GASB Pension Standards Update Pat Robertson Executive Director September 2014 A Look at PERS of MS • Mississippi’s only state-sponsored retirement system • Governmental defined benefit plan qualified under Section 401(a) of the Internal Revenue Code • Established by state Legislature in 1952 to provide benefits to eligible Mississippi public employees working for state agencies, universities, community colleges, and public schools, as well as counties, cities, and other participating political subdivisions. 2 A Look at PERS of MS • Plans Include: – – – – – Public Employees’ Retirement System Mississippi Highway Safety Patrol Retirement System Municipal Retirement Systems – 19 Systems Supplemental Legislative Retirement Mississippi Government Employees’ Deferred Compensation Plan & Trust • Current Statistics – June 30, 2014: – – – – 886 employers 291,073 members 97,044 retirees $25.3 billion in assets • Annual Payroll – $2.03 billion 3 GASB Accounting Standards • GASB Statement No. 67, Financial Reporting for Pension Plans, amends Statement 25 – Effective for fiscal years beginning after June 15, 2013 • GASB Statement No. 68, Accounting and Financial Reporting for Pensions, amends Statement 27 for employers – Effective for fiscal years beginning after June 15, 2014 • GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date, clarifies Statement 68 – Apply simultaneously with Statement 68 • Statements and Implementation Guides available at www.gasb.org 4 Key Concepts • Pensions are part of the exchange between employees and employers – Promised benefits are part of the total compensation package for employees – The employer is obligated to provide benefits as a result of the employment exchange – The cost should be recognized in the current service period • The plan is responsible for assets • The employer is responsible for benefit promises beyond those covered by assets 5 GASB’s Defined Benefit Plan Categories • Single-employer DB plan – Provides pensions to employees of one employer • Agent multiple-employer DB pension plan – Provides pensions to employees of more than one plan – Assets are pooled but separate accounts are maintained – Employer’s share of assets legally available for its own employees • Cost-sharing multiple-employer DB pension plan – Provides pensions to employees of more than one employer – Employers pool obligations – Assets used for benefits of any employee 6 Total Pension Liability • Determined using Entry Age normal cost method • Use single discount rate if contributions and assets not sufficient to pay projected benefits – Long-term expected rate – Use to extent projected plan fiduciary net assets are sufficient to pay future benefits – Municipal bond index rate – Use for portion of future benefits not covered by projected fiduciary net assets – If both rates used, combine to form a blended single discount rate 7 Plan Fiduciary Net Position • Assets held by the plan including contributions and investment assets • FNP is the responsibility of the plan administrator 8 Net Pension Liability TPL – FNP = NPL 9 Pension Expense • Recognition of changes to NPL applicable to the current reporting period: – – – – – – Service cost – Increases PE Interest on the TPL – Increases PE Projected investment earnings – Decreases PE Member contributions – Decreases PE Administrative costs – Increases PE Changes in benefit terms affecting TPL – Increases or decreases PE – Current portion of deferred outflows/inflows of resources – Increases or decreases PE 10 Deferred Outflows/Inflows of Resources • Recognized over average expected remaining service lives of actives and inactives: – Actual versus expected demographic factors – actuarial experience – Changes in assumptions – For cost-sharing employers: » Actual versus proportionate share of contributions – Not necessary when actual contributions are used as the basis for proportional share » Change in employer proportion from one measurement period to the next • Recognized over a closed 5-year period » Actual versus projected investment earnings • Layers must be tracked 11 Example: Schedule of Plan Pension Amounts by Employer 12 Transition Planning • Collective amounts to be provided by the plan – – – – – Total pension liability Fiduciary net position Net pension liability Pension expense Deferred outflows/inflows of resources • Employer’s proportionate