GASB 68 / New Accounting and Reporting Requirements for

In 2006 the Governmental Accounting
Standards Board (GASB) began a project to
examine how Pension Plan liabilities and
expense are determined and reported on the
financial statements of governmental and
quasi-governmental entities including Housing
Authorities. An exposure draft was published in
2011 and the final standard - GASB 68 - in June
2012. It is effective for years beginning on or
after June 15, 2014 (for PHA FYEs 6/30/2015,
9/30/2015, 12/31/2015 and 3/31/2016).
GASB 68 has a very significant impact on both
the reporting of pension balances and activity,
as well as related disclosures in the footnotes. If
you would like a copy of GASB 68, it may be
obtained (for free!) at the GASB website (for a list of specific
pronouncements you may see the link on their
homepage for “standards and guidance” or you
may go directly there from here):
This session will briefly summarize what GASB
68 means for PHAs and will help you to
determine if and how this new standard will
affect you.
The largest impacts of GASB 68 in the PHAarena are for those agencies that have defined
benefit plans. That is because, for the first time
ever, PHAs will be required to report any
unfunded pension liabilities on their balance.
This is true even if you are in a state retirement
plan. The annual pension expense will also be
affected. GASB felt that this would provide
more transparency regarding pension costs and
that there would be no more “kicking the can
down the road”. Defined contribution
retirement plans will also be affected. So this
has an impact on just about everybody.
GASB 68 Implementation Guide
 Note that GASB has published an
implementation guide for affected
governmental entities including PHAs.
 A full copy of the GASB 68 Implementation
Guide may also be obtained from the GASB
website for free, at Be
advised that GASB 68 and the related
Implementation Guide adds up to 500+ pages
of reading material combined. This is
complicated stuff!
 GASB 68 revises the recognition,
measurement, and disclosure requirements
for employers that provide retirement plans.
 In the case of defined benefit pension plans, it
will totally change the way net pension
liabilities are reported, to include the entire
pension liability minus the plan’s net position
(assets minus liabilities in the plan).
 More details to follow later in this session.
Pension Expense
 It will also alter the way that changes in the
net pension liabilities are reported. In many
cases the change in the net pension liability
will be recognized as an expense in the period
the change occurred. In some cases it will be
reported as a deferred inflow/outflow with
the expense then recognized in future
Defined benefit plans provide retirement
benefits based upon a set formula or schedule,
that is not necessarily a function of how much
has been contributed by the employer and/or
employee. For example, let’s assume a given
individual is eligible for a retirement benefit
equal to 60% of his/her salary at retirement,
based upon the years of service they have put in.
The plan then collects from participating
employers amounts needed to cover these
benefits and of course the performance of
investments in the plan also impacts the amount
that needs to be contributed.
Unfunded Liability
 Sometimes the contributions are not
sufficient to fully fund all future benefits. In
general the plan is then considered to be
under-funded and in accordance with GASB
68 a liability will most likely need to be
reported on the balance sheet of each
participating employer, reflecting the
unfunded portion of future benefit payments.
This is the major purpose of GASB 68.
Defined contribution plans on the other hand
provide retirement benefits that are based
directly upon the amount contributed by
employers / employees, plus any growth in the
investments in the plan (investment income /
capital gains). So what is contributed to the
plan comes back out of the plan during
retirement. It is not based upon a separate
formula or schedule.
Given that defined contribution plans are
easiest to explain, let’s start there.
Defined Contribution Plans
The GASB in its piece on defined
contribution plans makes the
distinction between defined benefit
and defined contribution as follows: “Defined
contribution pensions stipulate the
contributions a government must make to an
active employee’s account each year. A defined
benefit pension plan, by contrast, specifies the
benefits to be provided to the employees after
the end of their employment.” (emphasis is
Defined Contribution
Retirement Plan Expense
 The expense to be recognized when an
employer such as a PHA has a defined
contribution plan, is equal to the
contributions required for that year in
accordance with the plan, minus any amounts
that were forfeited by employees (e.g. an
employee terminates before becoming
vested in the plan).
Defined Contribution
Retirement Plan Liability
 Defined Contribution Plans often have little
or no pension liability associated with them.
If the defined contribution pension expense
exceeds the amount that was contributed,
the difference will be reported as a liability.
This typically occurs if there are contributions
that are due for the fiscal year or other
reporting period that were not remitted by
the end of the fiscal year or other reporting
period. (basically a year end payable due to
timing difference).
Special Funding Situations
 If another entity is legally responsible for
some or all of the PHA’s defined contribution
expense, and either (a) the amount the other
entity is required to contribute is not based
on events or circumstances unrelated to
pensions, and/or (b) the contributing entity is
the only entity legally required to contribute
to the plan, then it is considered a “special
funding situation”. What happens in this case
is that the full pension expense is reported in
the financial statements of the PHA and the
third party non-PHA share is reported as
revenue in the financial statements.
Defined Contribution Plan
In addition to the expense and possibly a
liability as indicated above, the PHA’s financial
statements must include footnote disclosures
as follows:
 Description of the defined contribution
pension plan and related benefits;
 The contribution rates for the PHA employer,
for employees, and if applicable any third
parties that are not the PHA or its employees;
 The amount of pension expense and;
 The amount of the employer’s outstanding
liability if any.
The first step in implementing GASB 68 is
determining plan type. There are generally three
types of plans:
1. Single employer plans – pretty self
explanatory, these plans are dedicated to
one employer. Not many PHAs, if any, will
have a dedicated defined benefit plan just for
2. Agent multi-employer plans – these are
plans that cover more than one employer but
track expense and liability data on each
employer separately. Generally the assets of
the plan are legally segregated by employer.
