GASB 68 Accounting and Auditing
Issues – Implementation is Coming
Soon … Are You Ready?
A NASACT WEBINAR
May 27, 2015
Opening Remarks
MODERATOR
R. Kinney Poynter
Executive Director,
NASACT
SPEAKER
David Bean
Director of Research
and Technical Activities
GASB
SPEAKER
Donna Miller
Director of Professional Practice
Office of the Auditor General (AZ)
SPEAKER
Gerry Boaz
Technical Manager
Department of Audit (TN)
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THIS PAGE INTENTIONALLY
LEFT BLANK
3
NASACT
GASB Statement 68 Accounting and
Auditing Issues—Implementation is
Coming Soon…Are You Ready?
The views expressed in this presentation are those of Mr. Bean. Official positions of the GASB on
accounting matters are determined only after extensive due process and deliberation.
4
Hot Button Issues





Timing of measurement
Measurement
Allocation
Special funding
Communications
5
Timing of Measurement
6
Measurement—Considerations
 Employer fiscal year-end
 Measurement date (of NPL)
- As of date no earlier than end of prior fiscal year
- Both components (TPL/plan net position) as of the same date
 Actuarial valuation date (of TPL)
- If not measurement date, as of date no more than 30 months
(+1 day) prior to FYE
- Actuarial valuations at least every 2 years (more frequent
valuations encouraged)
 Coordination with pension plan
7
Timing of Measurement
 June 30, 2015 fiscal year end
- Valuation no earlier than December 31, 2012
 Statement was approved June 2012
- Measurement no earlier than June 30, 2014
 Can be achieved by roll-forward of valuation
 Measurement needed for restatement—no earlier than June 30, 2013
 During transition
- Statement 27 and Statement 67 data coexisted
- Select measurement date now and forever hold your peace?
8
Measurement Issues
9
Discounting
 Long-term expected rate of return
- To the extent that the plan’s net position is projected to be
sufficient to make projected benefit payments (crossover)
 Crossover points could be different for agent employers
- Plan assets are expected to be invested using a strategy to
achieve that return (often lost in the conversation)
- Projected cash flows for contributions (trust, but verify)
 Statue, contract, or formal written policy—consider five-year history
 Others—use five-year history
10
Discounting
 Yield or index rate for 20-year, tax-exempt general
obligation municipal bonds with an average rating of AA/Aa
or higher
- No endorsement of any index
 Overall approach still is controversial
11
Allocation Issues
12
Cost-Sharing Employers
 Recognize proportionate shares of collective net pension
liability, pension expense, deferred outflows of resources/
deferred inflows of resources
 Proportion (%)
- Basis required to be consistent with contributions
- Consider separate rates related to separate portions of
collective NPL
- Use of relative long-term projected contribution effort
encouraged
 Collective measure x proportion = proportionate share of
collective measure
13
Changes in NPL: Cost-sharing Employers—
Additional Considerations
 Potentially three items
1. Change in proportion
2. Difference between:
 The employer’s proportionate share of all employer contributions
included in collective plan net position
 Contributions recognized by the employer in the measurement period
3. Employer’s contributions subsequent to measurement date
 Items 1 and 2—expense in current and future periods
(systematic/rational method, closed period equal to average
of expected remaining service lives)
 Item 3—deferred outflow of resources, reduces collective
NPL in next period
14
Cost Sharing—One Size May Not Fit All
 To the extent that different contribution rates are assessed
based on separate relationships, the determination of the
employer’s proportionate share should be made in a
manner that reflects those separate relationships
- For example, component units
15
Component Units
 Special funding situation—no allocation of liability
- However, revenue and pension expense would be reported
 No special funding situation—allocation based on
proportionate share guidance related to cost-sharing
employers
- Including separate relationships guidance
16
Funds
 Allocation based on NCGA Statement 1, paragraph 42
- Bonds, notes, and other long-term liabilities (for example, for
capital leases, pensions, judgments, and similar commitments)
directly related to and expected to be paid from proprietary
funds, should be included in the accounts of such funds.
- These are specific fund liabilities, even though the full faith and
credit of the governmental unit may be pledged as further
assurance that the liabilities will be paid.
 No specific guidance on allocation method
17
Special Funding Issues
18
What Qualifies?
