October 8, 2015 Comments Due: November 16, 2015 Proposed Statement of the Governmental Accounting Standards Board Accounting and Financial Reporting for Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans an amendment of GASB Statement No. 68 This Exposure Draft of a proposed Statement of Governmental Accounting Standards is issued by the Board for public comment. Written comments should be addressed to: Director of Research and Technical Activities Project No. 34-3E ACCOUNTING AND FINANCIAL REPORTING FOR PENSIONS PROVIDED THROUGH CERTAIN MULTIPLE-EMPLOYER DEFINED BENEFIT PENSION PLANS WRITTEN COMMENTS Deadline for submitting written comments: November 16, 2015 Requirements for written comments. Comments should be addressed to the Director of Research and Technical Activities, Project No. 34-3E, and emailed to director@gasb.org or mailed to the address below. OTHER INFORMATION Public hearing. The Board has not scheduled a public hearing on the issue addressed in this Exposure Draft. Public files. Written comments will become part of the Board’s public file and are posted on the GASB’s website. Orders. This Exposure Draft may be downloaded from the GASB’s website at www.gasb.org. For information on prices for printed copies, please contact the Order Department at the following address: Governmental Accounting Standards Board 401 Merritt 7 PO Box 5116 Norwalk, CT 06856-5116 Telephone Orders: 1-800-748-0659 Please ask for our Product Code No. GE100. GASB publications also may be ordered at www.gasb.org. ____________________ Copyright © 2015 by Financial Accounting Foundation. All rights reserved. Permission is granted to make copies of this work provided that such copies are for personal or intraorganizational use only and are not sold or disseminated and provided further that each copy bears the following credit line: “Copyright © 2015 by Financial Accounting Foundation. All rights reserved. Used by permission.” i Notice to Recipients of This Exposure Draft The Governmental Accounting Standards Board (GASB) is responsible for establishing and improving standards of state and local governmental accounting and financial reporting to provide useful information to users of financial reports and to educate stakeholders—including issuers, auditors, and users of those financial reports—on how to most effectively understand and implement those standards. The due process procedures that we follow before issuing our standards and other communications are designed to encourage broad public participation in the standardssetting process. As part of that due process, we are issuing this Exposure Draft setting forth a proposed Statement that would amend requirements for accounting and financial reporting for pensions provided through certain multiple-employer defined benefit pension plans. We invite your comments on all matters in this proposed Statement. Because this proposed Statement may be modified before it is issued as a final Statement, it is important that you comment on any aspects with which you agree as well as any with which you disagree. To facilitate our analysis of comment letters, it would be helpful if you explain the reasons for your views, including alternatives that you believe the GASB should consider. All responses are distributed to the Board and to staff members assigned to this project, and all comments are considered during the Board’s deliberations leading to a final Statement. In deciding on changes in accounting and financial reporting standards, the GASB also takes into consideration the costs of preparing and reporting the information and its benefits to users of financial statements. When the Board is satisfied that all alternatives have adequately been considered, and modifications have been made as considered appropriate, a vote is taken on the Statement. A majority vote is required for adoption. ii Summary The objective of this proposed Statement is to address a practice issue regarding the scope and applicability of Statement No. 68, Accounting and Financial Reporting for Pensions. This issue relates to pensions provided through certain multiple-employer defined benefit pension plans and state or local governmental employers whose employees are provided with such pensions. The requirements of Statement 68 apply to the financial statements of all state and local governmental employers whose employees are provided with pensions through pension plans that are administered through trusts that meet the criteria of paragraph 4 of that Statement. This proposed Statement would amend the scope and applicability of Statement 68 to exclude pensions provided to employees of state or local governmental employers through a cost-sharing multiple-employer defined benefit pension plan that (1) is not a state or local governmental pension plan, (2) is used to provide defined benefit pensions to employees of employers that are not state or local governmental employers, and (3) has no predominant state or local governmental employer (either individually or collectively with other state or local governmental employers that provide pensions through the pension plan). This proposed Statement would establish requirements for recognition and measurement of pension expense/expenditures and liabilities, note disclosures, and required supplementary information for pensions that have the characteristics described above. Effective Date The requirements of this proposed Statement would be effective for reporting periods beginning after December 15, 2015. Earlier application would be permitted. Unless otherwise specified, pronouncements of the GASB apply to financial reports of all state and local governmental entities, including general purpose governments; public benefit corporations and authorities; public employee retirement systems; and public utilities, hospitals and other healthcare providers, and colleges and universities. Paragraph 3 discusses the applicability of this Statement. iii Proposed Statement of the Governmental Accounting Standards Board Accounting and Financial Reporting for Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans an amendment of GASB Statement No. 68 October 8, 2015 CONTENTS Paragraph Numbers Introduction ....................................................................................................................... 