GASB Pension Reporting Update

Minnesota Society of CPAs: School District Audit ConferenceJune 2, 2014

Presented by: Dave DeJonge, Assistant Executive Director, PERA

John Wicklund, Assistant Executive Director, TRA

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On the doorstep of implementation

GASB 67: Pension Plan Reporting

PERA and TRA will implement for their CAFRs for the period ending June 30, 2014.

GASB 68: Accounting and Financial Reporting for Pensions

School districts will implement for CAFRs for the period ending June 30, 2015.

Major reporting changes:Statement of net position

Adds net pension liability (NPL) – similar to the unfunded liability PERA and TRA report today (government-wide financial statements).

Pension expense for school district is the difference between beginning NPL and ending NPL.

Deferred inflows and deferred outflows retained from GASB 63. Affects timing of expenses. Example: Investment gains or losses smoothed over five years.

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Schedule of the Net Pension Liability:

Ten year schedule presenting: Employer’s percentage and amount of NPL

Employer’s covered employee payroll

Employer’s NPL as percentage of covered employee payroll

Pension plan’s FNP as a percentage of TPL

Required supplementary information

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Required supplementary information

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Schedule of Employer Contributions

Ten-year schedule presenting: Statutorily required employer contribution

Actual contributions paid by employer

Difference between required contributions and paid contributions

Amount of contributions paid in relation to required contributions as a percentage of the employer’s covered-employee payroll

Required supplementary information

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Required supplementary information

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Schedule of Employer Contributions

Notes to the financial statements

Adds more extensive note disclosures, including sensitivity analysis of investment return assumption

Requires employer to track annual balances of deferred outflows of resources and inflows of resources.

Must describe significant assumptions and other inputs used to measure total pension liability.

PERA/TRA to provide suggested footnotes

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Measurement period

Actuarial valuation

measurement date

Release of 7/1/14

actuarial valuation

results

School districts use

7/1/14 actuarial valuation

results

School district CAFRs

w/GASB 68 published

Retirement systems transmit results to school districts

July 1, 2013 June 30, 2014 Dec. 1, 2014 June 30, 2015 Late 2015

Key point: There will be a one-year lag in school district reporting of GASB 68 results. Example: School districts, in their FY 2015 reporting, will use FY 2014 actuarial valuation results from PERA and TRA.

GASB 67-68 timeline: Measurement dates for school districts

GASB 68 implementation guide

Released January 2014. www.gasb.org

272 Q&A (questions 121-217): Cost-sharing employers.

Appendix 3 (PERA and TRA are multi-employer cost-sharing plans).

Illustration 3a, 3b are helpful.

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PERA – TRA plan level

Perform annual actuarial valuations to determine funded status and liabilities

Require plan actuary to calculate collective amount of items requiring deferred treatment

Engage external auditor to audit actuarial census data and schedule of employer’s proportionate share

Communicate results to the school districts

Provide RSI and suggested footnotes

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Determination of employer proportionate share

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Allocation based on employer contributions for fiscal year

Time lag – schools will use FY14 results and data for their FY15 CAFR

PERA/TRA to provide GASB 68 allocations to each employer based on plan totals calculated by actuary

Allocation policy is in progress

GASB 71

Amends paragraph 137 of Statement 68

Contributions after the measurement date prior to fiscal year end

Booked to deferred outflows rather than pension expense

At the beginning of the period in which the provisions of Statement 68 are adopted the government should recognize a beginning deferred outflow of resources only for its pension contributions

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GASB 71

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December 31, 2014 June 30, 2015 December 31, 2015June 30, 2014

Measurement Date

Employer’s Fiscal Year EndPrior Fiscal Year EndPrior Measurement

Date

Measurement Period

Example cities/counties

Reduce NPL Def Outflows

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Example A: Determination of employer proportionate share

Schedule of employer allocations (6/30/20X5)

Employer Actual Employer Contributions Employer Allocation Percentage

Employer 1 $2,143,842 36.376

Employer 2 268,425 4.554

Employer 3 322,142 5.466

Employer 4 483,255 8.199

Employer 5 633,125 10.742

Employer 6 144,288 2.448

Employer 7 95,365 1.618

Employer 8 94,238 1.599

Employer 9 795,365 13.495

Employer 10 267,468 4.538

Employer 11 403,527 6.847

Employer 12 165,886 2.815

Employer 13 68,454 1.161

Employer 14 6,240 0.106

Employer 15 2,144 0.036

Total $5,893,764 100.000

Example A: Net pension liability(employer 2)