 The amount of contributions for which the State legally is responsible is
NOT dependent upon one or more events or circumstances unrelated to
the pensions. Examples of conditions include:
- State is required by statute to contribute a defined percentage of an employer’s
covered-employee payroll directly to the pension plan
- State is required by the terms of a pension plan to contribute directly to the
pension plan a statutorily defined proportion of the employer’s required
contributions to the pension plan.
 The State is the only entity with a legal obligation to make contributions
directly to a pension plan.
 Special funding situations do not include circumstances in which resources
are provided to the employer, regardless of the purpose for which those
resources are provided. (Must be provided directly to pension plan.)
19
Reporting Issues
 Special funding situations normally associated with a
separate plan
 Can apply to a cost-sharing plan where the State also is a
participating employer
- Some disclosures can be combined
 But not all
20
Communication Issues
21
Key Note Disclosures—All Employers
 Discount rate information, including:
- Long-term expected rate of return and how it was determined
- Assumed asset allocation of the pension plan’s portfolio and
the long-term expected real rate of return for each major asset
class
- NPL measured at a discount rate 1 percentage point higher
and 1 percentage point lower:
Net pension liability
1%
Decrease
(6.75%)
Current
Discount
Rate
(7.75%)
1%
Increase
(8.75%)
$826,928
$751,753
$661,543
22
Key Note Disclosures—Single/Agent Employers
Increase (Decrease)
Total Pension
Liability
(a)
Balances at 6/30/X8
$
2,853,455
Plan Fiduciary
Net Position
(b)
$
2,052,589
Net Pension
Liability
(a) – (b)
$
800,866
Changes for the year:
Service cost
75,864
75,864
Interest
216,515
216,515
Differences between expected and actual experience
(37,539)
(37,539)
Contributions—employer
79,713
(79,713)
Contributions—employee
31,451
(31,451)
196,154
(196,154)
Net investment income
Benefit payments, including refunds of employee
contributions
(119,434)
Administrative expense
Other changes
Net changes
Balances at 6/30/X9
135,406
$
2,988,861
$
(119,434)
-
(3,373)
3,373
8
(8)
184,519
(49,113)
2,237,108
$
751,753
23
RSI: NPL Components and Ratios
Note: Only 5 years are presented here;
10 years of information will be required
24
RSI—Cost-Sharing Employer
 10-year schedule
- Employer’s proportion (%), proportionate share
(amount) of collective NPL, covered-employee payroll,
proportionate share as percentage of covered-employee
payroll, pension plan’s net position as percentage of
TPL
20X9
Proportion of the net
pension liability (asset)
20X8
0.20%
20X7
0.19%
20X6
0.19%
20X5
0.19%
0.20%
Proportionate share of the
net pension liability (asset)
$
14,910
$
11,738
$
12,972
$
13,495
$
14,892
Covered-employee payroll
$
11,512
$
10,412
$
9,715
$
9,553
$
9,522
Proportionate share of the
net pension liability (asset) as a
percentage of its covered-employee
payroll
Plan fiduciary net position as a
percentage of the total pension
liability
129.52%
112.74%
133.53%
141.26%
156.40%
81.38%
83.20%
80.41%
78.53%
75.79%
25
New RSI: Contributions
Note: Only 5 years are presented here;
10 years of information would be required
26
Implementation Guide to Statement 68
 Available to download free from the GASB website; printed
copies still can be purchased
 Questions and answers on topics including:
-
Measurement of the liability
Determining a cost-sharing employer’s proportionate share
Notes and RSI
Transition
 Illustrations, topical index, full text of the Standards section
27
Plain-Language Materials
 The GASB is committed to communicating in plain
language with constituents about its standards and
standards-setting activities.
 Plain-language articles accompany major proposals and
final pronouncements
 Fact Sheets are prepared for complex projects to answer
commonly raised questions
- Series of 8 fact sheets on Statements 67 and 68 on
pensions
 Pension Communication Resource Group
- 14 white papers on messaging
28
NASACT Webinar: GASB 68
Accounting and Auditing Issues –
Implementation is Coming Soon …
Are You Ready?
