GASB pension
accounting and
financial reporting
standards
Joseph E. Seibert, Partner – KPMG
(717) 260-4608
jseibert@kpmg.com
Agenda

GASB Statement No. 67, Accounting and Financial Reporting For Pension Plans

GASB Statement No. 68, Accounting and Financial Reporting for Pensions

Standards include guidance on defined benefit plans and defined contribution plans—our focus will be on defined
benefit plans

AICPA white papers or multi-employer plans
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
1
Accounting and financial
reporting for pensions
Overview
GASB Statement No. 67 (For plans)

The recognition, measurement and presentation of financial statement amounts is generally similar to current guidance

Note disclosures and required supplementary information is:

–
Similar to nature of disclosures for employers with the addition of information on investment policies and actual rates of
return on plan assets
–
Certain information is only required for single-employer and cost-sharing plans
Requirements regarding the measurement of net pension liability are similar to the requirements for employers
–

Net pension liability not recognized by pension plans
Effective for periods beginning for fiscal years beginning after June 15, 2013.
–
No impact on pension funding methodology used to establish annual employer contribution rates
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
3
Overview of GASB #68 employer standard

Key conceptual shift in reporting pension liabilities and expense under the economic resources measurement focus from a
“funding” approach to an “earnings” approach:
–
Currently, no liability is reported if government fully funds its annual required contribution (single-employer and agent
plans) or pays its contractually required contribution (cost-sharing plan)
–
Under new approach:

Pension liability is reported as employees earn their pension benefits by providing services

Changes in pension liability recognized immediately as pension expense or reported as deferred outflows/inflows of
resources depending on nature of change

No significant changes to accounting for pensions in governmental funds

Substantive changes to methods and assumptions used to determine actuarial information for GAAP reporting purposes
–
The actuarial methods and assumptions allowable under current standards may continue to be used to determine
funding amounts
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
4
Overview of GASB #68 employer standard (continued)

The following amounts for a defined benefit pension plan are required to be determined as of a date no earlier than the end
of the employer’s prior fiscal year:
–
Net pension liability (asset)
–
Pension expense
–
Pension deferred outflows of resources and deferred inflows of resources

Employers participating in single-employer or agent multiple-employer plans recognize 100 percent of the above amounts
for each plan

Employers participating in cost-sharing, multiple-employer plans recognize their proportionate share of the collective
amounts for the plan as a whole
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
5
Classification of defined
benefit pension plans
Classification of defined benefit pension plans

Classification of the type of defined benefit (DB) pension plan is based on the number of employers and whether pension
obligations and pension plan assets are shared

Single-employer DB pension plan:
–


Provides pensions to employees of one employer
Agent multiple-employer DB pension plan:
–
Provides pensions to employees of more than one employer
–
Assets are pooled for investment purposes, but separate accounts maintained for each employer
–
Employer’s share of pooled assets is legally available only for its employees
Cost-sharing multiple-employer DB pension plan:
–
Provides pensions to employees of more than one employer
–
Employers pool or share obligations
–
Plan assets can be used to pay the benefits of retirees from any employer
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
7
Classification of defined benefit pension plans (continued)

Primary government and its component unit(s) are collectively considered to be one employer for purposes of classifying
pension plans

Pension plans that only include employees of the primary government and its component units are considered singleemployer plans:
–
In stand-alone primary government and component unit financial statements, account for and report participation as if
cost-sharing employers
–
In reporting entity’s financial statements, follow note disclosures and RSI for a single or agent employer plan:

Separately identify amounts related to the primary government and amounts related to discretely presented
component units in the note disclosures
Clarification that primary government and its component units are considered to be one employer could result in
some pension plans that were previously considered cost-sharing pension plans now being considered as singleemployer pension plans.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
8
Accounting and financial
reporting for pension plans
(An amendment of GASB Statement No. 25)
Pension plan financial statements



Plans should present on the accrual basis of accounting:
–
Statement of Fiduciary Net Position
–
Statement of Changes in Fiduciary Net Position
Statement of Fiduciary Net Position:
–
Plan assets subdivided by major category and principal components of receivables and investments
–
Receivables are largely short term and due pursuant to legal requirements
–
Investments generally reported at fair value
–
Liabilities generally consist of benefits and refunds recognized when due
–
Equity reported as net position restricted for pensions
Statement of Changes in Fiduciary Net Position:
–
Separate display of contributions from employers, employees, and nonemployer contributing entities
–
Separate display of components of net investment income
–
Separate display of benefits and refunds paid to plan members and administrative expense
–
Report net increase/decrease in plan net position
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
10
Statement of fiduciary net position
Statement of fiduciary net position
June 30, 20x9
(Dollar amounts in thousands)
20x9
Assets
Cash and deposits
$
Securities lending cash collateral
74,234
181,645
Total cash
255,879
Receivables:
Contributions
7,464
Due from broker for investments sold
63,851
Investment income
4,655
Other
169
Total receivables
76,139
Investments:
Domestic fixed income securities
681,470
Domestic equities
1,075,201
International equities
459,827
Real estate
147,245
Total investments
2,363,743
Total assets
2,695,761
Liabilities
Payables:
Investment management fees
1,562
Due to broker for investments purchased
115,212
Collateral payable for securities lending
181,645
Other
7,760
Total liabilities
Net position restricted for pensions
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
306,179
$
2,389,582
11
Statement of changes in fiduciary net position
Statement of fiduciary net position
Year ended June 30, 20x9
(Dollar amounts in thousands)
20x9
Additions
Contributions:
Employer
$
Member
107,830
50,319
Total contributions
158,149
Investment income:
Net appreciation in fair value of investments
162,137
Interest and Dividends
42,179
Less investment expense, other than from securities lending
(8,905)
Net income from investing, other than from securities lending
195,411
Securities lending income
989
Less securities lending expense
(246)
Net income from securities lending
743
Net investment income
196,154
Other
41
Total additions
354,344
Deductions
Benefit payments, including refunds of member contributions
124,877
Administrative expense
3,373
Other
33
Total deductions
128,283
Net increase in net position
226,061
Net position restricted for pensions
Beginning of year
End of year
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
2,163,521
$
2,389,582
12
Pension plan notes to financial statements

