Implementing the New GASB
Pension Standards
Diana Komarek, Chief Financial Officer - KPERS
Jeff Markert, Partner – KPMG LLP
Julie Barrientos, Senior Manager – KPMG LLP
August 25, 2014
Agenda
 Summary
of Provisions of New GASB Pension Standards
 Transition
Provisions
 Impact
 Special
 Note
of Measurement Date
Funding Situations
Disclosures and Required Supplementary Information
 Implementation
 Coordination
Issues and Solutions
of Census Data Procedures
 Wrap-up
1
Summary of Provisions
of New GASB Pension
Standards
What are the new GASB Pension Standards?
Governmental Accounting Standards Board Statement No. 67, Financial Reporting
for Pension Plans
 Provides accounting and financial reporting guidance for pension plans
 Applicable to pension plans for periods beginning after June 15, 2013
 Governmental Accounting Standards Board Statement No. 68, Accounting and
Financial Reporting for Pensions
 Provides accounting and financial reporting guidance for employers participating
in pension plans falling under the guidance of GASB 67
 Applicable to periods beginning after June 15, 2014

3
Classification of Defined Benefit Pension Plans
Classification based on the number of employers and whether pension obligations
and assets are shared
 KPERS is a cost-sharing multiple-employer defined benefit pension plan
 Provides pensions to employees of more than one employer
 Employers pool or share assets and obligations to provide defined pension
benefits

4
Pension Amounts
KPERS employers will recognize their proportionate share of the collective
pension amounts as of a measurement date no earlier than the end of the
employers prior fiscal year
 Net pension liability
 Pension expense
 Pension deferred outflows of resources and deferred inflows of resources
 Net pension liability (asset) equals the total pension liability for the pension plan,
less the fiduciary net position:
 Total pension liability is the actuarial present value of projected benefit payments
attributed to past employee service
 Fiduciary net position is determined using same valuation methods as used for
plan’s GAAP financial reporting

Total Pension
Liability
Less: Fiduciary Net
Position
Net Pension Liability
5
Timing and Frequency of Measurement of Total Pension
Liability
The measurement date used should be consistently applied from
period to period
Measurement of the total pension liability is determined through:
An actuarial valuation performed as of the measurement date, or
 The use of update procedures to roll forward amounts from an actuarial valuation
as of a date no more than 30 months and 1 day earlier than the employer’s yearend
 Use professional judgment in determining extent of update procedures when
changes in plan occur between last valuation date and the measurement date
• Consider whether new actuarial valuation is needed

Actuarial valuation of total pension liability should be performed at
least biennially

More frequent actuarial valuations are encouraged
Measurement date will correspond to year-end of KPERS. In this case, employers with same
year-end as KPERS must choose measurement date as of their prior or current year-end.
6
Pension Expense
Changes
in net pension liability will be immediately
recognized as pension expense or reported as deferred
outflows/inflows of resources depending on nature of
change
Approach results in reporting of pension liability and
expense as employees earn their pension benefits by
providing services instead of being based on funding
requirements
No significant changes to accounting for pensions in
governmental funds
7
Changes in Net Pension Liability Immediately Recognized
as Pension Expense
Changes in the Total
Pension Liability
Changes in Plan’s
Fiduciary Net Position
Current period service cost
Projected earnings on plan
investments
Interest on the beginning total pension
liability
Changes in plan fiduciary net position
other than employer contributions and
benefit payments (e.g., employee
contributions, admin costs)
Impact of changes in benefit terms
Conceptually, the effect of employer contributions made directly by the
employer should not be recognized as expense.
8
Changes in Net Pension Liability Resulting in Deferred
Outflows/Inflows of Resources
Changes in the Total Pension
Liability
Changes in Plan’s
Fiduciary Net Position
Effects of actuarial differences and
changes in assumptions related to
economic or demographic factors
attributable to active and inactive
employees, including retirees
Differences between actual and
projected earnings on plan
investments
Recognize as deferred inflow/outflow
and amortize over a closed period equal
to the average of the expected
remaining service lives of all employees
(active, inactive, and retirees)
Recognize as deferred inflow/outflow
and amortize over a closed five-year
period—report amounts from multiple
years, net
Employer contributions made directly by the employer subsequent to the measurement date
of the net pension liability and before the end of the employer’s fiscal year should be
recognized as a deferred outflow of resources.