May 27, 2015
Gerry Boaz, CPA, CGFM, CGMA
Technical Manager
TN Division of State Audit
phone: (615) 747-5262
Gerry.Boaz@cot.tn.gov
TCRS





TCRS was created in 1972
Consolidation of seven separate pension plans
Governed by the 20 member Board of Trustees
Defined Benefit Plan
Participating employers as agent plans


State of Tennessee, including higher education
Political Subdivisions
 Participating employers as cost sharing plans

Local education agencies (LEAs) covering teachers
 Plan document is the State Statute Creating TCRS (TCA title 8,
chapters 34-37)
 TCRS is administered by the Treasury Department
30
TCRS Demographics
Membership
Active
Retired
Annualized Benefits
(in millions)
State and Higher
Education
Employees
59,780
48,365
$729
K-12 Teachers
73,052
47,545
1,034
Local
Governments
Employees
82,521
40,063
333
135,973
$2,096
Total
215,353
• 93% of retirees live in Tennessee
• June 30, 2014
31
TCRS Demographics
Participating Entities
Number
Cities
177
Counties
88
Utility Districts
68
Special School Districts
19
Joint Ventures
21
Housing Authorities
11
911 ECD
47
Miscellaneous Authorities
56
Total
487
• Participation is optional
• Separate accounting & actuarial records are maintained for each
governmental entity
32
June 30, 2013 Actuarial Data for TCRS
Based on actuarial
value of assets
Unfunded Liabilities
(in millions)
Funded %
$1,466
89.40%
Teacher
807
96.03%
Aggregate Local Gov’ts
392
94.97%
$2,664
93.64%
State
Total
Based on market
value of assets
Unfunded Liabilities
(in millions)
Funded %
$1,995
85.56%
1,642
91.91%
Aggregate Local Gov’ts
708
90.90%
Total
$4,346
89.63%
State
Teacher
33
TCRS Actuarial Assumptions
 Assumptions based on an actuarial experience study
 Economic Assumptions
 7.5% earnings assumption
 4.0% average graded salary assumption
 3.0% underlying inflation assumption
 2.5% retiree COLA assumption
 Demographic Assumptions
 Mortality assumptions based on actual experience plus
some expected improvement
 Turnover, pattern of retirement, and pattern of disability are
based on past experience
 Next experience study will be as of June 30, 2016
34
Actuarial Valuation
 June 30, 2014 for accounting purposes
 June 30, 2015 for accounting purposes and for
determining the actuarially required contribution rate
 Annual valuations thereafter for both accounting and
funding
 Actuarial data




Census data of active members
Census data of retired members
Asset data or Fiduciary Net Position (FNP)
Benefit terms and conditions
35
TCRS Pension Funding Policy
 Methodology






Annual actuarial valuations beginning June 30, 2015
Entry age normal actuarial method
Ten year asset smoothing with 20% corridor
Level dollar amortization, up to 20 years
Closed amortization period
Actuarial valuation to determine 100% of Actuarially
Determined Contributions (ADC)-Replacing ARC
 Adopted by TCRS Board of Trustees
 Funding policy can be found at http://treasury.tn.gov/tcrs
36
GASB Statement 67
Employer Group
Plan Type
State & higher education
Agent
Local Education Agencies (LEA)
Cost sharing
Local governments
Agent
• TCRS is a multiple employer plan
• Separate accounting & actuarial records are maintained
• Legal separation of assets & liabilities
• State & higher education combined
• 142+ LEAs combined
• Separate for each individual participating local
government
• Assets are commingled for investment purposes
• Employers receive pro rata share of investment gains and
37
losses
GASB 67
Statement of Fiduciary Net Position
 June 30, 2014 TCRS (in thousands)
Agent Plans
Assets
Cash
1,922,973
3,890,730
578,693
582,109
1,160,802
21,459,096
20,971,043
42,430,139
14,333
14,008
28,341
Total Assets 24,019,879
23,490,133
47,510,012
2,329,695
2,275,160
4,604,855
21,690,184
21,241,973
42,905,157
Net Investments
Capital assets
Net Position
Total
1,967,757
Receivable
Liabilities
Cost Sharing
Payables
38
GASB 67
Statement of Changes in Fiduciary Net Position
 June 30, 2014 TCRS (in thousands)
Agent Plan
Additions
Cost Sharing
Total
EE Cont.