1 Standards of Governmental Accounting and Financial Reporting ............................... 2–9 Scope and Applicability .......................................................................................... 2–4 Recognition and Measurement in Financial Statements Prepared Using the Economic Resources Measurement Focus and Accrual Basis of Accounting .................................................................................... 5 Recognition and Measurement in Financial Statements Prepared Using the Current Financial Resources Measurement Focus and Modified Accrual Basis of Accounting .................................................................................... 6 Notes to Financial Statements ..................................................................................... 7 Required Supplementary Information.....................................................................8–9 Notes to the Required Schedule ............................................................................9 Effective Date and Transition ................................................................................... 10–11 Glossary .......................................................................................................................... 12 Appendix A: Background ....................................................................................... A1–A3 Appendix B: Basis for Conclusions ...................................................................... B1–B11 Appendix C: Codification Instructions .......................................................................... C1 iv Proposed Statement of the Governmental Accounting Standards Board Accounting and Financial Reporting for Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans an amendment of GASB Statement No. 68 October 8, 2015 INTRODUCTION 1. During the implementation of Statement No. 68, Accounting and Financial Reporting for Pensions, an issue arose regarding the ability of state and local governmental employers to obtain necessary information related to pensions1 that are provided through certain multiple-employer defined benefit pension plans. The objective of this Statement is to address that issue. STANDARDS OF GOVERNMENTAL ACCOUNTING AND FINANCIAL REPORTING Scope and Applicability 2. This Statement establishes accounting and financial reporting standards for defined benefit pensions provided to the employees of state or local governmental employers through a cost-sharing multiple-employer defined benefit pension plan (cost-sharing pension plan) that meets the criteria in paragraph 4 of Statement 68 and that (a) is not a state or local governmental pension plan, (b) is used to provide defined benefit pensions to employees of employers that are not state or local governmental employers, and (c) has no predominant state or local governmental employer (either individually or collectively with other state or local governmental employers that provide pensions through the pension plan). 3. The requirements of this Statement apply to the financial statements of state and local governmental employers whose employees are provided with defined benefit pensions through cost-sharing pension plans that have the characteristics described in paragraph 2. The requirements apply whether the government’s financial statements are presented in stand-alone financial reports or are included in the financial reports of another government. 4. 1 This Statement amends Statement 68, paragraphs 4, 5, and 13. Terms defined in the Glossary are shown in boldface type the first time they appear in this Statement. 1 Recognition and Measurement in Financial Statements Prepared Using the Economic Resources Measurement Focus and Accrual Basis of Accounting 5. Pension expense should be recognized equal to the employer’s required contributions to the pension plan for the reporting period. A payable should be recognized equal to the difference at the end of the reporting period between contributions required and contributions made. Recognition and Measurement in Financial Statements Prepared Using the Current Financial Resources Measurement Focus and Modified Accrual Basis of Accounting 6. Pension expenditures should be recognized equal to the employer’s required contributions to the pension plan that are associated with the pay periods within the reporting period. A payable should be recognized to the extent it is normally expected to be liquidated with expendable available financial resources (that is, for the unpaid required contributions that are associated with the pay periods within the reporting period). Notes to Financial Statements 7. For each cost-sharing pension plan that has the characteristics described in paragraph 2 through which the employer provides pensions, the following should be disclosed: a. b. c. d. Name of the pension plan, identification of the entity that administers the pension plan, and identification of the pension plan as a cost-sharing pension plan that has the characteristics described in paragraph 2 Whether the pension plan issues a publicly available financial report and, if so, how to obtain the report A brief description of the benefit terms, including: (1) The number of the government’s employees covered (2) The types of benefits provided (3) The authority under which benefit terms are established or may be amended A brief description of contribution requirements, including: (1) The basis for determining the employer’s contributions to the pension plan (for example, pursuant to a collective-bargaining agreement) (2) Identification of the authority under which