Pension System and
Accounting for It
Presented by:
Kevin Worley, CFO
Division of Retirement & Benefits
November 19, 2014
AGFOA – Anchorage, AK
DISCLAIMER
• The views expressed in this presentation are
those of Kevin Worley and do not represent
the opinions of the Administration, Division,
Legislature, or the Governor
• Certain assumptions and interpretations were
made in this presentation which, if changed,
could result in a different answer
• GASB No. 68, the implementation guide, and
your auditors are your primary resources with
assistance from the Division
Dynamic Duo
TOPICS OF DISCUSSION
• AICPA SLG Census Data – employer impact
• GASB #68 – NPL allocation report
• What is DRB going to provide?
• What we know and don’t know
• Special funding situations
• If there is time: OPEB – future reporting
AICPA State & Local
Government Expert Panel
(SLGEP)
Testing Census Data on
Plan Financial Statements
and Participating Employer Impact
AICPA Guidance
Census Data
• Surprise, surprise!
• With the issuance of GASB No. 67, there
were questions related to the Total Pension
Liability (TPL), contribution revenues, and
contribution receivables
• The Plan Auditor needs to assert that the
above are complete and accurate, and in order
to assert that, more audit work had to be done
on census data
AICPA Guidance
Census Data
Some significant elements of census data include:
1. Date of birth
2. Date or hire / years of service
3. Marital status
4. Eligible compensation
5. Class of employee
6. Gender
7. Date of termination
AICPA Guidance
Census Data
• Plan auditors must review plan processes for
the census data of active employees of the
plan and include procedures to verify the
underlying payroll records of participating
employers to determine that the information is
accurate and complete
• June 30, 2014 audit report will not be issued
until all June 30, 2013 census data work by
external auditor is completed
AICPA Guidance
Census Data
• Frequency and extent of verification is based
on participating employer size, percent of
contributions, and impact on TPL
• Plan auditor identifies and assesses risk of
material misstatement of elements
• Plan auditor selects representative group of
contributing employers each year as well as
individually important employers
• Every year, as well as 5 and 10 year cycles
AICPA Guidance
White Papers and Audit Interpretations
• SLGEP Pension Whitepaper on Employer and
Related Auditor Issues: Cost-Sharing Plans
• SLGEP Pension Whitepaper on Census Data
Related to Cost-Sharing Plans
• Search for “SLGEP Pension Whitepaper Series”
for these two reports
• Meeting with Plan Auditor to discuss next round
of census data audit and earlier notification to
affected employers
GASBS No. 68
Accounting and Financial Reporting for
Pensions – An Amendment of GASB Statement
#27
GASB No. 68
Accounting & Financial Reporting for Pensions
“These proposed pension expense reporting
changes will have the biggest effect on
governments of any GASB pronouncement
issued since the inception of the GASB.”
~ David R. Bean, GASB Director of Research
and Technical Activities
GASB No. 68
Accounting & Financial Reporting for Pensions
• In June 2012, the GASB issued two new
standards changing the accounting and
financial reporting requirements for pensions
• The intent of the standards is to enhance the
pension-related information in financial
reports by providing greater transparency and
to standardize the valuation practices from
entity to entity
GASB No. 68
Accounting & Financial Reporting for Pensions
• Governments will be required to report its
proportionate share of unfunded pension
obligations on the financial statements
• Pension expense is the change in Net Pension
Obligation
• Increased note disclosures and schedules
• Measurement is accounting-based, not
funding-based
GASB No. 68
Accounting & Financial Reporting for Pensions
• These are new accounting and financial
standards for reporting purposes, and will not
impact your funding requirements
• Under Alaska law, the current employer
funding requirement is the statutorily required
contributions
GASB No. 68
Accounting & Financial Reporting for Pensions
• The Division is working to help ensure that
our participating employers are positioned to
implement these standards
• The Division will use every outreach outlet
available to us including participating in
conferences, group meetings, and more
GASB No. 68
Accounting & Financial Reporting for Pensions
• GASB No. 68 Implementation Guide is
available on-line
• Valuable resource to download and add to
your library
• Links available from:
http://doa.alaska.gov/drb/employer/resources/gasb.html
What is the Division of
Retirement & Benefits
Going to Provide to
Employers?
What is being provided?
What do participating employers need?
• Employers will recognize proportionate share
of cost-shared pension amounts (allocation of
NPL)
• Challenges relate to each participating
employer obtaining the necessary support of
NPL, deferred inflows/outflows of resources,
and pension expense
• SLGEP recommended that the cost-sharing
plans calculate each employer’s allocation
and collective pension expense
What is being provided?
Schedule of Employer Allocations
• From Page 5 of 9 – SLGEP Pension Whitepaper Series on Information for Employer Reporting
What is being provided?
