James Marta CPA, CGMA, ARPM
Ken Hearnsberger, Finance Manager NBSIA
Matt Nethaway, CPA
1






Government funds 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
2
Unfunded Actuarial Liability (UAL) is moved from
the footnote to the Statement of Net Financial
Position
3



Total Pension Liability
- Plan Net Position
= Net Pension Liability
4
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
◦ Discussion of assumptions
5
The Cash funding requirement is no longer the expense
6
7
Changes in Net Pension Liability
Description
Beginning balance - Balance 6/30/14
Source
Actuarial Valuation
Changes for Year:
Service cost
Interest
Differences between expected and actual experience
Contributions - Employer
Contributions - Employee
Net Investment Income
Benefit Payments, including refunds of contributions
Administrative expenses
Other Changes
Actuary
Accretion (calculated) or actuary
Compare orig est to revised from actuary
Employer
Employer
PERS/STRS
PERS/STRS
PERS/STRS
PERS/STRS
Net changes
Ending Balance - Balance 6/30/15
Pension
Liability
$ 1,300,000
495,000
178,750
6,551
(194,926)
(170,560)
(97,500)
(136,551)
-
$
80,764
1,380,764
Post adjustment to
Change in accounting principle (year 1) future should agree to prior year
Deferred inflow
Deferred inflow
Deferred inflow
Deferred outflow
Deferred outflow
Deferred outflow
Deferred outflow
pension expense
pension expense
pension expense
pension expense
pension expense
pension expense
pension expense
Deferred inflow
pension expense
This is the adjusted balance but the books are not adjusted
the books only show the actuary value amount and the deferred
outflows and inflows that all netting to this balance.
8

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
9


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)
10

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 assets 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 liabilities as of the Measurement Date
◦ Ex. Investment gains that have not yet been recognized
in the annual expense
11
Proforma Statement of Net Position
GASB68 Implementation
Assets
Current Assets
Investments
FY2014
18,165,620
41,600,438
FY2015
18,595,017
43,318,025
Capital Assets
5,368,517
5,533,301
65,134,575
67,446,343
Total Assets
Deferred Outflows of Resources
Liabilities
Current Liabilities
Net Pension Liability
Total Liabilities
Deferred inflows of resources
Deferred Infows related to pension
Net Position
Invested in Capital Assets
Unrestricted
Total Net Position
Total Liabilities and Net Position
-
-
6,505,602
6,670,386
1,300,000
6,505,602
7,970,386
-
80,764
5,368,517
53,260,456
5,533,301
53,861,892
58,628,973
59,395,193
65,134,575
67,446,343
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Proforma Statement of Revenues and Expenditures
GASB68 Implementation
Operating Revenues
$
Operating Expenses
Provision for claims
Salaries and benefits
Other Operating Expense
Pension liability adjustment expense
Depreciation
FY2014
28,612,075
$
20,651,881
2,882,759
6,420,211
FY2015
29,604,070
221,046
18,861,602
3,164,382
6,225,861
80,764
139,197
30,175,897
(1,563,822)
28,471,806
1,132,264
643,742
(924,202)
-
626,750
307,207
(280,460)
933,956
Change in net position
(1,844,282)
2,066,220
Net position beginning of year
Prior period adjustment of pension liability
Restated Net Position at beginning of year
Net position end of year
60,473,255
58,628,973
(1,300,000)
57,328,973
59,395,193
Total Operating Expenses
Operating Income (loss)
Non-operating revenue (expense)
Investment Income
Net change in fair value of investments
Total non-operating revenues (expenses)
$
60,473,255
58,628,973
$
13
14


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
15

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
WC
Current year salary and wage allocation
times number of years for each programs
creates weighting
Proportionate share
Allocation of liability
$
Liab
65%
35
35.65
80%
1,043,806 $
35%
25
8.75
20%
256,194 $
44.40
100%
1,300,000
16

Single-employer plans/single employer
Provide benefits to the employees of only one employer.

Agent multiple-employer plans/agent employer

Cost-sharing multiple-employer plans/cost-sharing
employer

Example: City of Anytown creates a pension system just for its
employees
◦ Provide benefits to more than one employer by pooling assets for
investment purposes, but legally segregating the assets to pay
benefits promised by individual employers. Essentially an agent plan
is a collection of single-employer plans.
◦ 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.
17
18


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.
19
20
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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
21
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)

An employer should recognize its
proportionate share of the collective net
pension liability, pension expense, and
deferred inflows/outflows of a cost-sharing
plan
22

Basis for proportion should be consistent
with manner in which required contributions
are determined
As a practical matter, it is anticipated the calculation of
proportion will be performed based on either required
contributions or covered payroll
23
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
24

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.”
25

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
26
Issues
Information for Employer
Reporting
Census Data
AICPA White Papers
• Government 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
• Substantially finalized
27
Information for Employer Reporting
• 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
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Report
• Complete and accurate data to plan
• Appropriateness of information used to record financial statement
amounts
Evaluate
• Whether plan auditor’s report on schedules are adequate and appropriate
for employer purposes
• Amounts in schedules specific to employer
Verify and
recalculate
•
Employer amount used in allocation percentage (numerator)
•
Recalculate allocation percentage of employer
•
Recalculate allocation of pension amounts based on allocation
percentage of employer
29
Report
•
Sufficiency and appropriateness of audit evidence
•
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
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
Evaluate
•
Verify and
recalculate
•
Census data submitted to plan
Test
30
Testing Underlying Census Data for Active Employees
• Responsibility of the Plan auditor to test census data
• Employer auditor may perform agreed-upon procedures over census
data for purposes of the Plan audit
• Census data tested should coincide with the data used in the
preparation of the actuarial report (measurement date)
31
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
32