9
Deferred Outflows and Inflows of Resources
 Differences
between expected and actual experience with
economic and demographic factors:
 Mortality
 Payroll increases
 Retirements
 Employee turnover
 Effect
of changes in assumptions about future economic and
demographic factors:
 Discount rate
 Mortality (tables)
 Future payroll increases
 Future inflation rate
 Retirements
 Employee turnover
 Differences
between actual and projected earnings on plan
investments
10
Recognition (Amortization) of Deferred Outflows and
Inflows in Pension Expense
 Recognition
(amortization) of deferrals attributable to changes in total
pension liability should be based on “systematic and rational” method over
a closed period equal to the average of the expected service lives of all
employees that are provided pensions through the pension plan (active
and inactive employees) service beginning with the year in which the
difference occurred
 Results in the creation of “layers,” which are amortized over closed
period
 The number of “layers” established for each year is based on whether
deferrals are equally attributable to all plan participants
 Recognition (amortization) of deferrals attributable to differences between
projected and actual earnings on plan investments should be based on a
“systematic and rational” method over five years beginning with the year in
which the difference occurred
11
Deferred Outflows and Inflows Disclosure
At June 30, 20X9, the District reported the following deferred outflows of resources and deferred inflows of resources related to pensions:
Deferred
Deferred
Outflows of Inflows of
Resources
Resources
Differences between expected and actual experience
$
Changes of assumptions
Net differences between projected and actual earnings
on plan investments
Change in proportion and the effect of certain employer
contributions on the employer's net pension liability
Employer contributions made subsequent to the
measurement date
Total
$
2,657
142
1,714
130
0
5,684
596
105
1,007
0
5,975
6,061
Deferred outflows and deferred inflows of resources related to pensions generally should not be netted.
12
Actuarial Information
 Substantial
changes to methods and assumptions used to
determine actuarial information for GAAP reporting purposes:
 Entry Age Normal is the only allowable actuarial cost method
 Projected benefit payments should include effects of ad-hoc COLAs considered
substantially automatic
 A single blended rate should be used to discount projected future benefit payments, based
on:
•
The long-term expected rate of return on plan investments (net of investment expenses)
that are expected to be used to finance the payment of pension benefits to the extent
that the plan’s fiduciary net position is projected to be sufficient to make projected benefit
payments and is expected to be invested, using a strategy to achieve that return; and
•
A yield or index rate for 20-year, tax-exempt general obligation (municipal) bonds with
average rating of AA or higher, to the extent that the conditions above are not met
 The actuarial methods and assumptions allowable under current standards may continue
to be used to determine funding amounts
 Note
disclosures and required supplementary information
related to pensions are expanded
13
Discounting Future Benefit Payments to Present Value –
Example Single Discount Rate Calculation (continued)
Projected Benefit Payments
Year
Beginning
Projected
Plan Net
Position
Projected
Benefit Payments
Funded
Portion of
Benefit
Payments
(a)
1
2
3
4
(b)
1,431,956
1,500,197
1,565,686
1,628,547
(c)
109,951
116,500
123,749
131,690
(d)
109,951
116,500
123,749
131,690
26
27
28
29
30
547,880
316,985
64,800
0
0
322,779
326,326
328,997
330,678
331,266
322,779
95
0
1
Total
Present Value of Projected Benefit Payments
Unfunded
Portion of
Benefit
Payments
Present Value
of Funded
Benefit
Payments
Present Value
of Unfunded
Benefit
Payments
Present Value of
Benefit Payments
Using Single
Discount Rate
(e)
(f) = (d) / (1+7.5%)(a)
(g) = (e) / (1+4%)(a)
(h) = (c) / (1+5.29%)(a)
104,427
105,088
106,019
107,154
102,280
100,811
99,613
98,610
49,236
326,326
328,997
330,678
331,266
113,175
109,713
106,032
102,135
1
84,503
81,140
77,694
74,168
70,567
0
2,109,333
1,724,534
3,833,867
14
Participation in Cost-Sharing Plans
 An
employer should recognize its proportionate share of the collective net
pension liability, pension expense, and deferred outflows/inflows of a costsharing plan as of the employer’s measurement date (no earlier than
employer’s prior year-end)
 Basis for proportion should be consistent with manner in which required
contributions are determined
 Use of projected long-term contribution effort of the employer(s) and nonemployer
contributing entities is encouraged
 If different contribution rates are assessed based on separate relationships (i.e., different
tiers or classes of employees), calculation of proportion should reflect the separate
relationships
 Employer’s proportion established as of measurement date, unless actuarially determined,
in which case actuarial valuation date should be used
KPERS plans to use the projected long-term contribution effort method to allocate collective pension amounts .
15
Net Effect of a Change in the Employer’s Proportion –
Example Calculation
Calculation of the change in proportion
16
Participation in Cost-Sharing Plans
 Application
of this proportionate share concept results in two types of
potential changes in employer net pension liability unique to cost-sharing
plans:
 Net effect of a change in the employer’s proportion of the plan’s
collective net pension liability and deferred outflows/inflows of resources
 Difference between actual employer contributions and the employer’s
proportionate share of collective employer contributions
17
Difference Between Actual and Proportionate Share of
Contributions– Example Calculation
Difference between proportionate share of collective contributions and
employer’s actual contributions
18
Difference Between Actual and Proportionate Share of
Contributions– Example Calculation
Difference between proportionate share of collective contributions and
employer’s actual contributions
19
Transition Provisions
Transition Provisions
 Changes
made to comply with the standards should be treated as an
adjustment of prior periods if “practical”, resulting in restatement of those
periods
 Employers should not report beginning balances of deferred
outflows/inflows of resources if not practical to determine
 Ten-year RSI schedule related to contributions should be presented in full
upon implementation, if applicable.
 Employers will not be able to present all years of other RSI information
retrospectively because information is not available
 Present information for as many years as available until 10 years of
information are available.