Schedule of Pension Amounts by Employer
• From Page 7 of 9 – SLGEP Pension Whitepaper Series on Information for Employer Reporting
What we know and
don’t know
What we know……..
• The Division will be working with our Plan
auditor and Plan actuary to develop the
timeline from preparation of allocation report
by Plan actuary to the audit by Plan auditor
• The Division will share with employers via
the web page
• Notification via email alerts and Employers’
Edge
What we know……..
• This is a whole lot of work for everyone!
• The Division will be providing the detailed
schedules with the necessary information and
have it audited by the Plan auditor
What we don’t know……..
• The final allocation process is still being
determined, but will be based on the
contribution amounts
• Timeline is still in the works
• Special funding situation(?) and non- or
seldom contributing employers
Special Funding
Situations
Special Funding Situations
GASB 68 Definition
Paragraph 15 defines circumstances in which a
nonemployer entity is legally responsible for
making contributions directly to a pension plan
that is used to provide pensions to the
employees of another entity or entities and
either of the following conditions exist:
Special Funding Situations
GASB 68 Definition
(1) the amount of the contributions for which
the nonemployer entity legally is responsible is
not dependent upon one or more events or
circumstances unrelated to pensions
(2) the nonemployer entity is the only entity
with a legal obligation to make contributions
directly to a pension plan
Special Funding Situations
GASB 68 Definition
Special funding situations do not include
circumstances in which resources are provided
to the employer, regardless of the purpose for
which those resources are provided
Special Funding Situations
Alaska Constitution, Article IX, Section 7
Dedicated Funds
The proceeds of any state tax or license shall not
be dedicated to any special purpose, except as
provided in section 15 of this article or when
required by the federal government for state
participation in federal programs. This provision
shall not prohibit the continuance of any
dedication for special purposes existing upon the
date of ratification of this section by the people of
Alaska. [Amended 1976]
Special Funding Situations
• Once the determination is finalized, the
Division will notify all parties
• Determination must be made in order to
properly allocate the Net Pension Liability
Future GASB
Other Post-Employment Benefits (OPEB)
Future GASB
OPEB Related
• These benefits are provided by both the PERS
and TRS defined benefit plans as well as the
defined contribution plans
• Benefits involve health care benefits, but also
may include life insurance, disability, legal,
and other services (though not necessarily
provided by PERS and TRS)
Future GASB
OPEB Related
In May 2014, the GASB approved two
proposed statements that are designed to
improve the usefulness of information about
OPEB
1. Financial Reporting for Postemployment
Benefit Plans Other than Pension Plan
(PLAN)
2. Accounting and Financial Reporting for
Postemployment Benefits Other than
Pensions (EMPLOYER)
Future GASB
OPEB Related
These are very similar to the pension standards
(GASB 67 and 68)
1. OPEB is part of the employment exchange and
should be recognized as incurred, not funded
2. The government-wide and full accrual
statements will report a “Net OPEB Liability”
3. Change in Net OPEB Liability will be
immediately recognized in expense
Future GASB
OPEB Related
Like the pension statements before it, the
OPEB proposal is designed to improve the
information reported on OPEB for decisionmaking and accountability purposes,
comparability across governments, and
transparency
Future GASB
OPEB Related
• Intended to lead to fundamental changes in how
OPEB is accounted for and reported
• Accounted for in a trust with specific criteria
where contributions are irrevocable, assets are
dedicated to providing OPEB to plan members,
and plan assets are legally protected
• Provide a more comprehensive picture of what
state and local governments have promised and
the actual associated costs
Future GASB
OPEB Related
Addresses a number of issues:
• Affects how the long-term obligation and the
annual costs of OPEB are measured
• Recognize the net OPEB liability on the face
of the financial statements
• Present more extensive note disclosures and
related schedules
Future GASB
OPEB Related
Measurement date (PLAN):
• Measured as of the plan’s year end
• The actuarial valuation may be performed
earlier (within 24 months) and then rolled
forward to the PLAN’s fiscal year end
reporting date
• FORMULA is TOTAL OPEB LIABILITY –
OPEB Plan Net Position = Net OPEB
Liability
Future GASB
OPEB Related
Note and RSI Changes (EMPLOYER):
• Significant footnote disclosures – like pension
• RSI requirements – 10 years
1. Schedule of proportionate share of Net
OPEB liability
2. Schedule of contributions
3. Notes to RSI
Future GASB
Effective Dates - Proposed
• Plan – Years beginning AFTER December 15,
2015
• Employer – Years beginning AFTER
December 15, 2016
• Final statements anticipated for June 2015
What do you want to
know more about?
E-mail: Kevin.Worley@alaska.gov