share – Basis for determination • Method of communicating with employers 13 GASB Proportionate Share Cost-Sharing System Example Employer City of Clayborne Contributions Proportionate Share $1,227,329,600 32.9051% Cedar Medical Center 446,524,900 11.9715% City of Smithville 408,734,200 10.9583% Johnson County 376,868,300 10.1039% City of Woodville 251,127,000 6.7328% State University 234,263,200 6.2807% Lincoln County Schools 226,256,200 6.0660% Estes Public Schools 208,201,900 5.5819% Washington County 199,048,800 5.3365% Best Community College 151,557,800 4.0633% Total Plan $3,729,911,900 14 Example Schedule of Collective Pension Amounts 15 Employer Developed Schedules Example Cost-Sharing Pension Plan Schedule of Pension Amounts for an Employer As of June 30, 2015 Pension Deferred Outflows of Resources - Current Year Deferred Inflows of Resources - Current Year Changes in Employer Total Plan City of Clayborne Changes in Net Difference Proportion Net Difference Proportion Between and Differences Between and Differences Difference Projected Between Expense - CY Total Difference Projected ER Contributions Deferred Net Expected Investment Changes and Proportionate Outflows Pension and Actual Earnings on Liability Experience InvestmentsAssumptions Contributions Resources $1,206,453 $4,315,618 $3,860,253 - $9,382,324 $978,435 - - - $978,435 $5,243,245 - 2,497,338 262,881 - - - 262,881 1,194,448 $124,325,432 40,909,408 324,143 1,136,045 1,037,150 Share of ER of and Actual Total Between and Actual of Between Between Expected Investment and Actual Earnings on ER Contributions Deferred Changes and Proportionate Inflows of Share of ER of Experience Investments Assumptions Contributions Resources Pension Expense 16 Employer Developed Schedules - Deferred Outflows Fiscal Year Ended: 6/30/2015 Employer: City of Clayborne Current Year Proportionate Share: Average Remaining Service Life: 32.9051% (PERS will provide) 5.45 years (PERS will provide) Differences Between Expected and Actual Experience Total Employer Plan Proportionate Total Deferred Outflows Amount Share Diff Expected Vs Actual $1,206,453 32.9051% Diff Proj vs Act Inv. 4,315,618 32.9051% Changes in Assumptions 3,860,253 32.9051% Amortized Amounts: Diff Expected Vs Actual Diff Proj vs Act Inv. Changes in Assumptions Total 2015 72,841 284,012 233,068 589,921 Summary of Deferred Outflows: Diff Expected Vs Actual Diff Proj vs Act Inv. Changes in Assumptions Deferred Additional Expense: Diff Expected Vs Actual Diff Proj vs Act Inv. Changes in Assumptions Expensed 72,841 284,012 233,068 589,921 Total Amortized Employer Amort. Annual Amount Period Amount $396,984 5.45 $72,841 1,420,057 5.00 284,011 1,270,218 5.45 233,068 2016 72,841 284,012 233,068 589,921 2017 72,841 284,011 233,068 589,920 2018 72,841 284,011 233,068 589,920 2019 72,841 284,011 233,068 589,920 72,841 284,012 233,068 589,921 72,841 284,011 233,068 589,920 72,841 284,011 233,068 589,920 72,841 284,011 233,068 589,920 - 0 0 0 2020 32,779 2022 2023 0 0 0 Total 396,984 1,420,057 1,270,218 0 3,087,259 0 324,143 1,136,045 1,037,150 0 2,497,338 104,878 137,657 2024 32,779 104,878 137,657 0 2021 0 0 0 0 0 0 72,841 284,012 233,068 0 589,921 3,087,259 17 Employer Developed Schedules Example Cost-Sharing Pension Plan Schedule of Pension Amounts for an Employer As of June 30, 2015 Deferred Outflows of Resources - Current Year Employer Total Plan City of Clayborne Net Pension Liability $124,325,432 40,909,408 Changes in Net Difference Proportion Between and Differences Difference Projected Between Total Between and Actual ER Contributions Deferred Expected Investment Changes and Proportionate Outflows and Actual Earnings on of Share of ER of Experience InvestmentsAssumptions Contributions Resources $1,206,453 $4,315,618 $3,860,253 324,143 1,136,045 1,037,150 Deferred Inflows of Resources - Current Year Changes in Net Difference Proportion Between and Differences Difference Projected Between Total Between and Actual ER Contributions Deferred Expected Investment Changes and Proportionate Inflows and Actual Earnings on of Share of ER of Experience Investments Assumptions Contributions Resources Pension Expense - CY Pension Expense - $9,382,324 $978,435 - - - $978,435 $5,243,245 - 2,497,338 262,881 - - - 262,881 1,194,448 18 Employer Developed Schedules - Deferred Inflows Fiscal Year Ended: 6/30/2015 Employer: