September 19, 2012
GASB 68
Accounting and Reporting
for Pensions
an Amendment of
GASB Statement No. 27
Presented by:
Kevin S. Wong, CPA
Gilbert Associates, Inc.
kswong@gilbertcpa.com
1
Background and Overview
Background
• Project initiated in January 2006
• Exposure draft issued June 2011
• Final standard issued June 2012
2
Background and Overview (Continued)
Overview
•
•
Amends GASB 27 Accounting for Pensions by State
and Local Governmental Employers
Amends GASB 50 Pension Disclosures
3
Background and Overview (Continued)
• Implementation date


Fiscal years beginning after June 15 2014 (years ending
June 30, 2015, December 31, 2015)
Deferred one year from implementation dates
published in exposure draft
4
Big Picture – why?
1. Better transparency about pension costs
• No more “kicking the can down the road”
• Changes focus from a “funding” approach to
“earnings” approach
5
Big Picture – why? (Continued)
2. Recognition of the entire net pension liability
3. A more comprehensive measure of pension
expense
4. Pension Actuaries full employment act 
6
Required Calculations
a. Net Pension Liability
b. Pension expense
c. Pension-related deferred outflows of resources and
deferred inflows of resources
• New Accounting Formula!
• GASB Concepts Statement No. 4, GASB 63, GASB 65
• Deferred outflows – positive effect on net position, but not
assets
• Deferred inflows – negative effect on net position, but not
liabilities
• A+DOR-L-DIR=NP
7
What kind of plan is it?
Single employer
• Benefits the employees of only one employer
Agent multiple employer
• Assets are pooled for investment purposes but
legally segregated
8
What kind of plan is it? (Continued)
Cost-sharing, multiple employer
•
•
•
Participating employers pool their pension
obligations
Plan assets can be used to pay any participating
employer’s pension
Most JPA staff participate in CalPERS’ 2.0% or 2.7%
at 55 Miscellaneous pool
9
What kind of plan is it? (Continued)
Calculations of Net Pension Liability, Pension
Expense, and Pension-related Deferred Outflows of
Resources and Deferred Inflows of Resources
i. Single-employer and Agent-employer Plans
•
100% recognition
ii. Cost-sharing multiple employer Plans
•
Recognize their proportionate share
10
What kind of plan is it? (Continued)
Presentation will discuss
•
•
•
What is required for Single and Agent Multiple
Employer Plans
What is required for Cost-Sharing, Multiple
Employer Plans
How to prepare for the change
11
Required Calculations–Net Pension Liability
•
•
•
Total Pension Liability – Plan Net Position
= Net Pension Liability
Determined as of no earlier than sponsoring
entity’s prior fiscal year end (“measurement
date”)
Approach based on a “benefits-earned” rather
than a “funding-due” perspective
12
Determining Total Pension Liability
(TPL-PNP=NPL)
Definition
• The portion of the actuarial present value of
projected benefit payments that is attributed to
past periods of employee service (what has been
“earned”)
13
Determining Total Pension Liability
(TPL-PNP=NPL) (Continued)
Projecting future benefit payments
i. Timing and frequency
1. Actuarial valuation as of the measurement date, or
2. Update procedures from a prior actuarial valuation
a. Valuation no more than 30 months and one day earlier
3. Actuarial valuation at least biennially
14
Determining Total Pension Liability
(TPL-PNP=NPL) (Continued)
ii. Shall include
1.
2.
3.
4.
All benefit terms and automatic changes
Effects of projected salary increases
Service credits
COLAs, etc. (automatic and ad hoc)
15
Determining Total Pension Liability
(TPL-PNP=NPL) (Continued)
Discounting projected future benefit payments to
present value
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Determining Total Pension Liability
(TPL-PNP=NPL) (Continued)
Discount rate is the single composite rate of:
• Long-term expected rate of return on pension plan
investments
• To the extent plan investments are projected to be
sufficient to make benefit payments
• Index rate for a 20-year, tax-exempt general
obligation muni bond rated AA/Aa or higher to the
extent #1 is insufficient
17
Determining Total Pension Liability
(TPL-PNP=NPL) (Continued)
Attributing present value of projected benefit
payments to past and future periods
•
“Entry age actuarial cost method” should be used
18
Determining Total Pension Liability
(TPL-PNP=NPL) (Continued)
Recap – Total Pension Liability
1.
2.
3.
4.