contribution requirements of the employer and its employees are established or may be amended (3) The required contribution rates of the employer and its employees for the reporting period (4) The amount, in dollars, of the employer’s required contributions for the reporting period (5) The expiration date(s) of collective-bargaining agreement(s) requiring contributions to the pension plan, if any 2 (6) e. A description of any minimum contributions required for future periods by the collective-bargaining agreement(s), statutory obligations, or other contractual obligations, if applicable (7) Whether the employer is subject to any provisions regarding withdrawal from the pension plan If not otherwise identifiable, the balance of payables, if any, resulting from unpaid contributions to the pension plan. Required Supplementary Information 8. A schedule of the employer’s required contributions for each of the 10 most recent fiscal years should be presented as required supplementary information. The schedule should separately identify amounts associated with each pension plan. Notes to the Required Schedule 9. Information about factors that significantly affect trends in the amounts reported (for example, changes in the size of the population covered by the benefit terms or changes in required contribution rates) should be presented as notes to the schedule required by paragraph 8. EFFECTIVE DATE AND TRANSITION 10. The requirements of this Statement are effective for reporting periods beginning after December 15, 2015. Earlier application is permitted. 11. Accounting changes adopted to conform to the provisions of this Statement should be applied retroactively by restating financial statements, if practical, for all prior periods presented. If restatement for prior periods is not practical, the cumulative effect, if any, of applying this Statement should be reported as a restatement of beginning net position (or fund balance or fund net position, as appropriate) for the earliest period restated. In the first period that this Statement is applied, the notes to the financial statements should disclose the nature of the restatement and its effect. Also, the reason for not restating prior periods presented should be disclosed. The provisions of this Statement need not be applied to immaterial items. 3 GLOSSARY 12. This paragraph contains definitions of certain terms as they are used in this Statement; the terms may have different meanings in other contexts. Cost-sharing multiple-employer defined benefit pension plan (cost-sharing pension plan) A multiple-employer defined benefit pension plan in which the pension obligations to the employees of more than one employer are pooled and pension plan assets can be used to pay the benefits of the employees of any employer that provides pensions through the pension plan. Defined benefit pensions Pensions for which the income or other benefits that the employee will receive at or after separation from employment are defined by the benefit terms. The pensions may be stated as a specified dollar amount or as an amount that is calculated based on one or more factors such as age, years of service, and compensation. Multiple-employer defined benefit pension plan A defined benefit pension plan that is used to provide pensions to the employees of more than one employer. Pension plan An arrangement through which pensions are determined, assets dedicated for pensions are accumulated and managed, and benefits are paid as they come due. Pensions Retirement income and, if provided through a pension plan, postemployment benefits and other retirement income (such as death benefits, life insurance, and disability benefits). Pensions do not include postemployment healthcare benefits and termination benefits. 4 Appendix A BACKGROUND A1. Statement 68, approved in June 2012, establishes accounting and financial reporting requirements for pensions provided to the employees of state or local governmental employers through pension plans that are administered through trusts that meet the criteria in paragraph 4 of that Statement. The requirements of Statement 68 became effective for fiscal years beginning after June 15, 2014. A2. Since the issuance of Statement 68, concerns have been raised by stakeholders regarding the scope and applicability of Statement 68 regarding pensions provided through certain multiple-employer defined benefit pension plans (for example, certain cost-sharing pension plans that are not state or local governmental plans, such as Taft-Hartley plans and plans that have similar characteristics) and to state and local governmental employers whose employees are provided with such pensions. Specifically, stakeholder concerns have focused on the inability of those employers to obtain the measurements and other information needed to comply with the requirements of Statement 68 due to the nature of a governmental employer’s involvement in and relationship with the pension plan. A3. In July 2015, the Board added a project to its current technical agenda to address this issue along with certain other issues raised during the implementation of Statement 68. However, based on additional stakeholder feedback, the Board subsequently concluded that the issue that is addressed in this project should be considered separately from the other issues and on an accelerated timeline so that affected employers potentially would be able to apply the requirements of this Statement to their financial statements in the required initial year of implementation of Statement 68. Therefore, the Board added a separate project to the practice-issues portion of the GASB’s current technical agenda in September 2015 to address the issues related to pensions provided through certain multiple-employer defined benefit pension plans. 