New GASB Changes
For Public Employers
Presented by
DARLA IVERSON, CFO
Iowa Public Employees’ Retirement System
August 5, 2015
What Is GASB?
GASB stands for…
Governmental Accounting Standards Board
– Statement No. 67 applies to
the pension systems (IPERS)
– Statement No. 68 applies to
participating government employers
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Funding vs. Accounting
• Pension plans report their funding progress
annually based on the actuarial valuation.
• The new GASB standards add a focus on
the plan’s liabilities.
• IPERS will allocate a portion of the Plan’s net
liability to each employer.
• The employers report their share of the Plan’s
liability on their financial statements.
• This liability is not due today.
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Participating Employers
• IPERS is a multiple-employer, cost-sharing
pension plan.
• There are 2,001 participating employers.
Schools, counties,
cities, state
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Primary Changes
• The new standards break from funding
measurements.
• They create additional accounting
disclosures of pension liabilities
and pension expense.
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New Employer Standards
Previously –
Participating employers reported only their
contributions paid to IPERS as expense.
Going forward –
Participating employers will also report a
proportionate share of IPERS’ net pension
liability as well as a new measure of
pension expense. (Provided by IPERS.)
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Net Pension Liability
Similar to UAL (unfunded actuarial liability)
• UAL is the liability compared to
smoothed asset value.
• NPL is the liability compared to
market value of assets.
Proportionate share is based on each
employer’s contributions as a percentage of
contributions from all employers.
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Proportionate Shares
Collective NPL = $1,000
This example shows how
the collective NPL and
$120
$140
PE are apportioned
among the employers
$330
Employer A
Employer B
Employer C
Employer D
Employer E
$240
based on the
percentage of that
employer’s FY2014
actual contributions
$170
compared to the total
IPERS FY2014 employer
contributions received.
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Employers’ Responsibilities
• Employers will have to recognize their
share of the net pension liability (NPL).
• Employers will have to report a new
measure of the pension expense (PE)
on their financial statements.
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Employer’s Proportionate Share
– IMPORTANT –
This is not a bill that is due.
The new GASB standard does not require
that the NPL be paid down any differently
than previously required by IPERS’ funding
method.
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Employers’ Responsibilities
Additional notes and disclosures will be
required.
Some of the new Notes include:
– Expanded pension plan description
– Information about employer’s
proportionate share of NPL
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Employers’ Responsibilities
RSI and Notes to RSI
• 10-year schedules
– Employer’s proportionate share of NPL
– Contributions paid compared to
contributions required
– Information about significant
changes/trends
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Contribution Rates
• Contribution rates will continue to be
determined under IPERS’ Contribution
Rate Funding Policy using a yearly
actuarial valuation through parameters
set in Iowa law.
– New accounting standards do not
establish parameters for the
calculation of contribution rates
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IPERS’ Funding Method
• Liability is paid down according to an
amortization schedule.
– Actuarially determined employer and
employee contribution rates
– Investment income on contributions
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Liability Not Due Today
• State and local governments don’t pay any
more than the current contribution rate.
• This liability is not a new concept for
bond rating agencies. Pension debt has
always been factored into the rating
process.
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Directly from GASB
“While this information will, in some cases,
give the appearance that a government is
financially weaker than it was previously,
the financial reality of the government’s
situation will not have changed.”
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More Resources
Visit the employers
section of the IPERS
website at
www.ipers.org
Visit the GASB
website at
www.gasb.org
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Other Videos
Learn more online –
Watch Understanding
IPERS’ Shortfall.
Review other
previously-recorded
webinars.
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Going Forward
If you have questions in the future,
please send them to:
employerrelations@ipers.org
Feel free to contact IPERS or the
Auditor of State.
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Contact Us
1-800-622-3849 (toll-free)
515-281-0020 (local)
7:30 am to 5:00 pm
Monday through Friday, excluding holidays.
Website: www.ipers.org
• Retirement calculators
• Member Handbook
• Newsletters
• Other important information
E-mail requests: info@ipers.org
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IPERS Overview:
Service Purchase Update
Presented by
DAVID MARTIN, CBO
Iowa Public Employees’ Retirement System
August 5, 2015
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What is IPERS?