21
Transition Provisions
 Beginning
balances of deferred outflows/inflows of resources for KPERS
will not be restated, except for deferred outflows related to contributions
made after the measurement date
 Not required to restate comparative information in MD&A
 The State of Kansas may require similar GASB 68 information as footnote
disclosures for cash-basis employers
 Disclosure requirements will be communicated to employers at a later
date
22
Employer Implementation Adjustment at Beginning of
Period
Beginning of Period (Prior Year Measurement Date)
Dr.
Beginning net position
Dr.
Deferred outflows of resources
Dr.
Deferred outflows of resources – contributions made
after the prior measurement date
Cr.
Deferred inflows of resources
Cr.
Net pension liability
Amount
$ 14,600
0
500
0
$ 15,100
23
Impact of Measurement
Date
Timing and Frequency of Measurement of Total Pension
Liability
 Employers
should report in their financial statements a net pension liability
(asset) determined as of a date (measurement date) no earlier than the
end of the employer’s prior fiscal year for each defined-benefit pension
plan in which they participate
 The
measurement date used should be consistently applied from period to
period
 Measurement
of the total pension liability is determined through:
 An actuarial valuation performed as of the measurement date, or
 The use of update procedures to roll forward amounts from an actuarial valuation
as of a date no more than 30 months and 1 day earlier than the employer’s yearend
 Use professional judgment in determining extent of update procedures when
changes in plan occur between last valuation date and the measurement date
Measurement date will correspond to year-end of KPERS. In this case, employers with same year-end
as KPERS must choose measurement date as of their prior or current year-end.
25
Timing of Measurement of Total Pension Liability
Pension Expense Deferred Outflows
(measurement period)
of Resources
Plan
Prior
Year-End
Employer
Prior YearEnd
Plan
Current
Year-End
Employer
Current
Year-End
Measurement
Date
June
2014
December
2014
June
2015
December
2015
Measurement date will correspond to year-end of KPERS. Employer
contributions made directly by the employer subsequent to the measurement date
of the net pension liability and before the end of the employer’s fiscal year should
be recognized as a deferred outflow of resources.
26
Example KPERS Employer
KPERS employer is implementing GASB Statement 68 during the year
ended June 30, 2015. KPERS also has a fiscal year-end of June 30th and
implemented the provisions of GASB Statement 67 during the year ended
June 30, 2014. KPERS employer financial statements are a single-year
presentation.
In accordance with GASB Statement 68, the measurement date for the
KPERS employer must be as of a date no earlier than the end of its prior
fiscal year. Since KPERS employer and KPERS have the same year end,
KPERS employer may elect to use June 30, 2014 or June 30, 2015 as the
measurement date. However, once selected, the measurement date should
be consistently applied from period to period.
27
Example Employer – Impact of Using Prior Year
Measurement Date
Pension Expense
(measurement period)
Deferred Outflows
of Resources
Employer
Prior YearEnd
Plan
Year-End
Employer
Current
Year-End
Plan YearEnd
Measurement
Date
June
2013
June
2014
June
2015
28
Example Employer – Impact of Using Current Year
Measurement Date
Pension Expense
(measurement period)
Plan
Year-End
Employer
Prior YearEnd
Employer
Current
Year-End
Plan
Year-End
Plan
Year-End
Measurement
Date
June
2013
June
2014
June
2015
29
Considerations for Measurement Date
 Potential
for multiple measurement dates for entities within the same
reporting entity
 Timeliness of information available from pension plans
 Actuarial valuations
 Investment valuation
 Impact on precision of recorded amounts
 Significance of changes since measurement date
30
Special Funding
Situations
Special Funding Situation Overview
 Special
funding situations are circumstances in which a nonemployer
entity is legally responsible for making contributions directly to a pension
plan to provide benefits for employees of another entity(ies) and either one
of the following conditions exists:
 Amount of contributions is not dependent upon one or more events or
circumstances unrelated to pensions
 Nonemployer entity is the only entity with a legal obligation to make
contributions directly to the plan
32
Special Funding Situation—KPERS
 KPERS
is funded by contributions from the State, other participating
employers, and employees
 In the case of local schools, the State is making the employer
contributions on behalf of the local schools.