5 Appendix B BASIS FOR CONCLUSIONS B1. This appendix discusses factors considered significant by Board members in reaching the conclusions in this Statement. It includes discussion of the alternatives considered and the Board’s reasons for accepting some and rejecting others. Individual Board members may have given greater weight to some factors than to others. Scope and Applicability B2. Based on technical inquiries received and formal requests submitted by stakeholders, the Board believes there are significant challenges associated with obtaining the information needed to comply with Statement 68 in circumstances in which pensions are provided to the employees of state or local governmental employers through certain multiple-employer defined benefit pension plans (as defined by this Statement). In those circumstances, obtaining the measurements and other information required by Statement 68 is not feasible due to the relationship between the employer and the pension plan. That is, the nature of a government’s involvement as an employer in the arrangement prevents coordination with the pension plan. Those types of pension plans generally are not established specifically for the employees of a government, and the governmental employers typically are only a small subset of all employers that provide pensions through the pension plan. Therefore, the Board concluded that (a) the scope and applicability of Statement 68 should be amended to exclude pensions provided through certain multiple-employer defined benefit pension plans and employers whose employees are provided with such pensions and (b) those employers should apply the requirements of this Statement. B3. The Board concluded that the scope of Statement 68 should exclude (and the scope of this Statement should include) defined benefit pensions provided to employees of state or local governmental employers through a cost-sharing defined benefit pension plan that (a) is not a state or local governmental pension plan, (b) is used to provide defined benefit pensions to employees of employers that are not state or local governmental employers, and (c) has no predominant state or local governmental employer (either individually or collectively with other state or local governmental employers that provide pensions through the pension plan). In defining these characteristics, the Board focused on whether it is reasonable to expect an employer to be able to coordinate with the pension plan to obtain information. For example, the Board concluded that this Statement only should apply to employers that provide pensions through multiple-employer pension plans because, in its view, if the state or local government is the only employer in the pension plan, it is reasonable to expect the employer to coordinate with the pension plan to obtain information, regardless of whether the pension plan itself is a state or local government. With respect to the characteristic regarding whether there is a predominant state or local governmental employer, the Board made similar conclusions—if there is a predominant state or local governmental employer, or if state or local governmental employers collectively are predominant, it is reasonable to expect coordination to obtain information due to the level of involvement of state or local governmental employers. 6 Recognition and Measurement B4. As previously discussed, the Board recognizes the practical concerns about obtaining the information required by Statement 68 in the circumstances described in paragraph B3. However, the Board concluded that employers in those circumstances should be required to report information about providing pensions to their employees through those types of pension plans. With respect to pension expense and expenditures, the Board concluded that the requirement in Statement No. 27, Accounting for Pensions by State and Local Governmental Employers, to recognize pension expense and expenditures equal to the amount of required contributions is the only information available to employers that provides some understanding of the transactions related to pensions. With respect to the recognition of a liability, the Board noted that employers in those circumstances are unable to apply the requirements of Statement 68 for recognition of a net pension liability. Therefore, the Board concluded that the only liability to be recognized is a payable resulting from the difference between required contributions and contributions made. B5. The Board also considered whether requirements should be included in this Statement for circumstances in which the employer may have an obligation to the pension plan for a portion of the unfunded liability upon exit from the pension plan (generally referred to as a withdrawal liability). The Board concluded that the requirements for loss contingencies in Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements, would apply. In addition, the Board concluded that a disclosure should be made in the notes to the financial statements with respect to whether the employer is subject to any provisions regarding withdrawal from the pension plan. Notes to Financial Statements B6. The Board evaluated potential note disclosure requirements in the context of the guidance in Concepts Statement No. 3, Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements. Concepts Statement 3 states that “notes to financial statements are integral to financial statements and are essential to a user’s understanding of financial position or inflows and outflows of resources” (paragraph 35). The Board concluded that the notes to financial statements should include basic, descriptive information that is similar to those note disclosures required by Statement 68, including information about required contributions. This information, together with information about collective-bargaining agreements (if any) and the existence of provisions related to withdrawal from the pension plan, is essential to a user’s understanding of amounts required to be reported in the financial statements. Required Supplementary Information B7. This Statement requires presentation of a schedule of the employer’s required contributions for the 10 most recent fiscal years. The Board concluded that this information would provide historical context for the employer’s current-year required contribution. 