Employer proportionate share 4.554%

TRA unfunded liability $4 billion

Employer 2 initial liability on July 1, 2014 $182,160,000

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Pension expense

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NPL Components immediately recognized in PE:

Item Effect on PE

Service Cost (Normal Cost) Increase

Interest on the TPL Increase

Projected Investment Earnings Decrease

Member Contributions Decrease

Administrative Costs Increase

Benefit Provision Changes Increase or Decrease

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Pension expense

Components deferred and recognized later include:

Deferred portions are accumulated as “deferred outflows of resources” or “deferred inflows of resources” and recognized as PE in future years

Item Amortization Period

Difference between actual and projected earnings on investments

5 Years

Changes in actuarial assumptions (mortality, disability, salary growth, inflation, payroll growth, etc.)

Closed period equal to the average of the expected remaining service lives of all employees (active, inactive, and retirees)Difference between actual and assumed actuarial

experience

Pension expense

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Item Pension Expense

Deferred Outflows

Deferred Inflows

Service Cost $20,000

Interest on TPL $10,000

Projected Investment Earnings $ (8,000)

Member Contributions $ (1,000)

Admin Expenses $ 100

Change in Benefit Provisions $ (200)

Change in Assumptions (8 years) $ 100 $ 1,000 $ 300

Diff. Between Assumed and Actual Experience (8 years)

$ (50) $ 150 $ 500

Diff. Between Actual & Projected Investment Earnings (5 Years)

$ (100) $ 400

Total $20,850 $ 1,150 $1,200

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Example B: Schedule of collectivepension amounts

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Example B: Schedule of pension amounts by employer

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Auditing of GASB 67-68 results

External auditor for the statewide retirement systems:

Minnesota Office of the Legislative Auditor (OLA)

Two AICPA white papers (February 2014)

Governmental employer participation in cost-sharing multiple-employer plans: Issues related to information for employer reporting

Single-employer and cost-sharing multiple-employer plans: Issues associated with testing census data in an audit of financial statements

Three auditing standards AICPA (April 2014)

AU-C Section 9500: Audit evidence AU-C Section 9600: Audit of group

financial statements AU-C Section 9805: Audits of single

financial statements and specific elements, accounts or items

Auditing of census data

PERA and TRA annually compile a data file of demographic and payroll information about all members, active and retired.

Source file for the annual actuarial valuation supporting GASB 67-68 reporting.

Met with external auditor on audit responsibilities and scope.

Vision is for the audit work to be performed centrally at the retirement system.

Example: Birthdate, years of service credit, employer unit, salary for fiscal year.

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Recognizing proportionate shares of collective pension amounts.

Statement 68 does not specify which party (retirement systems or school districts) are responsible for calculating the allocation percentages.

Retirement systems planning to provide a schedule of employer allocations of pension amounts and method used. (slide 16)

GASB 68 does not specify any one methodology to determine the allocation.

Retirement systems likely to use most recent fiscal year employer contributions.

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Auditing issues related to information for employer reporting

What PERA and TRA are doing

Working on GASB 67 implementation for FY 2014 CAFRs

Developing “Employer Proportionate Share” methodology

Developing framework for deferred inflows and outflows. No retroactivity required

Revising actuarial services contracts to reflect expended deliverables required from actuary

Negotiating audit scope and responsibilities with TRA’s external auditor (Office of the Legislative Auditor)

Establishing communications plan with employers and other stakeholders

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Key messages

GASB 68 divorces funding and accounting

(Your GASB 68 pension expense will not match what the employer actually contribute to the plan.)

Unfunded pension liabilities exist today

(GASB 68 changes who reports them)

Unfunded pension liabilities may be very large to the employer

(liabilities represent pension payments due over decades of time)

Governing boards will still need to develop a funding policy to pay off the liabilities

(No different than today)

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Visit the “Employer” tab on PERA’s and TRA’s websites.

www.mnpera.org

www.minnesotatra.org/employerinfo/gasb

You’ll find:

Links to GASB publications.

Links to AICPA audit guidance.

Toolkit of informational guides/articles.

Frequently asked questions.

News and developments on implementation.

Questions? E-mail Dave Dejonge (PERA) dave.dejonge@mnpera.org, or John Wicklund (TRA) jwicklund@minnesotatra.org.

PERA-TRA resources