75,030
195,521
270,551
ER Cont.
686,249
348,475
1,034,694
3,105,782
3,054,118
6,159,900
3,867,031
3,598,114
7,465,145
1,085,216
1,039,677
2,124,893
2,781,815
2,558,437
5,340,252
Beginning
18,908,369
18,656,536
37,564,905
Ending
21,690,184
21,214,973
42,564,905
Net Investment
Income
Total Additions
Deductions
Net Increase
39
GASB 67 Notes
 Calculation of Net Pension Liability (Asset)
 Used July 1, 2013 actuarial valuation rolled forwarded to June 30,
2014
 Example of Teachers in TCRS
June 30, 2014
Teachers
Total Pension Liability
TPL
21,151,810,794
Fiduciary Net Position
FNP
21,214,973,134
Net Pension Liability
(Asset)
NPL
(63,162,340)
Funded Ratio
100.30%
40
GASB 67 Notes
 Sensitivity Analysis of NPL (NPA)
 Increase discount rate 1%, Decrease discount
rate 1%
 Example of Teachers in TCRS
6.5%
NPL (NPA)
2,677,321,642
7.5%
(63,162,340)
41
8.5%
(2,332,660,416)
GASB 67 RSI
 Schedule of Changes in Net Pension Liability (Asset)
 10 year schedule
Teachers
TPL at June 30, 2014
Service cost
404,576,942
Interest
1,483,656,307
Change of benefits
none
Change of assumptions
none
Experience difference
none
Benefit payments
Net change
( 1,037,013,093)
851,220,156
TPL-beginning
20,300,590,638
TPL-ending
21,151,810,794
42
GASB 67 RSI
 Continued from prior slide
Teachers
FNP at June 30, 2014
Contributions-EE
348,474,888
Contributions-ER
195,520,938
Net investment income
Benefits paid
3,054,117,821
(1,037,013,093)
Administrative exp.
Net change in FNP
(2,663,319)
2,558,437,235
FNP-beginning
18,656,535,899
FNP-ending
21,214,973,134
43
GASB 67 RSI
 Continued from prior slide
Teachers
NPL (NPA) at June 30, 2014
TPL
21,151,810,794
FNP
21,214,973,134
Net Pension Liability (asset)
(63,162,340)
44
GASB 67 RSI
 Net Pension Liability
 10 year schedule
June 30, 2014
Teachers
Total Pension Liability
TPL
21,151,810,794
Fiduciary Net Position
FNP
21,214,973,134
Net Pension Liability
(Asset)
NPL
(63,162,340)
Funded Ratio
Covered payroll
100.30%
3,925,131,835
NPL as % of payroll
-1.61%
45
GASB 67 RSI


Plan Contributions for Teachers in TCRS
10 year schedule (in thousands)
ADC
Actual
Deficiency
Payroll
% of Pay
2014
348,475
348,475
0
3,931,984
8.88
2013
344,535
344,535
0
3,879,879
8.88
2012
343,594
343,594
0
3,796,078
9.05
2011
339,833
339,833
0
3,754,601
9.05
2010
236,545
236,545
0
3,683,969
6.42
2009
233,215
233,215
0
3,632,638
6.42
2008
218,862
218,862
0
3,507,361
6.24
2007
204,371
204,371
0
3,333,693
6.13
2006
175,719
175,719
0
3,194,957
5.50
2005
170,393
170,393
0
3,098,165
5.50
46
 The Issues for local governments and
their auditors boil down to one
question?
 Where….

do we get the information?
47
Cost
Sharing
Test
Census
Data for
Both
Agent
MultiEmployer
48
Two Tests
Accuracy Test:
Actuary Census
Data to Employer
Census Data
Completeness
Test: Employer
records to Actuary
Census Data
HOW?
49
What will happen if auditor’s
cannot test local government
Census Data??
Could mean a Disclaimer or
Adverse Opinion!!!
50
General Approach – Cost-sharing
Employers
 Very simple.