City of Clayborne Current Year Proportionate Share: Average Remaining Service Life: 32.9051% (PERS will provide) 5.45 years (PERS will provide) Differences Between Expected and Actual Experience Total Deferred Inflows Diff Expected Vs Actual Amortized Amounts: Diff Expected Vs Actual Total Proportionate Employer Amort. Annual Amount Share Share Period Amount $978,435 32.9051% $321,955 5.45 $59,074 2015 59,074 Summary of Deferred Inflows: Expensed 59,074 Deferred 2016 59,074 59,074 2017 59,074 59,074 2018 59,074 59,074 2019 59,074 59,074 2020 26,585 26,585 2021 0 2022 0 2023 0 2024 Total 321,955 59,074 0 262,881 321,955 19 Employer Developed Schedules – Pension Expense Fiscal Year Ended: Employer: 6/30/2015 City of Clayborne Current Year Pension Expense Reported at the Plan Level Total Plan Year 2015 Pension Expense $5,243,245 Employer Proportionate Share 32.9051% Employer Share of Expense $1,725,295 Summary Calculation of Total Employer Pension Expense: Year 2015 Employer Proportionate Expense From Expense From Deferred Deferred Share of Total Outflows Inflows Current Year Employer Recognized Recognized $59,074 Pension Expense $1,725,295 <$589,921> Pension Expense $1,194,448 20 Employer Developed Schedules Example Cost-Sharing Pension Plan Schedule of Pension Amounts for an Employer As of June 30, 2015 Deferred Outflows of Resources - Current Year Employer Total Plan City of Clayborne Net Pension Liability $124,325,432 40,909,408 Changes in Net Difference Proportion Between and Differences Difference Projected Between Total Between and Actual ER Contributions Deferred Expected Investment Changes and Proportionate Outflows and Actual Earnings on of Share of ER of Experience InvestmentsAssumptions Contributions Resources $1,206,453 $4,315,618 $3,860,253 324,143 1,136,045 1,037,150 Deferred Inflows of Resources - Current Year Changes in Net Difference Proportion Between and Differences Difference Projected Between Total Between and Actual ER Contributions Deferred Expected Investment Changes and Proportionate Inflows and Actual Earnings on of Share of ER of Experience Investments Assumptions Contributions Resources Pension Expense - CY Pension Expense - $9,382,324 $978,435 - - - $978,435 $5,243,245 - 2,497,338 262,881 - - - 262,881 1,194,448 21 Timing and Frequency of Measurements • Reporting date – plan’s fiscal year-end • Measurement date – date as of which TPL, FNP and NPL are determined • Actuarial valuation date – date as of which TPL is determined and date of the actuarial valuation – Should be performed at least biennially 22 Timing and Frequency of Measurements • If valuation date is before the reporting date, TPL is rolled forward to the reporting date – Valuation can be no older than 30 months and 1 day from the employer’s fiscal year-end – Update procedures are used to roll forward to the measurement date – Use professional judgment to determine extent of procedures 23 Example of Roll Forward of Total Pension Liability Actuarial valuation date 6/30/2013 Roll forward TPL to 6/30/2014 measurement date: TPL 6/30/2013 $110,000 Plus service cost 5,200 Plus interest 7,900 Minus benefit payments (8,500) TPL 6/30/2014 $114,600 TPL minus the market value of assets at the measurement date (6/30/2014) is the NPL 24 Special Funding Situations • Non-employer is legally responsible for making contributions directly to the plan for employees of another entity and either of the following: – Contributions from the non-employer are not dependent on circumstances or events which are unrelated to pensions – The non-employer is the only entity with a legal obligation to make contributions • Does not include circumstances in which resources are provided to the employer 25 Auditing Considerations • Three Whitepapers were issued by the AICPA related to GASB 67 and 68 cost-sharing and single plans and participating employers – 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 – Governmental Employer Participation in Agent MultipleEmployer Plans: Issues Related to Information for Employer Reporting 26 Auditing Considerations Cost-Sharing Multiple-Employer Plans Testing of Underlying Census Data • Risk-based approach by plan auditor to select employers to test • Employer auditor may perform procedures under examination engagement in accordance with AT (Attest) section 101 • Absence of effective management procedures