The following are required note disclosures for all pension plans:
–
Plan description

–
Similar to employer disclosures with addition of information on the pension board
Investments

Investment policies of the plan

Description of how fair value is determined

Identification of investments in any one organization that represent 5 percent or more of plan net position

Annual money-weighted rate of return on plan investments calculated as the internal rate of return on plan
investments, net of investment expense, and an explanation of the concept of a money-weighted return
–
Long-term contractual receivables
–
Reserves
–
Allocated insurance contracts excluded from plan assets
–
Deferred retirement option program (DROP) balances

A description of the DROP terms

The balance of the amounts held by the plan pursuant to the DROP
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
13
Pension plan notes to financial statements (continued)

The following are required note disclosures solely for all single-employer and cost-sharing plans:
–
–
Components of net pension liability (asset) of the employer(s) as of the plan’s fiscal year-end:

Total pension liability

Plan fiduciary net position

Net pension liability (asset)

Ratio of plan fiduciary net position to the total pension liability
Significant assumptions used to measure total pension liability:

–
Similar to employer disclosures, including disclosures for the discount rate
The date of the actuarial valuation on which the total pension liability of the employer(s) is based and whether the
amount is the result of the use of update procedures to roll forward amounts to the plan’s year-end
For agent plans, disclosure of aggregated information about the net pension liabilities of the employers is not
required because of the limited decision utility. This is a significant change from current practice.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
14
Pension plan required supplementary information

The following is required supplementary information for all single-employer and cost-sharing plans:
–
Ten-year schedule of changes in the net pension liability (asset)
–
Ten-year schedule of components of net pension liability
–
Ten-year schedule related to employer contributions, if an actuarially calculated employer contribution is determined

Information included in above schedules and requirements to provide notes to the RSI is similar to requirements for
employers

Measurements should be made as of the plan’s fiscal year-end

A ten-year schedule of the annual money-weighted rate of return on plan investments also should be presented as RSI for
all types of plans
For agent plans, reporting of aggregated multi-year information about the net pension liabilities of the employers
(as RSI) is not required because of the limited decision utility.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
15
Measurement of
pension liabilities
Net pension liability

Employers should report in their financial statements a net pension liability (asset) determined as of a date no earlier than
the end of the employer’s prior fiscal year (measurement date) for each defined-benefit pension plan in which they
participate

Net pension liability (asset) equals the total pension liability for the pension plan, net of the plan’s fiduciary
net position:
–
Total pension liability is the actuarial present value of projected benefit payments attributed to past employee service
–
Plan’s fiduciary net position is determined using same valuation methods as used for plan’s GAAP financial reporting
Total Pension Liability
Less: Plan’s fiduciary net position
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
Net Pension Liability
17
Timing and frequency of measurement of total pension liability

Measurement of the net pension liability determined as of a date no earlier than the end of the employer’s prior fiscal year
(measurement date)

The measurement date used should be consistently applied from period to period

Measurement of the total pension liability 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 year-end
–
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
Measurement date will most likely be year-end of plan. Employer’s with same year-end as plan must choose
measurement date as of their prior or current year-end.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
18
Determining total pension liability – Three step process

Projecting future benefit payments

Discounting projected future benefit payments to present value

Attributing present value of projected future benefits to past and future periods
Projecting
Discounting
Attributing
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
19
Projecting future benefit payments
Total Pension
Liability

Projected benefit payments includes all benefits provided in accordance with the terms of the
pension arrangement and any other legal agreements to provide benefits in force at the
measurement date

All assumptions should be consistent with Actuarial Standards of Practice unless otherwise
specified

Projected benefit payments should include the effects of automatic and ad hoc postemployment
benefits changes
Projecting
Discounting
Attributing
Current standards do not require incorporation of ad hoc COLAs and ad hoc postemployment
benefit changes into projection—this will increase projected future benefits for some plans
thereby increasing total pension liability
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
20
Discounting future benefit payments to present value

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
Projecting
Discounting
Attributing
The new standards will likely result in a lower discount rate for plans that are significantly underfunded and/or
have open amortization periods, thus increasing total pension liability
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
21
Discounting future benefit payments to present value (continued)

To determine extent that projected plan fiduciary net position is expected to be available for the payment of pension
benefits, a comparison should be made between:
–
The amount of benefit payments projected to occur in each future period; and
–
The plan’s projected fiduciary net position at the beginning of the future period:

Consider all employer contributions intended to fund benefits of current and former employees and all contributions
from current employees

Consider projected investment earnings on projected plan fiduciary net position

Consider projected benefit payments and administrative expenses

Do not consider employer contributions intended to fund service costs of future employees or contributions of future
employees unless those contributions are projected to exceed service costs for those employees
Discount rate is the single rate of return that when applied to all projected future benefits results in a present
value equal to the aggregate present values calculated for each future period based on projected fiduciary net
position and projected benefits
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
22
Discounting future benefit payments to present value (continued)

To project future employer contributions when they are (a) established by statute or contract, or (b) determined under a
formal written policy:
–

Apply professional judgment, considering:

Employer’s most recent five-year contribution history as a key indicator of future contributions

All other known events and conditions potentially impacting contribution amounts
To project future employer contributions in other circumstances:
–
Contribution amounts should be limited to an average of employer contributions over most recent five-year period,
potentially modified based on consideration of subsequent events
–
Basis for average should be matter of professional judgment

Percentage of covered payroll contributed

Percentage of actuarially determined contributions made
Comparison will generally require separate projections of cash flows into and out of the plan for each future
period, however, alternative methods may be used if calculation can be made with sufficient reliability
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
23
Investment policies should be reviewed and updated

Investment Disclosures include:
–
Investment policies of the plan
–
Description of how fair value is determined
–
Identification of investments in any one organization that represent 5 percent or more of plan net position
–
Annual money-weighted rate of return on plan investments calculated as the internal rate of return on plan
investments, net of investment expense, by asset class and an explanation of the concept of a money-weighted return
Investment allocations should be evaluated and determined to be sufficient to realize a rate of return that can meet
or exceed the investment return assumption
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
24
Attributing the present value of projected future benefit payments to past and
future periods
Total Pension
Liability
Projecting

Attribution of the present value of projected future benefit payments to specific periods is based
on the actuarial cost method applied

Under new standards, Entry Age Normal method is the only allowable actuarial cost method:
–
Attribution made on individual employee-by-employee basis
–
Service costs based on level percentage of that employee’s projected pay
–
Service costs attributed through assumed exit ages through retirement
Discounting
Attributing
Entry Age Normal method is most common actuarial cost method currently used. However, many variations of this
method are used in practice. The new pension standards will eliminate potential variations.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
25
Discounting future benefit payments to present value – Example single
discount rate calculation
Projected plan net position
Projections
Year 1
Year 2
Year 3
Year 4
$1,431,956
$1,500,197
$1,565,686
$1,628,547
Employer Contributions
33,100
30,104
31,107
32,245
Employee Contributions
40,111
42,100
41,110
40,010
(109,951)
(116,500)
(123,749)
(131,690)
(1,000)
(1,030)
(1,061)
(1,093)
105,981
110,815
115,454
119,871
$1,500,197
$1,565,686
$1,628,547
$1,687,890
Beginning Plan Net Position
Benefit Payments
Administrative Expenses
Investment Earnings
Ending Plan Net Position
Compare beginning plan fiduciary net position (BPFNP) to benefit payments (BP) for the fiscal year—generally
discount BP covered by BPFNP using investment rate of return; discount BP not covered by
BPFNP using >/= AA-rated G.O. bond index
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
26
Discounting future benefit payments to present value – Example single
discount rate calculation (continued)
Projected benefit
payments
Present value of projected benefit payments
Beginning
Funded Unfunded
projected Projected portion of portion of
plan net
benefit
benefit
benefit
Year position payments payments payments
(c)
(d)
(e)
Present value
of funded
benefit
payments
Present value
of unfunded
benefit
payments
Present value of
benefit payments
using single
discount rate
(f) = (d) / (1+7.5%)(a)
(g) = (e) / (1+4%)(a)
(h) = (c) / (1+5.29%)(a)
(a)
(b)
1
1,431,956
109,951
109,951
102,280
104,427
2
1,500,197
116,500
116,500
100,811
105,088
3
1,565,686
123,749
123,749
99,613
106,019
4
1,628,547
131,690
131,690
98,610
107,154
26
547,880
322,779
322,779
49,236
84,503
27
316,985
326,326
326,326
113,175
81,140
28
64,800
328,997
328,997
109,713
77,694
29
0
330,678
330,678
106,032
74,168
30
0
331,266
331,266
102,135
70,567
95
0
1
1
Total
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
0
2,109,333
1,724,534
3,833,867
27
Recognition of pension
expense including deferrals
Determining pension expense and deferred inflows/outflows of resources

Certain aspects of the change in net pension liability should be recognized immediately as pension expense and others
should be recognized as deferred outflows/inflows of resources and amortized into pension expense over time

Employers participating in single-employer or agent multiple-employer plans will recognize 100 percent of the pension
expense and deferred amounts determined for each plan

