GASB 68 and 75 - PERS & TRS€¦ · 17/3/2016 · GASB No. 68 • The Net Pension Liability is an accrual accounting measurement calculated in conformity with GASB 67 / 68 • The

GASB 68 & 75 - Allocations of

Net Pension & OPEB Liabilities

Kevin Worley, Chief Financial Officer Division of Retirement & Benefits March 17, 2016

TOPICS OF DISCUSSION

• AICPA SLGEP Census Data Guidance • GASB #68 – Net Pension allocation report • What is DRB providing to employers? • When is DRB providing it? • Special funding situation • GASB #75 – Net OPEB allocation report

AICPA State & Local Government Expert Panel

(SLGEP)

Testing Census Data on PLAN Financial Statements and

Impact on Participating Employers

AICPA Guidance

• With the issuance of GASB No. 67, there were questions related to the Total Pension Liability (TPL), contribution revenues, and contribution receivables

• The Plan Auditor needs to assert that the above are complete and accurate, and in order to assert that, more audit work had to be done on census data

• That’s why our external auditors now visit you

Census Data

AICPA Guidance

Some significant elements of census data include: 1. Date of birth 2. Date of hire / years of service 3. Eligible compensation 4. Class of employee – all other / Peace officer or

fire fighter 5. Gender 6. Date of termination, if applicable

Census Data

AICPA Guidance

• Plan auditors must review plan processes for the census data of active employees of the plan and include procedures to verify the underlying payroll records of participating employers to determine that the information is accurate and complete

• Census data work by external auditor must be completed prior to issuance of audit reports

• Letters out in May; work starts in June

Census Data

AICPA Guidance

• Frequency and extent of verification is based on participating employer size, percent of contributions, and impact on TPL

• Plan auditor identifies and assesses risk of material misstatement of elements

• Plan auditor selects representative group of contributing employers each year as well as individually important employers

• Every year, as well as 5 and 10 year cycles

Census Data

AICPA Guidance

• SLGEP Pension Whitepaper on Issues Associated with Testing Census Data in an Audit of Financial Statements

• SLGEP Pension Whitepaper on Issues Related to Information for Employer Reporting

• Search for “SLGEP Pension Whitepaper Series” for these two reports

• Available on Division’s website

White Papers and Audit Interpretations

GASB Statement No. 68

Accounting and Financial Reporting for Pensions – An Amendment of GASB Statement

#27

GASB No. 68

• In June 2012, the GASB issued two new standards changing the accounting and financial reporting requirements for pensions

• The intent of the standards is to enhance the pension-related information in financial reports by providing greater transparency and to standardize the valuation practices from entity to entity in the financial reports (comparability)

Accounting & Financial Reporting for Pensions

GASB No. 68

• Governments are now required to report its proportionate share of unfunded pension obligations on the financial statements

• Pension expense is the change in Net Pension Obligation

• Increased note disclosures and schedules • Measurement is accounting-based, not

funding-based


GASB No. 68

• These are new accounting and financial standards for reporting purposes, and will not impact your funding requirements

• New reporting standards break the link between actuarial funding and financial accounting for pensions

• Under Alaska law, the current employer funding requirement is the statutorily required contributions


GASB No. 68

• So, there is no change to the employer contribution rate based on this GASB statement

• The new standards consider only how plans and employers account for and report pension costs

• GASB No. 68 Implementation Guide is available on-line


GASB No. 68

• The Net Pension Liability is an accrual accounting measurement calculated in conformity with GASB 67 / 68

• The Unfunded Actuarial Accrued Liability (UAAL) in the actuarial valuation reports is a funding measure calculated according to Actuarial Standards of Practice

• Two numbers used for two separate purposes: one is accounting, one is funding


GASB No. 68

• The Division continues to work to ensure that our participating employers are positioned to implement GASB 68

• The Division will use every outreach outlet available to us including participating in conferences, group meetings, internet


GASB No. 68

• PERS Net Pension Liability as of June 30, 2015 to be allocated is $4,850,014,000

(see page 33 of PERS FY 2015 audited f/s)

• TRS Net Pension Liability as of June 30, 2015 to be allocated is $1,860,451,000

(see page 32 of TRS FY 2015 audited f/s)


Special Funding

Situation

Special Funding Situation

Paragraph 15 defines circumstances in which a nonemployer entity is “legally responsible” for making contributions directly to a pension plan that is used to provide pensions to the employees of another entity or entities and either of the following conditions exist:

GASB 68 Definition


(1) the amount of the contributions for which the nonemployer entity legally is responsible is not dependent upon one or more events or circumstances unrelated to pensions (2) the nonemployer entity is the only entity with a legal obligation to make contributions directly to a pension plan

GASB 68 Definition


GASB clarified the term “legally responsible” for purposes of GASB 68 should not be construed in a legally enforceable sense, but in an “economic reality” sense, in that the State is making payments on behalf of participating employers pursuant to AS 39.35.280 and 14.25.085.

GASB 68 Definition


• From an accounting perspective, the State is recording the special funding situation on its balance sheet

• From a legal perspective, the State affirmatively disclaims any and all legal responsibility or obligation, in a legally enforceable sense, for the non-State employer GASB 68 net pension liabilities reported in the State’s CAFR (See page 107 of State’s CAFR for footnote disclosure)

What is the Division of Retirement & Benefits

Providing to Employers?

What is being provided?