 Followed the AICPA White Paper guidance
Tier one employers
Contribution ($)
% of Contributions
Memphis City schools
43,742,110
12.7
Davidson County
schools
31,637,282
9.2
Knox County schools
20,904,288
6.1
Shelby County schools
18,425,304
5.4
51
General Approach – Cost-sharing Employers
Tier two employers (top 10)
Contribution ($)
% of Contributions
Hamilton County schools
14,418,973
4.2
Rutherford County schools
12,776,739
3.7
Williamson County schools
10,816,773
3.1
Montgomery County schools
10,149,030
3.0
Sumner County schools
9,145,596
2.7
Sevier County schools
5,275,346
1.5
Jackson-Madison County
schools
4,850,804
1.4
Wilson County schools
4,798,548
1.4
Maury County schools
4,024,530
1.2
Tipton County schools
3,914,574
1.1
52
57%
Workpapers - Agent Plan Employers
 Actuarial Certification Letter from
the Actuary
 Actuarial Valuation Report as of the
Measurement Date
 Notes to the Financial Statements
and RSI
 Amortization Schedules for
Deferred Outflows and Inflows
 Examination Engagement Opinion
related to Census Data for Inactive
and Retired TCRS Members.
53
A
A
T
T
 SA
Workpapers – Agent Plan Employers
 Census Data.
 Sample of Census Data:
 Accuracy Test
 Completeness Test
 Workpaper for Using the Actuarial
Specialist
T
 LGA
 SA
 Workpaper that Demonstrates
 SA
Actuarial Data Agrees with Data in
the Concord System
54
Workpapers – Agent Plan Employers
 Journal Entries
 T
 Contributions between
Measurement Date and Report Date  LGA
 Calculation of Allocations to
Component Units, Funds, and
Departments.
 Memo Regarding Employer
Responsibilities
55
 LGA
 LGA
Workpapers – Agent Plan Employers
 Opinion on the Schedule of
Changes in Fiduciary Net
Position
56
 SA
Workpapers –
Cost Sharing Plan Employers
 Notes to the Financial Statements
 Schedule of Pension Allocations
 Opinion on the Pension Allocations
T
A
 SA
 Schedule of Pension Amounts by
Employer
A
 Opinion on the Pension Amounts by  SA
Employer
57
Workpapers –
Cost Sharing Plan Employers
 Examination Engagement
Opinion related to Census Data
for Inactive and Retired TCRS
Members.
58
 SA
Questions?
Gerry Boaz, CPA, CGFM, CGMA
Technical Manager
Division of State Audit
phone: (615) 747-5262
email: Gerry.Boaz@cot.tn.gov
59
NASACT Webinar: GASB 68
Accounting and Auditing Issues—Implementation is
coming soon…are you ready?
MAY 27, 2015
DONNA MILLER, CPA
PROFESSIONAL PRACTICE DIRECTOR
DMILLER@AZAUDITOR.GOV
Arizona Office of the Auditor
General (OAG)
• Legislative agency
• Responsible for audits of:



The State, including the 3 state universities
Community colleges
Counties
• Issue reporting guidelines for auditees
plus school districts
61
Arizona’s Government
Defined Benefit Pension Plans
Cost sharing multiple-employer plans:
• Arizona State Retirement System (ASRS)
• Elected Officials Retirement Plan (EORP)
• Correction Officer’s Retirement Plan—Administrative Office
of the Courts
Agent multiple-employer plans:
• Public Safety Personnel Retirement System (PSPRS)
• Correction Officer’s Retirement Plan (CORP)
62
Arizona’s Largest Plans
June 30, 2014
Plan
NPL
Funded
Status
Employers Members
ASRS – Cost sharing $14.80 billion 69.49%
690 544,780
PSPRS – Agent
255
$ 6.30 billion 48.52%
(estimated averages)
32,170
63
Revision Effects on ASRS
June 30, 2014
GASB 67/68
Methodology
ASRS Funding
Methodology
TPL / Actuarial Accrued liability
$48.49 Billion
$41.35 Billion
Pension assets
$33.69 Billion
$31.55 Billion
NPL / Unfunded AAL
$14.80 Billion
$9.80 Billion
Funded Ratio
Actuarial Method
69.49%
Entry Age Cost
76.3%
Projected Unit Credit
Assets
PBI
Market Value
Yes
Actuarial Value
No
8%
8%
Item
Discount Rate
64
ASRS Top 10 Participating Employers 6/30/14
Government
1) State of Arizona (without universities)
2) Maricopa County
3) Mesa Unified School District #4
4) University of Arizona
5) Maricopa Community College
6) Tucson Unified School District
7) Arizona State University
8) Pima County
9) Gilbert Unified School District #41
10) Chandler Unified School District #80
All others
% of ASRS membership
12.75%
4.34%
4.05%
3.31%
3.04%
3.02%
2.53%
2.37%
2.24%
2.00%
60.35%
100.00%
65
PSPRS NPL by Government 6/30/14
% of PSPRS
Government
NPL
Colleges (2)