Employers participating in cost-sharing plans will recognize their proportionate share of the collective pension expense and
deferred amounts determined for the plan as a whole
As a general rule, more aspects of the change in the net pension liability will be reported immediately as expense
than were immediately incorporated in the annual required contribution under current guidance
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
29
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
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
30
Changes in net pension liability resulting in deferred inflows/outflows
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
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
31
Potential components of annual pension expense
Service cost
$285,172
Interest on pension liability
32,878
Effect of changes in benefit terms
43,098
Member contributions
Plan administrative costs
Projected earnings on plan investments
(110,111)
4,309
(178,268)
Expensed portion of current-period excess of actual earnings over projected earnings on plan investments
(4,201)
Amortization of beginning deferred inflows related to accumulated net excess of actual earnings over projected earnings on
plan investments
(9,012)
Expensed portion of current-period difference between expected and actual experience in the total pension liability
17,579
Amortization of beginning deferred outflows related to differences between expected and actual experience in the total
pension liability
29,991
Expensed portion of current-period effect of changes in assumptions
9,022
Amortization of beginning deferred outflows related to effect of changes in assumptions
7,468
Pension expense
$127,925
Amortization of certain deferred inflows/outflows unique to employers participating in cost-sharing multipleemployer plans may be included as a component of pension expense for such employers
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
32
Pension plan assumption – Single employer plan
As of:
12/31/14
12/31/15
Total Plan Fiduciary Net Position
$ 10,000
$ 11,300
13,000
12,850
Total Plan Pension Liability
Net Pension Liability (NPL)
$
3,000
$
1,550
$
1,000
Fiscal Year Ended:
Actual Contribution based on Funding Calculations
Assumed Return
700
Actual Return
1,100
Service Costs
800
Interest Costs
900
Member Contributions
500
Administrative Cost of Plan
100
Benefit Payments
Actuarial Gains from Experience
Estimated Average Service Life of Plan Participants
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
1,200
650
10 Years
33
Pension plan accounting entries
Entries for employer:
Fund Level Financial Statements
Pension Expenditure
Cash
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
1,000
1,000
34
Pension plan accounting entries (continued)
Entity-wide entries:
Pension Expense
1,700
NPL
1,700
#1 – (Record Service Costs, Interest Cost)
Pension Expense
NPL
1,400
1,400
#2 - (Record Impact of Plan Changes for Contributions, Costs)
Deferred Inflow
320
Pension Expense
NPL
780
1,100
#3 – (Record Impact of Investment Return
1,100 – 700 = 400 ÷ 5 = 80 x 4 = 320
Gain Over Assumed Return Amortized Over 5 Years)
NPL
Deferred Inflow
Pension Expense
650
585
65
#4 – (Record Impact of Pension Assumption Gains)
650 ÷ 10 = 65
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
35
Pension plan accounting entries (continued)
Proof:
NPL
Pension exp.
Service and Interest Costs
1,700
1,700
–
Contributions, Admin Costs
(1,400)
(1,400)
–
Investment Returns
(1,100)
(780)
(320)
(650)
(65)
(585)
(1,450)
(545)
(905)
Experience/Assumptions
Entity-wide Conversion Entries
Pension Contribution
1,000
Pension Expense
455
Deferred in flow
Pension Expense Disclosure
Service Cost
800
Interest on Pension Liability
900
Member Contribution
Admin Expenses
Expected Investment Return
(500)
100
(700)
Amortization of Interest Gains Over Assumption
(80)
Amortization of Assumption Gains
(65)
455
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
36
Schedule of change in net pension liability
Total pension liability
Service Costs
800
Interest
900
Benefit Changes in Plan
Actuarial Expense/Assumptions
Benefit Payments
Change in Liability
–
(650)
(1,200)
(150)
BOY Pension Liability
13,000
EOY Pension Liability
12,850
Fiduciary net position
Contributions – Employer
1,000
Contributions – Employee
500
Investment Income
Benefit Payments
Admin Expense
Change in Plan Net Position
1,100
(1,200)
(100)
1,300
BOY Fiduciary Net Position
10,000
EOY Fiduciary Net Position
11,300
Net Pension Liability EOY
1,550
Net Pension Liability BOY
3,000
Change in NPL
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
(1,450)
37
Participation in
cost-sharing
multiple-employer
plans and allocation
of pension amounts
Participation in cost-sharing multiple-employer plans

An employer should recognize its proportionate share of the collective net pension liability, pension expense, and deferred
inflows/outflows of a cost-sharing 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
As practical matter, it is anticipated the calculation of proportion will be performed by the plan for all participating
employers based on either required contributions or covered payroll.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
39
Participation in cost-sharing multiple-employer plans (continued)

Application of this proportionate share concept results in two types of potential changes in employer net pension liability
unique to cost-sharing multiple-employer 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
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
40
Participation in cost-sharing multiple-employer plans

No requirement in standards for the Plan to provide information to employers on aggregate roll forward of Net Pension
Liability (NPL) and deferred inflows and outflows

Key data necessary for the calculation is not subject to audit

GASB suggested coordination/communication between plan and employers to provide information
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
41
Employer note disclosure example – Deferred outflows/inflows4
Deferred
outflows of
resources
Differences between expected and actual experience
$
Changes of assumptions
Net difference between projected and actual earnings on pension
plan investments
Changes in proportion and differences between District contributions and
proportionate share of contributions
District contributions subsequent to the measurement date
Total
4
$
2,657
Deferred
inflows of
resources
$
142
1,714
130
–
2,188
747
153
1,065
–
6,183
$
2,613
– This is a sample employer disclosure provided in GASB 68.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
42
Net effect of a change in the employer’s proportion of the plan

The net effect of a change in the proportion used to calculate employer’s share of collective plan net pension liability and
deferred amounts should be:
–
Measured as the difference between the plan’s collective balances as of the beginning of the employer’s fiscal period
multiplied by:
a. The employer’s proportion assumed in the prior period; and
b. The employer’s proportion assumed in the current period
–
Recognized as a deferred outflow/inflow of resources in the period of change
–
Recognized as part of pension expense beginning in the period of the change over a closed period using a systematic
and rational method:

Closed period equal to the average of the expected remaining service lives of all employees (active, inactive
and retirees)
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
43
Difference between actual employer contributions and the employer’s
proportionate share of collective employer contributions

The difference between actual plan contributions made by an employer related to the contractually required contribution up
to the measurement date and the amount of the employer’s proportionate share of collective employer contributions
recognized by the plan should be:
–
Recognized by the employer as a deferred outflow/inflow of resources in the period of the difference
–
Recognized as part of pension expense beginning in the period of the difference over a closed period using a systematic
and rational method:


