems/plans Does not affect contributions (funding)

Net

pension liability drives pension expense Additional note disclosures and RSI

GASB 68 Overview

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Unfunded Actuarial Liability (UAL) is moved from the footnote to the Statement of Net Financial PositionSlide4

Total Pension Liability - Plan Net Position= Net Pension Liability

4Formula for net pension liabilitySlide5

List of affected and new schedules (kh

)Statement of Net PositionNet pension asset/(liability)Deferred inflows or outflowsStatement of revenues and expenditures

Prior period adjustment (first year)

Pension expense (current year)New required supplementary informationSources of changes in net pension liability

Components of net position liability and related ratiosFootnotes

Discussion of assumptions

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The Cash funding requirement is no longer the expense Slide7

Pension Liability

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Sample EntriesSlide10

Deferred Outflows/Inflows ofResources

Changes in resulting in deferred inflows/outflows of resources:Effects of actuarial differences and changes in assumptions related to economic or demographic factorsDifferences between actual and projected earnings on plan investmentsEmployer contributions made directly by the employer subsequent to the measurement date

The plan will report this to you. You wont have to calculate

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Recognition of Deferred Outflows/Inflows

Amortization due to changes in total pension liability should be over the average of the expected service lives of all employeesAmortization due to differences between projected and actual earnings on investments over five years beginning with the year in which the difference occurred

Results in the creation of “layers”, which are amortized over closed period

(New RSI schedule for disclosure)

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Net Pension Liability The plan’s unfunded liability as of the Measurement Date

Provided by plan’s actuary based on the prescribed GASB methods Deferred Outflows of Resources Additional debit balances as of the Measurement Date Ex

. Contributions made to the plan between the Measurement Date and the fiscal year end

Deferred Inflows of Resources Additional credit balances as of the Measurement Date

Ex. Investment gains that have not yet been recognized in the annual expense

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Statement of Net PositionSlide13

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Changes in net pension liability between FYEs Include a portion of deferred inflows and outflows of resources related to pensions (“amortization”)

Actuarial (demographic) & investment gains & losses Assumption changes Plan changes are recognized immediatelyPension Expense

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Allocating prior liability to your programsCould go back and calculate each year payroll by year and program and then calculate weightIf similarly allocated; weight by years of program

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Practical Solutions to Allocation ProblemsSlide16

Single-employer plans/single employerProvide benefits to the employees of only one employer. Example:

City of Anytown creates a pension system just for its employeesAgent multiple-employer plans/agent employerProvide benefits to more than one employer by pooling assets for

investment purposes, but legally segregating the assets to

pay benefits promised by individual employers. Essentially an

agent plan is a collection of single-employer plans.Cost-sharing multiple-employer

plans/cost-sharing employer

Provide benefits to more than one employer by pooling the

assets and

obligations across all participating employers. As a result,

plan assets

may be used to pay the benefits of any

participating employer.

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Types of Defined Benefit PlansSlide17

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California Employer Groups - CalPERSSlide18

18Cost SharingSlide19

Begin by calculating the net pension liability at the plan levelCalculate Employers “

Proportionate share”GASB encourages the estimation of expected future contributions as the basis to allocate; but

it allows any method that is determined

on a basis that is consistent with the manner in which required contributions are determined.

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CalculatingSlide20

20Cost Sharing ProportionSlide21

CalPERS risk pools Plan or risk pool’s net pension liability calculated same as for single and agent employers

Agency reports & recognizes proportionate share of Plan’s or Risk Pool’s net pension liability Any reasonable method to determine proportion Should be consistent with contribution determination

No special treatment for Side Funds

Cost Sharing Multiple-Employer Pensions

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Participation in Cost-Sharing Multiple-Employer Plans

An employer should recognize its proportionate share of the collective net pension liability, pension expense, and deferred inflows/outflows of a cost-sharing plan

Cost-sharing Multiple-Employer plans

– those in which the pension obligations to the employees of more than one employer are pooled (plan assets can be used to pay the benefit of the employees of any employer)

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Participation in Cost-Sharing Multiple-Employer Plans (continued)

Basis for proportion should be consistent with manner in which required contributions are determined