• Employers will recognize the proportionate share of cost-shared pension amounts (allocation of NPL)

• Challenges relate to each participating employer obtaining the necessary support of NPL, deferred inflows/outflows of resources, and pension expense

• SLGEP recommended that the cost-sharing plans calculate each employer’s allocation and collective pension expense

What do participating employers need?


• From Page 5 of 9 – SLGEP Pension Whitepaper Series on Information for Employer Reporting

Schedule of Employer Allocations


• Employer contributions • Past Service Cost contributions • Salary Floor contributions • DBUL contributions • Imputed mandatory contributions • Imputed DBUL contributions • This schedule will be provided this year

What makes up employer contributions?


• From Page 7 of 9 – SLGEP Pension Whitepaper Series on Information for Employer Reporting

Schedule of Pension Amounts by Employer


• The Division provided: 1. audited schedules of employer and

nonemployer allocations 2. audited schedules of pension amounts by

employer and nonemployer

Audited Schedules


• The Division provided: 1. supplemental schedules of employer and

nonemployer amortization of deferred inflows and outflows

• The Division DID NOT provide: 1. Footnote assistance – determined it fell

outside the scope of fiduciary duty; GASB 68 paragraph 74-82 describes required disclosures

Supplemental Schedules


• Pension contributions made subsequent to measurement date are best handled by the employer and recorded as a deferred outflow of resources

• Due to costs and State’s effort for cost containment, the Division may have to figure another way to prepare this report that is auditable and that provides the information needed by employers

• Very expensive to prepare and audit

When is the Division of Retirement & Benefits

Providing the Information to Employers?

When is it being provided?

• It is the intent of the Division to provide the GASB 68 (and associated 75 reports) in the spring of each year, no later than May though sooner would be much better for all parties

• It’s not all about the June 30 year end employers, we also have September 30 and December 31 year ends too

• When applicable, they will be combined into one report

Where is the Division of Retirement & Benefits Information Located?

Where is it located?

Where is it located?

• Audited schedules

• PERS and TRS Schedules of Employer and Nonemployer Allocations and Schedules of Pension Amounts by Employer and Nonemployer

• Actuary reports

• GASB 68 information report includes schedules, actuarial assumptions and methods, plan provisions, allocations of pension amounts, NPL reconciliation, and amortization schedules

What information is available

GASB Statement No. 75

Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions

GASB No. 75

• These benefits are provided by both the PERS and TRS defined benefit plans as well as the defined contribution plans

• Benefits involve health care benefits, but also may include life insurance, disability, legal, and other services (though not necessarily provided by PERS and TRS)

OPEB Related

GASB No. 75

In June 2015, the GASB issued two statements that are designed to improve the usefulness of information about OPEB 1. Financial Reporting for Postemployment

Benefit Plans Other than Pension Plans (PLAN) – GASB 74

2. Accounting and Financial Reporting for Postemployment Benefits Other than Pensions (EMPLOYER) – GASB 75

OPEB Statements

GASB No. 75

These are very similar to the pension standards (GASB 67 and 68) 1. OPEB is part of the employment exchange and

should be recognized as incurred, not funded 2. The government-wide and full accrual

statements will report a “Net OPEB Liability” 3. Change in Net OPEB Liability will be

immediately recognized in expense

OPEB Statements

GASB No. 75

Like the pension statements before it, the OPEB statement is designed to improve the information reported on OPEB for decision-

making and accountability purposes, comparability across governments, and

transparency

OPEB Statements

GASB No. 75

• Intended to lead to fundamental changes in how OPEB is accounted for and reported

• Accounted for in a trust with specific criteria where contributions are irrevocable, assets are dedicated to providing OPEB to plan members, and plan assets are legally protected

• Provide a more comprehensive picture of what state and local governments have promised and the actual associated costs

OPEB Statements

GASB No. 75

Addresses a number of issues: • Affects how the long-term obligation and the

annual costs of OPEB are measured • Recognize the net OPEB liability on the face

of the financial statements • Present more extensive note disclosures and

related schedules

OPEB Statements

GASB No. 75

Measurement date (PLAN): • Measured as of the plan’s year end • The actuarial valuation may be performed

earlier (within 24 months) and then rolled forward to the PLAN’s fiscal year end reporting date

• FORMULA is TOTAL OPEB LIABILITY – OPEB Plan Net Position = Net OPEB Liability

OPEB Statements

GASB No. 75

Note and RSI Changes (EMPLOYER): • Significant footnote disclosures – like pension • RSI requirements – 10 years 1. Schedule of proportionate share of Net

OPEB liability 2. Schedule of contributions 3. Notes to RSI

OPEB Statements

GASB No. 75

• Fiscal years beginning AFTER June 15, 2017 • The Division would prepare the first OPEB

allocation schedule for Fiscal Year June 30, 2018

• This would mean the Division would provide OPEB allocation schedule as of June 30, 2017 in the Spring of 2018, as well as the Pension allocation

Effective Date

GASB No. 75

• Timing of release of audited report • Contact with participating employers • More information available, like support of

employer contributions used for allocation percentage

Lessons Learned from GASB No. 68

What do you want to know more about?

E-mail: [email protected]

Phone: (800) 821-2251 outside Juneau 465-4460 in Juneau

Thank you for your time and attention!

Documents

GASB 68 and 75 - PERS & TRS€¦ · 17/3/2016 · GASB No. 68 • The Net Pension Liability is an accrual accounting measurement calculated in conformity with GASB 67 / 68 • The