Closed period equal to the average of the expected remaining service lives of all employees (active, inactive
and retirees)
This deferred outflow/inflow of resources may be reported on a net basis with that resulting from a change in the employer’s
proportion of collective plan
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
44
Cost sharing plan—Illustration of proportion
Sample School District
Year Ended June 30, 2014
(amounts in thousands)
Prior period
Sample School District's future total projected contributions
Total future projected employer contributions for cost-sharing plan
Percentage allocable to Sample School District
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
Current period
570,000
640,000
300,000,000
320,000,000
0.19%
0.20%
45
Cost sharing plan—Illustration of proportion (continued)
Sample School District
Year Ended June 30, 2014
(amounts in thousands)
Net pension
liability
Deferred
outflows
Deferred
inflows
End of period amounts (June 30, 2014):
Total cost-sharing plan at end of period
$ 3,523,000
1,989,000
3,053,000
3,515,954
1,985,022
3,046,894
7,046
3,978
6,106
Less: Amount allocable to other school districts (99.80%)
Amounts allocable to Sample School District (0.20%)
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
$
46
Cost sharing plan—Illustration of proportion (continued)
Sample School District
Year Ended June 30, 2014
(amounts in thousands)
Net pension
liability
Deferred
outflows
Deferred
inflows
Change in Sample School District amounts from change
in proportion:
Total cost-sharing plan amounts at beginning of period
(June 30, 2013)
$ 3,143,139
Amount allocable to Sample School District based current period
percentage (0.20%)
$
Amount allocable to Sample School District based on prior period
percentage (0.19%)
6,042,183
3,339,222
6,286
12,084
6,678
5,972
11,480
6,345
604
333
Increase in beginning amounts from change in proportion
$
314
Increase in deferred outflows to Sample School District
$
43
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
47
Cost sharing plan—Illustration of proportion (continued)
Sample School District
Year Ended June 30, 2014
(amounts in thousands)
Sample School District contributions (year ended June 30, 2014):
Total employer contributions for cost-sharing plan
$
863,626
Amount of total employer contributions allocable to Sample School District (0.20%)
$
1,727
Amount contributed to the plan by Sample School District
Increase in deferred outflows to Sample School District
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
1,767
$
40
48
Note disclosures & RSI
Note disclosures—Applicable for all plans (continued)
Deferred Pension Outflows/Inflows of Resources Disclosure Illustration:
At June 30, 20X9, the District reported the following deferred outflows of resources and deferred inflows of resources related
to pensions:
Deferred
outflows of
resources
Differences between expected and actual experience
$
Deferred
inflows of
resources
2,657
142
1,714
130
Net differences between projected and actual earnings on plan investments
0
5,684
Change in proportion and the effect of certain employer contributions on the
employer's net pension liability
596
105
1,007
0
5,975
6,061
Changes of assumptions
Employer contributions made subsequent to the measurement date
Total
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
$
50
Note disclosures—Applicable for all plans (continued)
Deferred Pension Outflows/Inflows of Resources Disclosure Illustration (continued):
$1,007 reported as deferred outflows of resources related to pensions resulting from employer contributions made subsequent
to the measurement date will be recognized as reduction the net pension liability at June 30, 20Y0.
Fiscal Year Ended June 30:
20Y0
$
(1,727)
20Y1
(898)
20Y2
(467)
20Y3
211
20Y4
542
Thereafter
Total
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
1,246
$
(1,093)
51
Note disclosures—Applicable for all plans (continued)
Sensitivity of Net Pension Liability Disclosure Illustration:
Sensitivity of the net pension liability to changes in the discount rate. The following presents the District’s net pension
liability calculated using the discount rate of 7.75 percent, as well as what the net pension liability would be if it were calculated
using a discount rate that is 1-percentage point lower (6.75 percent) or 1-percentage-point higher (8.75 percent) than the
current rate:
Net Pension Liability
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
1% Decrease
(6.75%)
Current
discount rate
(7.75%)
$ 7,786
7,046
1% Increase
(8.75%)
6,187
52
Note disclosures—Applicable for each single-employer or agent multipleemployer plan (And Cost Sharing Plan if plan is in the Reporting Entity)

The following disclosures are required solely for each single-employer and agent multiple-employer plan:
–
–
Number of employees covered by benefit terms, separately identifying amounts by the following groups:

Retired employees or their beneficiaries currently receiving benefits

Inactive employees entitled to, but not yet receiving benefits

Active employees
Information on changes in net pension liability (asset), rolling forward total pension liability, plan fiduciary net position and
net pension liability (asset)
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
53
Note disclosures—Applicable for each single-employer or agent multipleemployer plan (continued)
Changes in the Net Pension Liability Disclosure Illustration:
Increase (Decrease)
Total pension
liability
(a)
Balances—at 12/31/X8
$ 3,045,893
Plan net
position
(b)
$
Net pension
liability
(a) – (b)
2283333
$
762,560
Changes for the year:
Service cost
101695
–
101,695
Interest
231,141
–
231,141
–
–
–
(69,638)
–
(69,638)
Changes of assumptions
(247,432)
–
(247,432)
Contributions—employer
–
109,544
(109,544)
Contributions—member
–
51,119
(51,119)
Net investment income
–
199,273
(199,273)
(126,791)
(126,791)
–
Administrative expenses
–
(3,427)
3,427
Other changes
–
8
(8)
(111,025)
229,726
(340,751)
$ 2,934,868
$ 2,513,059
Benefit changes
Difference between expected and actual experience
Benefit payments, including refunds of contributions
Net changes
Balances—at 12/31/X9
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
$
421,809
54
Note disclosures—Applicable for cost-sharing multiple-employer plans

The following disclosures are required solely for each cost-sharing multiple-employer plan:
–
The amounts of the net pension liability
–
The employer’s proportion of the net pension liability including:

Basis on which its proportion was determined

Changes, if any, in proportion since prior measurement date
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
55
Required supplementary information—Applicable for each single-employer or
agent multiple-employer plan (And Cost Sharing Plan if plan is in the
Reporting Entity)