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As a practical matter, it is anticipated the calculation of proportion will be performed based on either required contributions or covered payrollSlide24

Participation in Cost-Sharing Multiple-Employer Plans

Proportionate share concept results in two types of potential changes in pension liability:effect of a change in the employer’s proportion of the plan’s collective net pension liability - recognized as deferred inflow/outflow in the period of change

difference during the

measurement period between actual plan contributions and the amount of the employer’s proportionate share of collective contributions

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Multiple Employer PlanMust include “On-Behalf” payments from state for CalSTRSYes, the state pays part of the CalSTRS liability but you book the whole thing

You must journal in the payment as a source and a use.CDE has a tool to assist with this calculation.

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School DistrictsSlide26

Statement No. 71Amendment of Statement No. 68:

par. 137……It may not be practical for some governments to determine the amounts of all deferred inflows of resources and deferred outflows of resources related to pensions, as applicable, at the beginning of the period when the provisions of this Statement are adopted. In such circumstances, beginning balances for deferred inflows of resources and deferred outflows of resources related to pensions should

not be reported

.”

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Statement No. 71 (continued)Amendment to Statement No. 68 (par. 137)

Recognize a beginning deferred outflow of resources only for its pension contributions, if any, made subsequent to the measurement date of the beginning net pension liability, but before the start of the government’s fiscal year.

No beginning balances for other

deferred outflows of resources and deferred inflows of resources related to pensions should be recognized

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Cost-Sharing Multiple-Employer Plans (AICPA Proposed Recommendations

)

Issues

AICPA White Papers

Government Employer Participation in

Cost-Sharing Multiple Employer Plans: Issues

Related to Information for Employer Reporting

Information for Employer Reporting

Single-Employer and Cost-Sharing Multiple-Employer Plans: Issues Associated with Testing Census Data

Substantially finalized

Census Data

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Cost-Sharing Multiple-Employer Plans Issues

(AICPA Proposed Recommendations) (continued)

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Plan prepares

the following for which plan auditor is engaged to provide opinion:

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Schedule of employer allocations

Use allocation method based on covered payroll or required (actual) contributions depending on whether resulting allocations are expected to be representative of future contributions

Projected future contributions could be used if necessary

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. Schedule of pension amounts

by employer

Includes the following elements: net pension liability, deferred outflows of resources by category, deferred inflows of resources by category and pension expense

Alternative: Prepare a “schedule of collective pension amounts” (excluding employer specific deferrals) for the plan as a whole

Information for Employer ReportingSlide30

Cost-Sharing Multiple-Employer Plans Issues (

Employer Responsibilities)

Complete and accurate data to plan

Appropriateness of information used to record financial statement amounts

Whether plan auditor’s report on schedules are adequate and appropriate for employer purposes

Amounts in schedules specific to employer

Employer amount used in allocation percentage (numerator)

Recalculate allocation percentage of employer

Recalculate allocation of pension amounts based on allocation percentage of employer

Report

Evaluate

Verify and

recalculate

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Cost-Sharing Multiple-Employer Plans Issues (Employer Auditor Responsibilities

)

Sufficiency and appropriateness of audit evidence

Report

Whether plan auditor’s report on schedules are adequate and appropriate for auditor purposes (i.e. evidence)

Review plan auditor’s report and any related modifications

Evaluate whether the plan auditor has necessary competence and independence

Determine whether named as specified user

Evaluate

Amounts in schedules specific to employer

Employer amount used in allocation percentage (numerator)

Recalculate allocation percentage of employer

Recalculate allocation of pension amounts based on allocation percentage of employer

Verify and

recalculate

Census data submitted to plan

Test

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Cost-Sharing Multiple-Employer Plans Issues (Census Data

)

Plan auditor performs procedures to test census data maintained by the plan

Employer auditor performs procedures to test the census data provided to the plan

Census data tested should coincide with the data used in the preparation of the actuarial report (measurement date)

Testing Underlying Census Data for Active Employees

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Next Steps

D

evelop a comprehensive implementation plan

Meet with finance to determine approach and timing of allocations

Working with auditor to plan for the testing of Census Data

Draft new financial statements and disclosures

Monitor progress of implementation

Communicate implementation progress to constituent groups/Board