• 401(a) Defined Benefit Plan under IRS
codes:
– Lifetime benefits are paid based on a
formula, not on the amount of
contributions.
– Formula factors
• Age
• Years of service
• Highest average salary
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Benefit Formula – Years of Service
•Each year worked earns 2% of the 60% payable for the first 30 years.
•1% for a maximum total of 65% payable for each additional year after 30.
•Early retirement reduction if before normal retirement.
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Normal Retirement Age
(No Age Reduction)
Age 65
Regardless of service
Rule of 62/20
At least age 62 with
20 or more years of service
Rule of 88
Age + Years of service
= 88 or greater
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Early Retirement Age
Reduction
Reduce 3% a year for portion of service
through 06/30/12
• From nearest normal retirement
eligibility (rule of 88; rule of 62/20;
age 65)
As of July 1, 2012
Reduce 6% a year thereafter
• From age 65
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What Is a Service Purchase?
A way to increase your
number of years of service
which in turn, increases your
benefit payment.
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An Example and Comparison
WITHOUT BUYING SERVICE
•
•
•
•
Age 59
Years 19.25
Salary $86,838
Yearly Benefit $26,232
WITH BUYING 5 YEARS
• Age 59
• Years 24.25
• Salary $86,838
• Yearly Benefit 31,800
• Annual Increase $5,568
• Cost $60,795
• Years to recover cost
10.95
• Cash flow rate 9.16%
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Current Purchase Rules
• Must be vested by service or age
• Can purchase service at any time
• Cost methodology uses the same actuarial
assumptions use in the IPERS’ annual
actuarial valuation
– (Continuous employment, salary growth etc.),
except that: the retirement assumption is
changed to the member’s earliest retirement
age. (Rule of 88, 62/20 or age 65).
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Purchase Rules January 2016
• Must be vested by service only
• The purchase will be done at retirement
• The actual change in your benefit will
determine the cost rather than actuarial
assumptions
– Ensures member do not overpay or underpay
• To assist members, IPERS will have the ability
to provide cost estimates prior to retirement
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Service Purchase Options
• Refunded IPERS service
• IPERS employment not previously covered
• Other public system(s) (if not eligible to draw
pension from the other system)
• Active duty military/leave of absence time
not eligible for free credit
• Nonqualified service (air time) 5-year limit
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To receive an estimate
• Submit an Application for Service Purchase
(available at www.ipers.org).
• Your service purchase cost estimate will be
calculated using your potential retirement dates.
– Official cost quotes generated only after your
Application for Retirement Benefits is on file.
– You will receive the cost per quarter of service
and the corresponding benefit increase.
Remember, completing the Application for Service
Purchase does not obligate you to purchase
service.
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Saving Up for a Purchase
• Request a basic cost estimate any
time before retirement.
– Application for Service Purchase
• Save money in a separate retirement
account that can eventually be rolled
over to IPERS for your service purchase.
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Remember…
• Every quote is customized to the
member and the issue date.
• After you receive your quote, you are
under no obligation to purchase.
• When deciding whether to purchase is
right for your situation, IPERS
recommends you consult your
financial planner.
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Payment Methods
IPERS accepts:
• Cash
– Federal regulations limit cash purchases to
$53,000 per calendar year
(except on buy-backs)
• Rollover funds from another retirement
plan such as a 401(k), IRA, 403(b), etc.
– There are no federal regulation limits with
rollover funds per calendar year.
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Consult Your Financial Planner
Only you can decide if the added
benefits you may receive from a
service purchase outweigh the cost to
purchase the service.
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For More Information
Visit our
website at
www.ipers.org
to download the
brochure and
read the Service
Purchase FAQs.
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Recap of New Rules
Effective January 2016, purchasing
service occurs at the time of retirement.
• Must vest by years of service
• The cost are will be determined by the actual
change in your benefit rather than actuarial
assumptions.
• Actual purchases will be done at retirement
• IPER will prepare cost estimates at any time
during your career.
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Thank You!
David Martin, Chief Benefits Officer
515-281-0065 david.martin@ipers.org
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