The following information is required supplementary information for each single-employer and agent multiple-employer plan:
–
Ten-year schedule of changes in net pension liability (asset) as of the employer’s measurement date:


Same components as note disclosure
–
Ten-year schedule of components of net pension liability and covered payroll as of the employer’s measurement date
–
Ten-year schedule related to contributions, if actuarially determined, with information measured as of the employer’s
fiscal year-end
–
Ten-year schedule related to contributions, if statutorily established, with information measured as of the employer’s
fiscal year-end
Include as notes to RSI:
–
Factors that significantly affect the identification of trends in the amounts reported
–
Significant methods and assumptions used in calculating the actuarially determined employer contributions, if applicable
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
56
Required supplementary information—Applicable for each single-employer or
agent multiple-employer plan (And Cost Sharing Plan if plan is in the
Reporting Entity)(continued)
Schedules of Changes in the Net Pension Liability and Related Ratios
Last 10 Fiscal Years
(Dollar Amounts in Thousands)
20X9
20X8
20X7
Total pension liability
Service cost
$
100,103
100,530
106,411
226,709
212,957
193,904
–
–
15,513
(67,539)
(15,211)
(19,075)
–
–
61,010
(124,877)
(116,786)
(107,045)
134,396
181,490
250,718
2,987,712
2,806,222
2,555,504
3,122,108
2,987,712
2,806,222
Contributions—employer
107,830
106,123
105,340
Contributions—member
50,319
50,372
60,111
Interest
Benefit changes
Difference between expected and actual experience
Changes of assumptions
Benefit payments, including refunds of contributions
Net changes in total pension liability
Net pension liability—beginning
Net pension liability—ending
$
Plan fiduciary net position
Net investment income
Benefit payments, including refunds of contributions
Administrative expenses
Other
Net changes in plan fiduciary net position
Plan fiduciary net position—beginning
196,154
(44,099)
(16,138)
(124,877)
(116,786)
(107,045)
(3,373)
(3,287)
(2,774)
8
(83)
173
226,061
(7,760)
39,667
2,163,521
2,171,281
2,131,614
Plan fiduciary net position—ending
$
2,389,582
2,163,521
2,171,281
Plan net pension liability—ending
$
732,526
824,191
634,941
Plan fiduciary net position as % of total pension liability
Covered employee payroll
Net pension liability as % of covered employee covered payroll
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
76.54%
$
72.41%
77.37%
428,559
436,424
418,243
170.93%
188.85%
151.81%
57
Required supplementary information—Applicable for each single-employer or
agent multiple-employer plan (And Cost Sharing Plan if plan is in the
Reporting Entity)(continued)
Schedules of Employer Contributions
Last 10 Fiscal Years
(Dollar Amounts in Thousands)
20X9
Actuarially determined employer contribution
$
Employer contribution in relation to actuarially determined determine contribution
20X8
20X7
107,830
106,123
105,340
(107,830)
(106,123)
(105,340)
Contribution deficiency
$
–
–
–
Covered-employee payroll
$
482,589
436,424
416,243
22.34%
24.32%
25.31%
Contributions as a % of covered-employee payroll
Notes to schedule
Methods and assumptions used to determine contribution rates:
Actuarial cost method – Entry Age (all years)
Amortization method – Level % of payroll (all years)
Asset valuation method – 5 year smoothed market (all years)
Valuation date
6/30/X7
6/30/X6
15
15
15
Investment rate of return, net–of investment expenses
7.75%
7.75%
8.00%
Inflation
3.25%
3.50%
3.50%
Projected salary increases
5.20%
4.50%
4.50%
Remaining amortization period – years
Mortality
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
6/30/X5
RP-2000
RP-2000
1994 Group
Healthy Annuitant
Healthy Annuitant
Annuity
Mortality Table
Mortality Table
Mortality Table
58
Required supplementary information—Applicable for cost-sharing multipleemployer plans -- Employer Disclosure

For each cost-sharing plan, present as RSI a ten-year schedule with the following information for each year, measured as of
the employer’s measurement date of the net pension liability:
–
The employer’s proportion (percentage) of the collective net pension liability for benefits provided through the
pension plan
–
The employer’s net pension liability
–
The covered-employee payroll
–
The employer’s net pension liability as a percentage of the covered-employee payroll
–
The pension plan’s fiduciary net position as a percentage of the total pension liability for benefits provided through the
pension plan
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
59
Required supplementary information—Applicable for cost-sharing multipleemployer plans - Employer Disclosure (continued)


For each cost-sharing plan, if contributions are statutorily established, present as RSI a ten-year schedule with the following
information for each year, measured as of the employer’s fiscal year-end:
–
Statutorily required contribution excluding amounts, if any, to separately finance amounts related to individual employer
–
Amount of contributions to pension plan from employer in relation to statutorily required contribution. For purposes of this
schedule, contributions include actual contributions and contributions recognized by pension plan as current receivables
in relation to the statutorily required contribution.
–
Difference between the statutorily required contribution and amount of contributions to pension plan from employer
–
Covered-employee payroll
–
Contributions to pension plan from employer as percentage of covered-employee payroll
Notes to RSI should include information about factors that significantly affect the identification of trends in the amounts
reported in the RSI schedule
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
60
Special funding situations
and other contributions
from nonemployer entities
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 of employees of another entity(ies) and at least one of the following
conditions exists:
–
The nonemployer entity is the only entity with a legal obligation to make contributions directly to the plan
–
The amount of contributions for which the nonemployer entity is legally responsible is not dependent upon one or more
events or circumstances unrelated to the pension benefits
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member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
62
Potential special funding situations – Pennsylvania