7 Considerations Related to Benefits and Costs B8. The overall objective of financial reporting by state and local governments is to provide information that assists financial statement users (the citizenry, legislative and oversight bodies, and investors and creditors) in assessing the accountability of governments and in making economic, social, and political decisions. One of the principles guiding the Board’s setting of standards for accounting and financial reporting is the assessment of expected benefits and perceived costs. The Board strives to determine that its standards (including disclosure requirements) address a significant user need and that the costs incurred through the application of its standards, compared with possible alternatives, are justified when compared to the expected overall public benefit. B9. As previously discussed, this Statement addresses a practice issue that prevented governments from reporting their involvement in certain types of arrangements. The Board believes that the expected benefits—greater comparability and consistency, and increased transparency—that will result from the information required by this Statement will not result in significant additional cost, because the Board believes that much of the information necessary to comply with this Statement already is available to governments or would not require extensive effort to obtain. The Board believes that the significance of postemployment benefits as a whole among state and local governments underlines the importance of providing information about these arrangements. Effective Date and Transition B10. The Board concluded that this Statement should be effective as soon as possible in order to address concerns raised by stakeholders in a timely manner and potentially to allow for preparers to apply this Statement concurrently with the required initial year of implementation of Statement 68. Therefore, the Board concluded that this Statement should be effective for reporting periods beginning after December 15, 2015, with earlier application permitted. B11. With respect to transition requirements, the Board concluded that it is appropriate to require retroactive application of the provisions of this Statement, to the extent practical. For the 10-year schedule of required supplementary information, the Board concluded that no additional provisions are needed because the information in the schedule should be available to be presented for the full 10 years in the initial year of implementation. 8 Appendix C CODIFICATION INSTRUCTIONS C1. The section that follows updates the June 30, 2015 Codification of Governmental Accounting and Financial Reporting Standards (Codification) for the effects of the provisions of this Statement. Only the paragraph number of the Statement is listed if the paragraph will be cited in full in the Codification. * * * [Update cross-references throughout.] * * * PENSION ACTIVITIES—REPORTING FOR BENEFITS PROVIDED THROUGH TRUSTS THAT MEET SPECIFIED CRITERIA Sources: SECTION P20 [Add GASBS XX.] .101 [Revise sources as follows:] GASBS 68, ¶4, as amended by GASBS XX, ¶2; GASBS XX, ¶2 [In footnote 1, add GASBS XX, fn1 to sources.] .102 [Revise sources as follows:] GASBS 68, ¶5, as amended by GASBS XX, ¶3; GASBS XX, ¶3 .110 [In last sentence, replace Each with Except as provided in paragraph .111, each.] [GASBS 68, ¶13, as amended by GASBS XX, ¶2] [Insert new paragraph .111 as follows; renumber subsequent paragraphs.] .111 Paragraphs .224–.228 apply to employers whose employees are provided with defined benefit pensions through a cost-sharing pension plan that (a) is not a state or local governmental pension plan, (b) is used to provide defined benefit pensions to employees of employers that are not state or local governmental employers, and (c) has no predominant state or local governmental employer (either individually or collectively with other state or local governmental employers that provide pensions through the pension plan). Each employer that provides pensions through such a plan should apply those requirements rather than the requirements in paragraphs .145–.180, .190–.195, and .220–.222. [GASBS XX, ¶2 and ¶3] [Revise the heading that follows renumbered paragraph .145 as follows:] Cost-Sharing Employers That Do Not Have the Characteristics in Paragraph .111 9 [Revise the heading that precedes renumbered paragraph .173 as follows:] Notes to financial statements—all cost-sharing employers that do not have the characteristics in paragraph .11116 [Revise the heading that precedes renumbered paragraph .180 as follows:] Required supplementary information—all cost-sharing employers that do not have the characteristics in paragraph .11118 [Revise the heading that follows renumbered paragraph .190 as follows:] Cost-Sharing Employers That Do Not Have the Characteristics in Paragraph .111 [Revise the heading that precedes renumbered paragraph .221 as follows:] Payables to a Defined Benefit Pension Plan—All Employers That Do Not Have the Characteristics in Paragraph .111 and Governmental Nonemployer Contributing Entities [Insert new paragraphs .224–.228 as follows; renumber subsequent paragraphs.] .224–.228 [GASBS XX, ¶5–¶9, including headings] [In paragraphs .501, .521, .522, .525, .526, .533, .537, and .539, add GASBS XX, ¶12 to sources.] [In the heading that precedes paragraph .601, replace Cost-Sharing Employers with CostSharing Employers That Do Not Have the Characteristics in Paragraph .111.] .601 [Replace cost-sharing employers with cost-sharing employers that do not have the characteristics in paragraph .111.] [GASBTB 2004-2, ¶1, as amended by GASBS 68, ¶4– ¶6, ¶73, ¶107, and ¶121 and GASBS XX, ¶3] [In current paragraphs .701–.797, revise headings to correspond to headings in paragraphs .101–.240.] 10