james marta cpa, cgma, arpm ken hearnsberger, finance manager nbsia matt nethaway, cpa 1

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GASB 68 Year 1

What you really want to knowJames Marta CPA, CGMA, ARPM

Ken 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 Position

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Total Pension Liability - Plan Net Position = Net Pension Liability

Formula for net pension liability

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List of affected and new schedules (kh)

Statement of Net Position◦ Net pension asset/(liability)◦ Deferred inflows or outflows

Statement of revenues and expenditures◦ Prior period adjustment (first year)◦ Pension expense (current year)

New required supplementary information◦ Sources of changes in net pension liability◦ Components of net position liability and

related ratios Footnotes

◦ Discussion of assumptions

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The Cash funding requirement is no longer the expense

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Pension Liability

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Changes in Net Pension Liability - Sample for CAJPA

PensionDescription Source LiabilityCalculation of Pension Liability:Beginning balance - Balance 6/30/14 (Change in accounting principle) Actuary GASB 68 report 2,953,173$ Current year adjustment Actuary GASB 68 report (491,633) Adjusted balance of net pension liab 6/30/15 Actuary GASB 68 report 2,461,540

Calculation of Deferred: Changes for Year: Def. Outflows Def. Inflows Pension expService cost Actuary GASB 68 reportInterest Actuary GASB 68 report - Change in net pension liability Actuary GASB 68 report (491,633) Change in deferred restatement portion Employer 210,446 Contributions - Employer prior year adjust out Employer (210,446) 210,446 Contributions - Employer current year Employer 225,000 Unamortized difference between projected and actual earnings on investments Actuary GASB 68 report (458,743) 458,743 Net Investment Income Actuary GASB 68 reportBenefit Payments, including refunds of contributions Actuary GASB 68 report - Administrative expenses Actuary GASB 68 report - Other Changes Actuary GASB 68 report -

Ending Balances 225,000 (458,743) 177,556

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Sample EntriesDeferred Deferred Pension PensionOutflow Inflow Expense Liab

Per general ledger before entries -$ -$ 225,000$ -$

A-2 Deferred Outflows of resources - 2014 Employer contributions 210,446$ 210,446$ Net Position (prior period adjustment) 2,742,728$ Pension liability 2,953,173$ 2,953,173$ To adjust the beginning balance

A-3 Pension expense 177,556$ 177,556$ Deferred outflows of resources -$ -$ Pension liability 491,633$ (491,633)$ Deferred outflows of resources - 2014 employer contr. Reversal 210,446$ (210,446)$ Deferred inflows of resources - unamortized net difference 458,743$ (458,743)$ To post current year adjustments

A-4 Deferred outflows of resources - emplyer contribution 225,000$ 225,000$ Personal expenses - contribution expense 225,000$ (225,000)$ to adjust for employer contributions made after the measurement date 6/30/14see what you posted to your financial statements before the adjustments; reverse into deferred

A-5 Net Pension Liability N/A this year -$ Deferred outflows of resourcesN/A this year -$ -$ reversal of deferred employer contributions made in 2014-15 (Not for FY 2014-15 Reporting)

Calculated balances 225,000$ (458,743)$ 177,556$ 2,461,540$

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 factors

Differences between actual and projected earnings on plan investments

Employer 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 employees

Amortization 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

Statement of Net Position

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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 immediately

Pension Expense

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Allocating prior liability to your programs◦ Could go back and calculate each year payroll by

year and program and then calculate weight◦ If similarly allocated; weight by years of program

Practical Solutions to Allocation Problems

WC LiabCurrent year salary and wage allocation 65% 35%times number of years for each programs 35 25creates weighting 35.65 8.75 44.40 Proportionate share 80% 20% 100%Allocation of liability 1,043,806$ 256,194$ 1,300,000$

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Single-employer plans/single employer Provide benefits to the employees of only one employer.

Example: City of Anytown creates a pension system just for its employees

Agent multiple-employer plans/agent employer◦ Provide benefits to more than one employer by pooling assets forinvestment 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.

Types of Defined Benefit Plans

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California Employer Groups - CalPERS

Employer Group Reporting ClassificationState of California Agent multiple employerSchools - not teachers Cost-sharing multiple employerPublic agencies - pooled Cost-sharing multiple employerPublic agencies - nonpooled Agent multiple employerJudges Retirement Fund Single EmployerJudges II Retirement FundLegislatures' Retirement Fund

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Cost Sharing

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Begin by calculating the net pension liability at the plan level

Calculate 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.

Calculating

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Cost Sharing Proportion

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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

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 payroll

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 Plan Must include “On-Behalf” payments from

state for CalSTRS◦ Yes, 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.

School Districts

Statement No. 71 Amendment 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 inCost-Sharing Multiple Employer Plans: IssuesRelated 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)

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

1. 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

2. 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 Reporting

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 andrecalculate

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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

employerVerify andrecalculate

• 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

Develop 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