School Districts
–

24 Pa. C.S. ¶ 8535 “Payments to School Entities by Commonwealth”

Requires payment of not less than 50% of contribution

Paid by Commonwealth to school entity

School entity has 5 days to remit to PSERS
–
Not a special funding situation– not paid directly to PSERS
–
100% of liability will be recorded by school entity
Municipal Pension Aid
–
–
Chapter 205 ¶ 205.8 “Supplemental State Assistance”

Compliance requirement to be met by Municipality

Appropriation calculated annually based on plan actuary analysis

Paid to Municipality, 30 days to remit to plan
Not a special funding situation– not paid directly to plan
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
63
Special funding situation—Nonemployer contributing entities

A nonemployer contributing entity in a special funding situation should recognize a net pension liability, pension expense
and deferred outflows/inflows of resources for its proportionate share of such amounts:
–
Generally determine proportionate share similar to cost-sharing employers
–
Other deferred outflows/inflows of resources unique to cost-sharing employers generally also apply

If the noncontributing entity recognizes a substantial portion of the plan’s collective net pension liability, required note
disclosures and RSI related to the involvement in the plan are similar to those required for cost-sharing employers

If the noncontributing entity does NOT recognize a substantial portion of the plan’s collective net pension liability, note
disclosures and RSI related to the involvement in the plan are limited
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
64
Special funding situation—Employers


An employer that has a special funding situation should:
–
Recognize its net pension liability and deferred outflows/inflows of resources as required under the standard, net of the
nonemployer contributing entity’s proportionate share of the amounts
–
Recognize pension expense as required under the standard without effect for the special funding situation
–
Recognize revenue for the pension support provided by the nonemployer contributing entity equal to the amount pension
expense related to the plan reported by the nonemployer contributing entity
Required note disclosures and RSI discussed previously are adjusted to incorporate impact of the special funding situation
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
65
Other nonemployer contributing entity arrangements

In circumstances in which a nonemployer contributing entity has a legal obligation to make contributions directly to a
defined benefit pension plan that does NOT meet the criteria for a special funding situation:
–
–
The employer should:

Recognize net pension liability, deferred outflows/inflows of resources and pension expense for the plan as required
under the standard

Recognize revenue equal to the amount of the contributions made by the nonemployer contributing entity
The nonemployer contributing entity should:

Recognize expense for its contributions to the plan, classifying the expense similarly to grants to other entities
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
66
AICPA White Papers on
New GASB Pension
Standards
Cost-Sharing Multiple-Employer Plans

Two 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
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
American Institute of CPAs
68
Cost-Sharing Multiple-Employer

Plan prepares “schedule of employer allocations” for which plan
auditor is engaged to provide opinion
–
Use allocation method based on covered payroll or required (actual)
contributions depending on whether there are different classes of benefits
and whether allocations expected to be representative of future
contributions
–
Projected future contributions could be used if necessary
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
American Institute of CPAs
69
Example Schedule of Employer Allocations
EXAMPLE COST SHARING PENSION PLAN
Schedule of Employer Allocations
6/30/20X5
20X5
Actual
Employer
Contributions
Employer
Employer 1
Employer 2
$
2,143,842
268,425
Employer
Allocation
Percentage
36.376 %
4.554
Employer 3
Employer 4
Employer 5
Employer 6
Employer 7
322,142
483,255
633,125
144,288
95,365
5.466
8.199
10.742
2.448
1.618
Employer 8
Employer 9
Employer 10
Employer 11
Employer 12
94,238
795,365
267,468
403,527
165,886
1.599
13.495
4.538
6.847
2.815
Employer 13
Employer 14
Employer 15
68,454
6,240
2,144
1.161
0.106
0.036
Total
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
American Institute of CPAs
$
5,893,764
100.000 %
70
Cost-Sharing Multiple-Employer