Project future benefits
Discount to present value
Attribute present value to past and future periods
TPL = liability for benefits earned in past periods
19
Determining Plan Net Position
(TPL-PNP=NPL)
• Measured at the measurement date
• Same valuation methods used by the Plan
20
Determining Net Pension Liability
(TPL-PNP=NPL)
Total Pension Liability
–
Plan Net Position
= Net Pension Liability
21
Pension Expense
•
•
Changes in Net Pension Liability
Incremental recognition over closed periods:
 Differences between expected and actual
• Economic or demographic factors
• Investment earnings
 Changes in assumptions
22
Pension-related deferred outflows of
resources and deferred inflows of
resources
•
•
Unrecognized items not yet charged to pension
expense
Contributions from the employer after
measurement date but before reporting period
23
Note Disclosures
1. Description of the pension plan
• Name of the plan, PERS or entity that administers,
type of plan
• Descriptions of benefits and authority under which
benefit provisions are established or may be
amended
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Note Disclosures (Continued)
• Classes and number of employees in the following
groups



Inactive employees or beneficiaries currently receiving
benefits
Inactive employees entitled to, but not yet receiving,
benefits
Active employees
• Contribution requirements
• Whether the plan issues a stand-alone financial report
and how to obtain it
25
Note Disclosures (Continued)
2. Assumptions used to measure total pension
liability
• Detailed disclosures about the discount rate
26
Note Disclosures (Continued)
3. The pension Plan’s fiduciary net position
• Can refer to Plan’s report
• Plan’s basis of accounting
4. Brief description of change in benefit terms
and assumptions that affect measurement of
the total pension liability since prior
measurement date
27
Note Disclosures (Continued)
5. Measurement date, date of the actuarial
valuation on which the recognized information
is based and whether based on the use of
update procedures to roll forward
measurements
•
•
Nature of any significant changes impacting net
pension liability after measurement date
Amount of pension expense recognized in the
period
28
Note Disclosures (Continued)
6. Employer’s policy for determining actual
contributions to the plan
7. If not separately disclosed in the financial
statements, disclose aggregate:
a.
b.
c.
d.
Net pension liabilities
Deferred pension outflows of resources
Deferred pension inflows of resources
Pension expense for the period
29
Note Disclosures (Continued)
•
•
Components of deferred pension inflows and outflows,
with up to five elements of applicable categories
Schedule of anticipated recognition of pension expense
of deferred outflows/inflows for the next five years.
30
Note Disclosures (Continued)
Additional disclosures for each Single-Employer or
Agent Multiple-Employer Plan
• Detail of changes in a schedule of changes in net
pension liability
•
Broken out by TPL, PNP, and NPL – 12 elements
31
Note Disclosures (Continued)
Additional disclosures for Cost-Sharing MultipleEmployer Plans
• The employer’s proportion (amount and
percentage) of the collective net pension liability,
the basis on which its proportion was determined,
and the change in its proportionate share since the
prior measurement date.
32
Note Disclosures (Continued)
Additional disclosures for Cost-Sharing MultipleEmployer Plans (Continued)
• The amounts of the net pension liability, deferred
pension outflows and inflows, and pension expense
recognized in the financial statements for each
cost-sharing plan
33
Required Supplementary Information
a. Ten-year schedule of changes in net pension
liability (single-employer or agent multipleemployer plan only)
b. Ten-year schedule of components of net pension
liability and covered payroll
c. Ten-year schedule of related contributions
34
Required Supplementary Information
(Continued)
d. Notes to required schedules
i. Information about factors that significantly affect
the identification of trends in the amounts reported
ii. Significant methods and assumptions used in
determining actuarially calculated employer
contributions
35
Considerations for Cost-Sharing
multiple- employer plans
Recognition of proportionate share of collective net
pension liability, collective pension expense,
collective deferred inflows and outflows of resources
related to pensions
36
Considerations for Cost-Sharing
multiple- employer plans (Continued)
Proportion is calculated based on the employer’s
projected long-term contributions effort as
compared to the total of all projected contributions
of the employers
37
Considerations for Cost-Sharing
multiple-employer plans (Continued)
Calculation of Collective Net Pension Liability
• Collective Net Pension Liability = Collective Total
Pension Liability – Plan Net Position
38
Considerations for Cost-Sharing
multiple- employer plans (Continued)
Collective deferred outflows and inflows of resources
related to pensions and collective pension expense
• Changes in collective net pension liability should be
included in measures of collective deferred outflows
and inflows of resources related to pension under the
same guidelines as single-employer and agent plans
• Changes in plan net position should be included in
measures of collective deferred outflows and inflows
of resources related to pension under the same
guidelines as single-employer and agent plans
39
Considerations for Cost-Sharing
multiple- employer plans (Continued)
Accounting for a change in proportion
• Recognized in pension expense over a closed period
40
Effective date and transition
• Effective for financial statement periods beginning
after June 15, 2014
• Earlier application is encouraged 
41
What Should I Do Now???
•
•
•
•
Know the overview of changes
Familiarize yourself with your plan
Enlist the help of CalPERS
Begin educating stakeholders
(Management, Board, Pool Members)
42
Questions?
Can you hear
me now?
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