 The State contributions do not meet definition of a special funding
situation because the contributions are not made directly to KPERS
 The pension liability will be allocated to the local schools
 Schools will recognize revenue equal to the amount of the state funding
provided each year
33
Note Disclosures and
Required Supplementary
Information
Employer note disclosure requirements
Pension plan description
 Identify the name of the plan, KPERS as the administrator of the plan, and that it
is a cost-sharing pension plan
 Brief description of benefit terms and contribution requirements
 That KPERS issues a stand alone report and how to access such report
 Employers’ proportionate share (amount and percentage) of the collective net
pension liability, the basis on which its proportion was determined, and the change
in its proportion since the measurement date
 The measurement date of the collective net pension liability, the actuarial valuation
date, and if applicable, the fact that update procedures were used to roll forward
the total pension liability to the measurement date
 A brief description of changes of assumptions, benefit terms, or other inputs that
affected the measurement of the total pension liability since the prior measurement
date
 A brief description of the nature of changes between the measurement date and
the employer’s reporting date that are expected to have a significant effect on the
employer’s share of the net collective pension liability and the amount, if known

35
Employer note disclosure requirements
 The
amount of pension expense recognized by the employer in the reporting
period
 Balances of deferred outflows and inflows of resources related to pensions,
classified as:
 Differences between expected and actual experience in the measurement
of the total pension liability
 Changes of assumptions and other inputs
 Net difference between projected and actual earnings on pension plan
investments
 Changes in the employers’ proportion and differences between the
employer’s contributions and the employer’s proportionate share of
contributions
 The employer’s contributions to the pension plan subsequent to the
measurement date of the collective net pension liability
36
Employer note disclosure requirements
A
schedule presenting the following:
 For each of the subsequent five years and in the aggregate thereafter, the
net amount of the employer’s balances of deferred outflows of resources
and deferred inflows of resources that will be recognized in the employer’s
pension expense
 The amount of the employer’s balance of deferred outflows of resources
that will be included as a reduction of the collective net pension liability
 The amount of revenue recognized for the support provided by nonemployer
contributing entities, if any.
37
Example note disclosure – pension amounts
Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred
Inflows of Resources Related to Pensions
At June 30, 2015, the [employer] reported a liability of $14,910 for its proportionate share of
the net pension liability. The net pension liability was measured as of June 30, 2014, and the
total pension liability used to calculate the net pension liability was based on an actuarial
valuation as of December 31, 2013, rolled forward to that date. The [employer’s] proportion of
the net pension liability was based on a projection of the [employer’s] long-term share of
contributions to the pension plan relative to the projected contributions of all participating
[employers], actuarially determined. At December 31, 2013, the [employer’s] proportion was
20%, which was an increase of .01% from its proportion measured at December 31, 2012.
For the year ended June 30, 2015, the [employer] recognized pension expense of $2,395. At
June 30, 2015, the [employer] reported deferred outflows of resources and deferred inflows of
resources related to pensions from the following sources:
38
Example note disclosure – pension amounts
Deferred outflows
of resources
Differences between actual and
expected experience
Changes in assumptions
Net differences between projected
and actual earnings on investments
Changes in proportion and
differences between [employer]
contributions and proportionate
share of contributions
[Employer] contributions subsequent
to measurement date
Total
Deferred inflows
of resources
$2,657
$ 142
1,714
130
---
2,188
747
153
1,065
---
$6,183
$2,613
39
Example note disclosure – pension amounts
Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred
Inflows of Resources Related to Pensions
The deferred outflows of resources related to pensions totaling $1,065 resulting from
[employer] contributions subsequent to the measurement date will be recognized as a
reduction of the net pension liability in the year ended June 30, 2016. Other amounts reported
as deferred outflows of resources and deferred inflows of resources related to pensions will be
recognized in pension expense as follows:
Year ended June 30:
2017
$ (269)
2018
161
2019
217
2020
545
2021
551
Thereafter
1,300
40
Employer note disclosure requirements
 Significant
assumptions and other inputs
 Inflation, salary changes, ad hoc postemployment benefit changes (ad hoc
COLAs
 Mortality assumptions, including date of experience studies
 Discount rate information
41
Example note disclosure – significant actuarial
assumptions
Actuarial Assumptions
The total pension liability in the December 31, 2013 actuarial valuation was determined using
the following actuarial assumptions:

Inflation
3.0%

Salary Increases
ranging from 4.5% to 12.5%, including inflation

Investment rate of return 8.00%, net of pension plan expense, including inflation
Mortality rates were based on the RP-2000 Healthy Annuitant Mortality Table for Males and
Females, with adjustments to better match actual experience. Separate tables apply for
males and females as well as each group (State, School, Local, KP&F and Judges).
The actuarial assumptions used in the December 31, 2013 valuation were based on the
results of an actuarial experience study for the period January 1, 2010 through December 31,
2012. As a result of the experience study, _______ was adjusted in the December 31, 2013
actuarial valuation to more closely represent actual experience.
42
Employer note disclosure requirements
 Discount
information disclosure should include:
 The discount rate applied in the measurement of the total pension liability
and the change in the discount rate since the prior measurement date, if any
 Assumptions made about projected cash flows into and out of the pension
plan, such as contributions from employers, nonemployer contributing
entities, and employees
 The long-term expected rate of return on pension plan investments, and a
brief description of how it was determined, including significant methods and
assumptions used for that purpose
 If the discount rate incorporates a municipal bond rate, the municipal bond
rate used and the source of that rate
 The periods of projected benefit payments to which the long-term expected
rate of return and, if used, the municipal bond rate applied to determine the
discount rate
43
Employer note disclosure requirements
 Discount
information disclosure should include (continued):
 the assumed asset allocation of the pension plan’s portfolio, the long-term
expected real rate of return for each major asset class, and whether the
expected rates of return are presented as arithmetic or geometric means, if
not otherwise disclosed.