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 of resources, deferred inflows, and
pension expense for each employer
•
–
Plan auditor needs to consider the appropriateness of the materiality used in the
audit of PERS financial statements
Employer auditor issues opinion on total of each of the four “elements” in
accordance with AU-C 805
•
Net pension liability, total deferred outflows of resources, total deferred inflows of
resources, and total pension expense
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
American Institute of CPAs
71
Example Schedule of Pension Amounts by Employer
EXAMPLE COST SHARING PENSION PLAN
Schedule of Pension Amounts by Employer
As of and for the year ended 6/30/20X5
Total for All
Entities
Changes in
Proportion
and Differences
Between
Employer
Contributions
and Proportionate
Share of
Contributions
Total
Deferred
Outflows
of
Resources
Differences
Between
Expected
and Actual
Experience
Changes in
Proportion
and Differences
Between
Employer
Contributions
and Proportionate
Share of
Contributions
Total
Deferred
Inflows
of
Resources
Net Amortization of
Deferred Amounts
from Changes in
Proportion
and Differences
Between
Employer
Proportionate
Contributions
Share of
and Proportionate
Plan
Share of
Pension
Contributions
Expense
Net Pension
Liability
Differences
Between
Expected
and Actual
Experience
$
45,224,620
5,661,780
6,795,628
10,193,442
13,355,038
3,043,487
2,011,585
1,987,964
16,777,717
5,641,888
8,512,562
3,499,761
1,443,418
131,785
44,757
438,859
54,942
65,945
98,917
129,597
29,534
19,520
19,291
162,811
54,749
82,606
33,962
14,007
1,279
434
1,569,847
196,533
235,892
353,838
463,584
105,646
69,827
69,007
582,393
195,843
295,490
121,485
50,104
4,575
1,554
1,404,206
175,796
211,001
316,502
414,668
94,499
62,459
61,725
520,941
175,178
264,312
108,666
44,818
4,092
1,390
695,426
84,231
117,354
161,215
199,845
53,453
33,458
35,425
248,356
95,465
136,453
52,145
23,156
1,968
1,456
4,108,338
511,502
630,192
930,472
1,207,694
283,132
185,264
185,448
1,514,501
521,235
778,861
316,258
132,085
11,914
4,834
355,917
44,558
53,481
80,222
105,103
23,952
15,831
15,645
132,040
44,401
66,993
27,543
11,360
1,037
352
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
726,425
74,326
98,465
165,453
197,645
48,453
35,345
16,453
284,543
44,356
148,543
64,354
33,453
894
698
1,082,342
118,884
151,946
245,675
302,748
72,405
51,176
32,098
416,583
88,757
215,536
91,897
44,813
1,931
1,050
1,907,283
238,777
286,596
429,894
563,229
128,355
84,836
83,839
707,576
237,938
359,005
147,597
60,874
5,558
1,888
$
124,325,432
1,206,453
4,315,618
3,860,253
1,939,406
11,321,730
978,435
–
1,939,406
2,917,841
5,243,245
Entity
Employer 1
Employer 2
Employer 3
Employer 4
Employer 5
Employer 6
Employer 7
Employer 8
Employer 9
Employer 10
Employer 11
Employer 12
Employer 13
Employer 14
Employer 15
Net Difference
Between
Projected
and Actual
Investment
Earnings on
Pension Plan
Investments
Pension Expense
Deferred Inflows of Resources
Deferred Outflows of Resources
Changes of
Assumptions
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
American Institute of CPAs
Changes of
Assumptions
12,375
(1,793)
(8,088)
3,021
(9,900)
599
625
(5,712)
8,405
(1,188)
1,254
453
(205)
147
7
–
72
Cost-Sharing Multiple-Employer Example Auditor Opinion
Opinions
In our opinion, the schedules referred to above present fairly, in all material respects, the
employer allocations and total net pension liability, total deferred outflows of resources,
total deferred inflows of resources, and total pension expense for the sum 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.
Other Matter
We have audited, in accordance with auditing standards generally accepted in the United
States of America, the financial statements of ABC Pension Plan as of and for the year
ended June 30, 20X5, and our report thereon, dated October 15, 20X5, expressed an
unmodified opinion on those financial statements.
Restriction on Use
Our report is intended solely for the information and use of ABC Plan management, the
governing body of ABC Plan, ABC Plan employers and their auditors and is not intended
to be and should not be used by anyone other than these specified parties.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
American Institute of CPAs
73
Cost-Sharing Multiple-Employer Plans —Testing Underlying
Census Data of Active Employees

Risk-based approach by plan auditor to select employers to test
–
Individually important employers (i.e. > 20% of plan) tested annually
–
Plan auditor performs risk assessment on remaining employers using tiered
approach
•

For example:
o
Employers between 5 and 20% tested to approximate a 5 year cycle
o
Employers less than 5% tested to approximate a 10 year cycle
o
Many small employers will never be tested (e.g. 400 employers represent 2% in
aggregate of plan)
Employer auditor may perform procedures under examination
engagement in accordance with AT (Attest) Section 101
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
American Institute of CPAs
74
Cost-Sharing Multiple-Employer Plans —Testing Underlying
Census Data of Active Employees


Example risk factors to consider for selecting employers to test
–
Size of employer in relation to plan
–
Past errors or control deficiencies of an employer
–
Length of time since procedures last performed for employer
–
Whether there have been significant changes in workforce
–
Results of internal analysis (analytical procedures) of employer information
–
New or terminating employer
–
Whether employer financial statement are audited have received
unmodified opinions
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
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
American Institute of CPAs
75
Cost-Sharing Multiple-Employer Plans—Employer
Responsibilities

Evaluate appropriateness of information used to record financial
statement amounts

Report complete and accurate data to plan

Evaluate whether plan auditor’s report on schedules are adequate
and appropriate for employer purposes

Verify and recalculate 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
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
American Institute of CPAs
76
Cost-Sharing Multiple-Employer Plans—Employer Auditor
Responsibilities

Determine sufficiency and appropriateness of audit evidence

Evaluate 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 plan auditor has necessary competent and independence
Verify and recalculate 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
Test census data submitted to plan
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
American Institute of CPAs
77
Q&A
Ten things you should know about GASB’S new pension standards
1. Funded status of the plan now will be recorded on the balance sheet of the participating employer using the fair value of
investments and a prescribed actuarial method
2. GASB does not dictate contribution
3. Discount rate is based on funded status and history of contributions(likely lower on underfunded plans)
4. Investment policies should be reviewed and updated
5. Timing of actuarial valuations must be coordinated with financial reporting responsibilities
6. Pension expense in employer financial statements does not equal pension contribution
7. Employers must record pro-rata share of cost sharing plans net funded status
8. Special funding situations where one entity pays all or part of other entity contributions may affect amount recorded
9. Significant additional disclose will be necessary
10. The new rules will be here before you know it
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
79
The information contained herein is of a general nature and is
not intended to address the circumstances of any particular
individual or entity. Although we endeavor to provide accurate
and timely information, there can be no guarantee that such
information is accurate as of the date it is received or that it will
continue to be accurate in the future. No one should act upon
such information without appropriate professional advice after
a thorough examination of the particular situation.
© 2014 KPMG LLP, a Delaware limited liability partnership and
the U.S. member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. All rights reserved.
NDPPS 241773
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registered trademarks or trademarks of KPMG International.