0.09%
Counties (23)
10.22%
Municipalities (125)
73.99%
Fire districts (62)
2.66%
State agencies (6)
12.11%
Tribal governments (16)
0.40%
Universities (3)
0.53%
100.00%
Estimated NPL
(In millions)
$
5.60
643.80
4,659.44
167.42
762.65
24.93
33.66
$6,297.49
66
Implementation Planning
• Coordinating efforts with ASRS and PSPRS
for almost 3 years
• Communicate consistent messages to
plans’ participating employers
• Encourage all employers to use the same
measurement date, 12-month lag
67
Plan Provided Information
Cost-Sharing Plans
• Schedules of employer allocation percentages
and pension amounts by employer
• Audit report on schedules by plan’s external
auditors
• Proportionally allocate based on actual employer
contributions during the measurement period
68
ASRS Employer Schedules—
challenges
• Beginning NPLs and proportionate shares
• Sensitivity calculations of +/- 1% by employer
• Future amortization amounts by year for each
deferred inflow/outflow of resources—possibly
just the collective amounts
• Ensuring that each employer’s amounts balance
so that the debits and credits equal
69
Plan Provided Information
Agent Plans
• Actuarial valuation report for each employer
• Actuarial certification letter to employer management
• Schedule of changes in fiduciary net position for each
employer
• Audit opinion on each schedule by plan’s external
auditor (Option 2–AU-C 805 opinion)
• Attestation report on census data by plan’s external
auditors (Option 2–AT section 101 report)
70
Plan Provided Information
Agent Plans
Members’ census data:
• Plan auditor’s attestation report—
• Census data submitted to actuary matches that
maintained by the plan
• Inactive and retired members census data is accurate
• Employer auditors individually audit current active
members’ census data
• Census data used by actuary available to employers (?)
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OAG Implementation
Guidance
• DRAFT reporting guidelines (notes and RSI)
• Counties
• Community college districts
• School districts
• Sample journal entries (cost-sharing plan)
• Available at our website: azauditor.gov
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OAG Implementation
Reporting Guidelines
73
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Cost-Sharing Plans
GASB Statement
34, Paragraph 119
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Costsharing
plans
only
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All Plans using LTERR and Municipal Bond Rate
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Agent
Plans—
RSI
Guidelines
78
79
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Employer Implementation
Guidance
• Employer and employer auditor responsibilities
• Determine whether the auditor and actuary have the
necessary competence / independence
• Evaluate plan auditor and actuary reports and schedules
• For cost-sharing plans, recalculate proportionate share—
the employer contribution amount
• For agent plans, determine the accuracy of the important
active members’ census data used by plan’s actuary
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Arizona OAG Auditor
Guidance—Audit Tool
• Centralize work performed over plan auditor and
actuary competence / independence
• Coordinate/centralize work over reports/schedules
appropriateness and accuracy
• Risk assessments
• Census data testing details
• Analytics over proportional share allocations
• Analytics over certain note disclosure/RSI elements
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Questions?
Donna Miller, Professional Practice Director
dmiller@azauditor.gov or ppg@azauditor.gov
Phone: 602-553-0333
Question & Answer Session
MODERATOR
R. Kinney Poynter
Executive Director,
NASACT
SPEAKER
David Bean
Director of Research
and Technical Activities
GASB
SPEAKER
Donna Miller
Director of Professional Practice
Office of the Auditor General (AZ)
SPEAKER
Gerry Boaz
Technical Manager
Department of Audit (TN)
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GASB 68 Accounting and Auditing
Issues – Implementation is Coming
Soon … Are You Ready?
A NASACT Webinar
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