 Measures of the employer’s proportionate share of the collective net
pension liability calculated using (1) a discount rate that is 1-percentagepoint higher than the discount rate used and (2) a discount rate that is 1percentage –point lower than the discount rate used
44
Example note disclosure – investment return
The long-term expected rate of return of pension plan investments was determined using a building-block
method in which best-estimate ranges of expected future real rates of return (expected returns, net of
pension plan investment expense and inflation) are developed for each major asset class. These ranges are
combined to produce the long-term expected rate of return by weighting the expected future real rates of
return by the target asset allocation percentage and by adding expected inflation. The target allocation and
best estimates of arithmetic real rates of return for each major asset class are summarized in the following
table:
Asset class
Long-term target
allocation
Long-term expected real
rate of return
Fixed income
16.00%
0.35%
Domestic equity
23.50
6.00
International equity
23.50
6.00
Real estate
11.00
6.15
Real return
11.00
3.25
Alternatives
6.00
9.00
Yield driven
8.00
5.00
Cash
1.00
0.50
Total
100.00%
45
Example note disclosure – discount rate
Discount rate
The discount rate used to measure the total pension liability was 8.0%. The projection of cash flows
used to determine the discount rate assumed that employee contributions will be made at the current
contribution rate and that contributions will be made at contractually required rates, actuarially
determined. Based on those assumptions, the pension plan’s fiduciary net position was projected to
be available to make all projected future benefit payments of current active and inactive employees.
Therefore, the long-term expected rate of return on pension investments was applied to all periods of
projected benefit payments to determine the total pension liability.
Sensitivity of the [employer’s] proportionate share of the net pension liability to changes in
the discount rate
The following presents the [employer’s] proportionate share of the net pension liability calculated
using the discount rate of 8.00%, as well as what the [employer’s] proportionate share of the net
pension liability would be if it were calculated using a discount rate that is 1-percentage point lower
(7.00%) or 1-percentage point higher (9.00%) than the current rate:
1% Decrease
(7.00%)
Discount rate
(8.00%)
1% Increase
(9.00%)
$16,476
$14,910
$13,091
46
Employer note disclosure requirements
 KPERS
fiduciary net position
 Reference to the separately issued report for required disclosures pertaining
to KPERS’ plan assets, liabilities, deferred outflows and inflows, and
fiduciary net position
 Must indicate that the employers’ fiduciary net position has been determined
as the same basis as KPERS
 Include a brief description of KPERS’ basis of accounting, including the
policies with respect to benefit payments, including refunds, and the
valuation of pension plan investments
 If significant changes have occurred that indicate KPERS’ disclosures
generally do not reflect the facts and circumstances at the measurement
date, information about the substance and magnitude of the changes should
be disclosed
47
Employer required supplementary information
A
ten year “Schedule of Employer’s Proportionate Share of the Net Pension
Liability presenting the following:
 The employer’s proportion (amount and percentage) of the collective net
pension liability
 The employer’s covered payroll
 The employer’s net pension liability as a percentage of covered payroll
 The pension plan’s fiduciary net position as a percentage of the total
pension liability
 The information reported in the schedule should be as of the measurement
date
48
Employer required supplementary information
A
ten year “Schedule of Employer Contributions” presenting the following:
 The statutorily or contractually required employer contribution
 The amount of contributions recognized by the pension plan in relation to
the statutorily or contractually required employer contributions
 The employer’s covered-employee payroll
 The amount of contributions recognized by the pension plan in relation to
the statutorily or contractually required employer contribution as a
percentage of covered-employee payroll
 The information reported in the schedule should be as of the employer’s year
end
49
Employer required supplementary information
 Notes
to required schedules
 Information about factors that significantly affect trends in the amounts
reported in the required schedules, for example:
 Changes in benefit terms
 Changes in the size or composition of the population covered by the
benefit terms
 Use of different assumptions
50
AICPA
Recommendations and
Guidance for CostSharing Plans
Cost-Sharing Plan Issues
 GAAP
financial statements of the plan and additional unaudited
information from the plan will NOT provide sufficient appropriate audit
evidence for the governmental employer auditor.
 Absent additional audit evidence from the cost-sharing plan, the
employer auditor would not likely be able to accumulate sufficient
appropriate audit evidence.
 If unable to accumulate sufficient appropriate evidence, the employer
auditor should modify the audit opinion.
(AU-C section 9500, Question 2)
52
Cost-Sharing Plans—AICPA Recommendations and
Guidance
Whitepapers
 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
Auditing Interpretations
 Issued
interpretations to 3 AU-C sections
 AU-C 500
Links to Papers & Interpretations on
GAQC “GASB Matters” website:
www.aicpa.org/GAQC
 AU-C 600
 AU-C 805
53
Cost-Sharing Plans—AICPA Recommendations
 Plan
prepares “schedule of employer allocations” for which plan auditor is
engaged to provide opinion
 Can be a separate schedule or a supplemental schedule in the Plan
financial statements
 Plan auditor should provide an opinion on the schedule in accordance
with AU-C Section 805, Special Considerations – Audits of Single
Financial Statements and Specific Elements, Accounts, or Items of a
Financial Statement
KPERS will provide this schedule (audited in accordance with the AICPA guidelines) to
participating employers. KPERS plans to use the projected long-term contribution effort
method to allocate collective pension amounts .