and controls by plan to verify census data is considered a control deficiency and will impact level of auditor testing 27 Auditing Considerations Cost-Sharing Multiple-Employer Plans and Participants • Three interpretations to AU-C Sections have been issued by the AICPA – AU-C 500: Audit Evidence – AU-C 600: Audits of Group Financial Statements (Including the Work of Component Auditors) – AU-805: Special Considerations-Audits of Single Financial Statements and Specific Elements, Accounts, or Items of a Financial Statement 28 Auditing Considerations Cost-Sharing Multiple-Employer Plans AICPA Recommendations • Plan prepares “schedule of plan pension amounts by employer” for which plan auditor engaged to provide opinion – Supplemental schedule of plan pension amounts by employer includes net pension liability, deferred outflows/inflows of resources, and pension expense for each employer – Alternative to include a “schedule of collective pension amounts” for the plan as a whole – Plan auditor needs to consider the appropriateness of the materiality used in the audit of plan financial statements • Employer auditor issues opinion on total of each of the four elements in accordance with AU-C 805 29 Auditing Considerations Agent Multiple-Employer Plans • Two Whitepapers – Governmental Employer Participation in Agent MultipleEmployer Plans: Issues Related to Information for Employer Reporting – Issued – Agent Multiple-Employer Plans: Issues Associated with Testing Census Data in an Audit of Plan Financial Statements » Issues and potential recommendations are more complex » Not yet available – Four Audit Interpretations » Not yet available 30 Issues Considered • We are currently working to resolve census data testing challenges – Working with the Mississippi State Audit Department, our independent accounting firm, our actuaries and the state as an employer – Issues of timing and meeting our CAFR release deadline • Use of a roll forward from a prior period in financial reporting. • Note disclosure for the plan under GASB 67 and the employers under GASB 27 31 Other Issues Considered • Excluding small immaterial pension plans from the plan and employer’s financial reports • Inquiries about allocating NPL to departmental financial statements • AICPA white paper regarding agent multiple-employer plans 32 Transition • Communications essential to successful implementation • MS PERS transition efforts – – – – Employer eUpdate Mississippi Implementation Work Group Pension Standards Implementation Work Group Communications with Users • Challenges for employers and public pension plans are many and time is here 33 GASB 67 Note Disclosure All Plans Plan Description Plan Investments Name, type, board, members Investment policy authority Classes covered, authority Allocation requirements, greater than 5% Benefits, contributions, DROP Money weighted ROR 34 GASB 67 Note Disclosure Single and Cost-Sharing Plans NPL Components Total pension liability Significant Assumptions Discount rate Fiduciary net position LT expected ROR overall and by asset class Net pension liability Sensitivity measures on discount rate + and – 1% 35 GASB 67 Required Supplementary Information (RSI) 10 Yr NPL & Change In NPL Beginning & ending TPL, NPL Actuarial Required Contributions 10 Yrs Required contributions Effects of underlying parts Actual contributions Revenue & expenses Difference, % of total payroll 36 GASB 68 Note Disclosure Single and Agent Plans Plan Description Name, type, terms, admin. Assumptions All NPL assumptions Classes covered, benefits, authority LT expected ROR overall and by investment class No. participants and contributions Sensitivity measure for discount rate + and – 1% 37 GASB 68 Note Disclosure Single and Agent Employers Change in NPL Beginning & ending TPL, NPL Other Information Measurement date of NPL, changes from measurement date to reporting date Interest on TPL, difference in expected & actual Makeup of deferred outflows/ inflows of resources Contributions, benefits 5 year expected changes in deferred outflows/inflows 38 GASB 68 RSI Single and Agent Plans 10 Yr. NPL & Change In NPL Beginning & ending TPL, NPL 10 Yr. Schedules of: Actuarial contributions, required & actual Interest on TPL, difference in expected & actual Difference in above Contributions, benefits Actual contributions as % of covered payroll 39 Questions? 40