54
Example Schedule of Employer Allocations
KPERS COST SHARING PENSION PLAN
Schedule of Employer Allocations
June 30, 2015
Employer
State of Example
Employer 1
Employer 2
Employer 3
Employer 4
Employer 5
Employer 6
Employer 7
Employer 8
Employer 9
Employer 10
Total
Projected
Employer
Employer
Allocation
Contributions Percentage
$ 2,143,842
38.9 %
268,425
4.9
322,142
5.8
483,255
8.8
633,125
11.5
144,288
2.6
95,365
1.7
94,238
1.7
795,365
14.4
267,468
4.9
267,128
4.8
$
5,514,641
100.0
55
Cost-Sharing Multiple-Employer Plans—AICPA
Recommendations

Plans prepare a schedule of pension amounts by employer and related notes
 Schedule will include net pension liability, the various categories of deferred outflows of
resources and deferred inflows of resources, and pension expense for all participating
employers, including differences between projected and actual investment earnings and
expected and actual economic experience.
 Schedule may also include additional information related to deferred inflows/outflows (even
though this may be calculated by the employer)

The net impact from changes in proportion (the allocation percentage) between periods

Differences between actual contributions made by an employer and their proportionate
share of total contributions calculated based on the allocation percentage
 Plan auditor should provide an opinion on the schedule in accordance with AU-C Section
805, Special Considerations – Audits of Single Financial Statements and Specific
Elements, Accounts, or Items of a Financial Statement (in relation to opinion is not
sufficient)
KPERS will provide this schedule (audited in accordance with the AICPA
guidelines) to its participating employers.
56
Example Schedule of Pension Amounts by Employer
EX A M P LE C OS T S HA R IN G P EN S ION P LA N
Sched ule o f Pens io n Amo unts b y Emp lo yer
As o f and fo r the year end ed 6 /3 0 /2 0 X5
D e f e rre d Out f lo w s o f R e s o urc e s
P e ns io n Ex p e ns e
D e f e rre d Inf lo w s o f R e s o urc e s
N e t A mo rt iz a t io n
o f D e f e rre d
A mo unt s f ro m
D if f e re nc e s
Ent it y
Emp lo yer 1
$
C ha ng e s in
C ha ng e s in
N e t D if f e re nc e
P ro p o rt io n
P ro p o rt io n
P ro p o rt io n
Between
a nd D if f e re nc e s
a nd D if f e re nc e s
a nd D if f e re nc e s
P ro je c t e d
B etween
a nd A c t ua l
Emp lo y e r
To t a l
C ha ng e s in
Between
D if f e re nc e s
B etween
Emp lo y e r
To t a l
P ro p o rt io na t e
Emp lo y e r
B etween
Inv e s t me nt
C o nt rib ut io ns
D e f e rre d
B etween
C o nt rib ut io ns
D e f e rre d
S ha re o f
Ex p e c t e d
Ea rning s o n
a nd P ro p o rt io na t e
Out f lo w s
Ex p e c t e d
a nd P ro p o rt io na t e
Inf lo w s
P la n
C o nt rib ut io ns
To t a l
N e t P e ns io n
a nd A c t ua l
P e ns io n P la n
C ha ng e s o f
S ha re o f
of
a nd A c t ua l
C ha ng e s o f
S ha re o f
of
P e ns io n
S ha re o f
P e ns io n
Lia b ilit y
Ex p e rie nc e
Inv e s t me nt s
A s s ump t io ns
C o nt rib ut io ns
R e s o urc e s
Ex p e rie nc e
A s s ump t io ns
C o nt rib ut io ns
R e s o urc e s
Ex p e ns e
C o nt rib ut io ns
Ex p e ns e
a nd P ro p o rt io na t e Emp lo y e r
4 5,2 2 4 ,6 2 0
4 3 8 ,8 59
1,56 9 ,8 4 7
1,4 0 4 ,2 0 6
6 9 5,4 2 6
4 ,10 8 ,3 3 8
3 55,9 17
–
72 6 ,4 2 5
1,0 8 2 ,3 4 2
1,9 0 7,2 8 3
12 ,3 75
1,9 19 ,6 58
Emp lo yer 2
5,6 6 1,78 0
54 ,9 4 2
19 6 ,53 3
175,79 6
8 4 ,2 3 1
511,50 2
4 4 ,558
–
74 ,3 2 6
118 ,8 8 4
2 3 8 ,777
(1,79 3 )
2 3 6 ,9 8 4
Emp lo yer 3
6 ,79 5,6 2 8
6 5,9 4 5
2 3 5,8 9 2
2 11,0 0 1
117,3 54
6 3 0 ,19 2
53 ,4 8 1
–
9 8 ,4 6 5
151,9 4 6
2 8 6 ,59 6
(8 ,0 8 8 )
2 78 ,50 8
Emp lo yer 4
10 ,19 3 ,4 4 2
9 8 ,9 17
3 53 ,8 3 8
3 16 ,50 2
16 1,2 15
9 3 0 ,4 72
8 0 ,2 2 2
–
16 5,4 53
2 4 5,6 75
4 2 9 ,8 9 4
3 ,0 2 1
4 3 2 ,9 15
Emp lo yer 5
13 ,3 55,0 3 8
12 9 ,59 7
4 6 3 ,58 4
4 14 ,6 6 8
19 9 ,8 4 5
1,2 0 7,6 9 4
10 5,10 3
–
19 7,6 4 5
3 0 2 ,74 8
56 3 ,2 2 9
(9 ,9 0 0 )
553 ,3 2 9
Emp lo yer 6
3 ,0 4 3 ,4 8 7
2 9 ,53 4
10 5,6 4 6
9 4 ,4 9 9
53 ,4 53
2 8 3 ,13 2
2 3 ,9 52
–
4 8 ,4 53
72 ,4 0 5
12 8 ,3 55
59 9
12 8 ,9 54
Emp lo yer 7
2 ,0 11,58 5
19 ,52 0
6 9 ,8 2 7
6 2 ,4 59
3 3 ,4 58
18 5,2 6 4
15,8 3 1
–
3 5,3 4 5
51,176
8 4 ,8 3 6
625
8 5,4 6 1
Emp lo yer 8
1,9 8 7,9 6 4
19 ,2 9 1
6 9 ,0 0 7
6 1,72 5
3 5,4 2 5
18 5,4 4 8
15,6 4 5
–
16 ,4 53
3 2 ,0 9 8
8 3 ,8 3 9
(5,712 )
78 ,12 7
Emp lo yer 9
16 ,777,717
16 2 ,8 11
58 2 ,3 9 3
52 0 ,9 4 1
2 4 8 ,3 56
1,514 ,50 1
13 2 ,0 4 0
–
2 8 4 ,54 3
4 16 ,58 3
70 7,576
8 ,4 0 5
715,9 8 1
Emp lo yer 10
5,6 4 1,8 8 8
54 ,74 9
19 5,8 4 3
175,178
9 5,4 6 5
52 1,2 3 5
4 4 ,4 0 1
–
4 4 ,3 56
8 8 ,757
2 3 7,9 3 8
(1,18 8 )
2 3 6 ,750
Emp lo yer 11
8 ,512 ,56 2
8 2 ,6 0 6
2 9 5,4 9 0
2 6 4 ,3 12
13 6 ,4 53
778 ,8 6 1
6 6 ,9 9 3
–
14 8 ,54 3
2 15,53 6
3 59 ,0 0 5
1,2 54
3 6 0 ,2 59
Emp lo yer 12
3 ,4 9 9 ,76 1
3 3 ,9 6 2
12 1,4 8 5
10 8 ,6 6 6
52 ,14 5
3 16 ,2 58
2 7,54 3
–
6 4 ,3 54
9 1,8 9 7
14 7,59 7
4 53
14 8 ,0 50
Emp lo yer 13
1,4 4 3 ,4 18
14 ,0 0 7
50 ,10 4
4 4 ,8 18
2 3 ,156
13 2 ,0 8 5
11,3 6 0
–
3 3 ,4 53
4 4 ,8 13
6 0 ,8 74
(2 0 5)
6 0 ,6 6 9
Emp lo yer 14
13 1,78 5
1,2 79
4 ,575
4 ,0 9 2
1,9 6 8
11,9 14
1,0 3 7
–
894
1,9 3 1
5,558
14 7
5,70 5
Emp lo yer 15
4 4 ,757
434
1,554
1,3 9 0
1,4 56
4 ,8 3 4
3 52
–
698
1,0 50
1,8 8 8
7
1,8 9 5
To tal fo r All
Entities
$ 12 4 ,3 2 5,4 3 2
1,2 0 6 ,4 53
4 ,3 15,6 18
3 ,8 6 0 ,2 53
1,9 3 9 ,4 0 6
11,3 2 1,73 0
9 78 ,4 3 5
–
1,9 3 9 ,4 0 6
2 ,9 17,8 4 1
5,2 4 3 ,2 4 5
–
5,2 4 3 ,2 4 5
57
Cost-Sharing Plan
Illustrative Auditor’s Report
Report on Schedules
We have audited the accompanying schedule of employer allocations of ABC
Pension Plan as of and for the year ended June 30, 20X5, and the related notes.
We have also audited the total for all entities of the columns titled net pension
liability, total deferred outflows of resources, total deferred inflows of resources,
and total pension expense (specified column totals) included in the
accompanying schedule of pension amounts by employer of ABC Pension Plan
as of and for the year ended June 30, 20X5, and the related notes.
Opinions
In our opinion, the schedules referred to above present fairly, in all material
respects, the employer allocations and net pension liability, total deferred
outflows of resources, total deferred inflows of resources, and total pension
expense for the total of all participating entities for ABC Pension Plan as of and
for the year ended June 30, 20X5, in accordance with accounting principles
generally accepted in the United States of America.
58
Cost-Sharing Plans: Employer Responsibilities
Report
Evaluate
Verify &
Recalculate
• Complete and accurate data to plan
• Appropriateness of information used to
record financial statement amounts
• Whether plan auditor’s report on
schedules are adequate and
appropriate for employer purposes
• 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
59
Cost-Sharing Plans: Employer Auditor Responsibilities
Determine
Evaluate
• Sufficiency and appropriateness of audit
evidence
• Whether plan auditor’s report on schedules are
adequate and appropriate for auditor purposes
(e.g., evidence)
•
•
•
Verify &
Recalculate
• Amounts in schedules specific to employer
•
•
•
Test
Review plan auditor’s report and any related
modifications
Evaluate whether plan auditor has necessary
competence and independence
Determine whether named as specified user
Employer amount used in allocation percentage
(numerator)
Recalculate allocation percentage of employer
Recalculate allocation of pension amounts based on
allocation percentage of employer
• Census data submitted to plan
60
Cost-Sharing Plans —Testing Underlying Census Data of Active
Employees
 Risk-based
approach by plan auditor to select employers to test at
employer location
 Individually important employers (e.g. > 20% of plan) tested annually
 Plan auditor performs risk assessment on remaining employers using
tiered approach
• For example:
•
•
•
Employers between 5 and 20% tested to approximate a 5-year cycle
Employers less than 5% tested to approximate a 10-year cycle
Many small employers will never be tested (e.g. 400 employers represent 2%
in aggregate of plan)
61
Cost-Sharing Plans —Testing Underlying Census Data of Active
Employees
 Employer
auditor may perform procedures under examination
engagement in accordance with AT (Attest) Section 101
 Employer auditor engaged to provide opinion on relevant assertions
related to census data reported to plan during period
 Consider the actuarial valuation date in determining which period to be
covered by opinion
 KPERS will use December 31, 2013 as the actuarial valuation date for
the plan financial statements for the year ended June 30, 2014
 Relevant census data for actuarial valuation will be the census data
reported to plan for the year ended December 31, 2013
62
Cost-Sharing Plans —Example Management Assertion for
Census Data Reported to KPERS
The significant elements of census data reported to Kansas Public Employee
Retirement System (KPERS) during the year ended December 31, 2013 were
complete and accurate based on the criteria (plan provisions) included in
K.S.A. 74 Article 49. The significant elements reported to the KPERS were as
follows:
Report
Significant Elements
Form K-1 (New Employee Enrollment)
Name, social security number, date of birth,
hire date, gender, marital status
Form 17 (Other Adjustments)
Name, marital status, etc.
Annual Employer Transmission Report
uploaded to “Stubs”
Tier, position/job code, hours worked,
pensionable wages
63
Example audit procedures over census data
1)
2)
3)
Identify the payroll registers and payroll cycles for all reporting units of
the government and obtain an understanding of the employer’s payroll
accounting systems and systems of reporting information included in
the annual employer payroll transmission report submitted to KPERS.
Obtain the annual employer payroll transmission report submitted to
KPERS via “Stubs” which corresponds to the census data reported to
the plan for the year ended December 31, 2013. Determine if the
population received is complete compared to our understanding of the
employer’s payroll registers and cycles. Verify the mathematical
accuracy of the annual report and determine whether the correct
contribution rates were used.
Obtain the reconciliation of the annual employer payroll transmission
report to the corresponding payroll registers that cover the entire year
to determine the completeness of the population of census data to be
tested. Test the reconciliation through re-performance.
64
Example audit procedures over census data
4)
5)
Obtain an understanding of the employer’s process for enrolling new
employees and reporting status changes to the plan, including the K-1
(enrollment form), K-17 (adjustments) and breaks in service
Obtain (a) a list of new employees hired during the year from the
employer and (b) a list of status changes reported during the year,
including breaks in service (other than those reported through
employer transmission reports) [this list should be obtained from
KPERS)
65
Example audit procedures over census data
6)
From the populations obtained in (2) and (5) select samples using the attribute sampling guidance of:
a) active employees - select ½ of the sample from the employer’s payroll register and ½ of the
sample from the annual employer payroll transmission reports throughout the year and perform
the following:
i. agree details included in the applicable employer (payroll) transmission report (e.g. name, tier,
position/job code, hours worked, pensionable income for period, employer contribution for
period, and employee contribution for period) to the payroll register (or vice versa), and agree
the underlying information to the human resource records.
ii. Determine whether the employee selected is eligible to participate in the plan based on the
eligibility criteria included in the plan document (state statutes), or if not in the plan that they
were properly excluded.
iii. Recalculate eligible compensation for the period of time that corresponds with the applicable
employer (payroll) transmission report based on provisions (criteria) in the plan document
(state statutes).
iv. Recalculate service credit (years) for the year, verifying that all breaks in service were
appropriately reported.
b) new employees hired during the year - to determine that new employees were appropriately
enrolled in the plan and properly included in the employer payroll transmission reports. For each
employee selected, verify the significant elements of census data reported to the plan upon
enrollment to the human resource records (e.g. name, social security number, date of birth,
gender, date of hire, marital status, tier, position/job code).
c) status changes - to determine that they were appropriate based on the relevant plan criteria and
underlying human resource records.
66
Coordination of Census
Data Procedures
Approach and Timing
 Census
data procedures
 When will employers be notified
 What procedures will be performed
 When will procedures be performed
 Who will perform procedures
 What will employers need to prepare in advance
68
Wrap-Up
Thank You for Attending!
 Please make sure you have signed the attendance sheet
 Please complete the course evaluation form
70