Three types of plans – continued
3. Cost sharing multi-employer plans – these
plans do not segregate assets by employer,
and the funds in the plan may therefore be
used to pay benefits for any participating
employer. Under GASB 68 cost sharing
multi employer plans must calculate each
employers “proportionate share” of the
pension expense and pension liability. GASB
dictates the options for plans to do so.
Pension Liabilities – 2 types
Employers that provide defined benefit
retirement plans may have to report liabilities
from two possible sources:
 A liability due to the unfunded portion of
future retirement benefits – a noncurrent
liability (explained shortly).
 A separate liability, if applicable, for
contributions payable at Fiscal Year End that
have been assessed by the plan but not paid
to the plan. This is a current liability, unless a
portion of it is in a long-term installment
Unfunded Pension Liability
The Net Pension Liability is equal to:
The Total Pension Liability = TPL (equal to the
net present value of future benefit payments
attributable to past periods of service)
The Pension Plan’s Net Position (i.e. the
retirement plan’s assets, less plan liabilities)
The Net Pension Liability = NPL
Additional Details
 As stated earlier this will typically be a non-
current liability.
 The calculation is based upon the benefits
earned, not the required funding due.
 Determining the Total Pension Liability will
typically require the services of an actuary.
 If you are in a state or other multi-employer
plan, chances are they will calculate this and
provide it to you.
Applicable Dates
There are three different dates that may be
used to measure the pension liability:
 An “actuarial valuation date” no more than 30
months plus 1 day prior to the Fiscal Year End of
the employer (in this case GASB 68 requires “roll
forward” procedures to be applied);
 A “measurement date” no earlier than the end of
the prior fiscal year; or
 The employers Fiscal Year End.
The dates used for Total Pension Liability and the
plan’s Net Position must, of course, correspond.
Note that actuarial valuations must occur at least
every two years.
Information to be Provided
by a Multi Employer Plan
 If you are part of the state retirement system
or some other multi employer plan, whether
it is an agent multi employer or a cost sharing
plan, you should receive the following
information within a reasonable timeframe
that allows you to comply with GASB 68:
 Unfunded Pension Liability
 Current Year Pension Expense
 Deferred Outflow and Deferred Inflow Balances
 Information Needed For Disclosures
How Plans Will Calculate the
Net Pension Liability
Calculating the Net Pension Liability involves
three steps: (1) first the plan will estimate what
benefits will be paid out for current employees
and retirees based upon current years of service
and other factors affecting benefit amounts, (2)
as shown on the earlier slide, this stream of
estimated future benefit payments is then
“discounted back” to determine the Net
Present Value (NPV) – what this number
represents is how much the plan would need to
have “in the bank” so to speak, right now,
in order to satisfy all future benefit obligations, and
(3) deduct the amount that the plan already has “in
the bank” – actually the current Net Position of the
retirement plan itself – its assets including cash,
investments, receivables, etc, minus its liabilities.
When determining part 1 above, the estimate of
what benefits will be paid out, the actuary
employed by the plan will take into account current
salaries, years of services, inflationary increases the
plan is obligated to provide, etc. These are taken as
they are based upon conditions at the date the
liability is determined.
When determining the discounted Net Present
Value of all future benefit payments for
purposes of determining pension liability, there
are two different discount rates that might be
used by the plan:
 The realistic expected future return on
retirement plan investments (e.g. 6-8%)
 Or, the rate for 20 year tax exempt municipal
bonds AA Aa or higher (e.g 2-4%)
Discount Rates
 The realistic expected future return on
retirement plan investments 6-8% can be
used for as long as the plan’s net assets are
anticipated to be sufficient to pay benefits, as
projected year by year into the future. This
analysis takes into account contributions,
investment earnings, retirement benefits,
and administrative expenses.
 The lower 2-4% rate -the 20 year tax exempt
municipal bonds AA Aa or higher - is required
for any years that the test above comes out
negative - years in which a shortfall is
Net Present Value
 Imagine what a difference this can make in
the calculation of Net Present Value – 2-4%
versus 6-8%, in our example - considering the
long term horizons involved.
 The calculation of the Net Present Value of
future benefit payments is further complicated
by the fact that the assessment of whether
retirement plan net position is sufficient to
cover anticipated benefits, is determined on a
year by year basis (year 1, year 2, year 3, and so
on). A projection is completed that can carry
out many years, indicating each year with a
discount rate of either (1) the rate of return on
plan investments if the plan’s projected net
position that year is enough to cover benefit
payments (if there is NOT a shortfall), or (2) the
20 year muni bond rate it the plan’s projected
net position that year is not enough to cover
benefit payments.
 This can result in the discount rate varying by
year, and GASB 68 requires that a single
“blended” rate be calculated for all of the years
used. The GASB 68 implementation guide
provides an example of this calculation with
numbers filled in. It is too complicated and
voluminous to include in this seminar,
considering that the plan will usually provide
this information to the PHA. If you would like
to see a detailed example, refer to the GASB 68
implementation guide, page 118 (
Accounting for Expense, Deferred
Outflows and Deferred Inflows
An important part of understanding GASB 68 is
recognizing how to account for the change in
the Net Pension Liability (NPL) from one period
to the next. The net change in the NPL from
last Fiscal Year End to the current Fiscal Year
End is, for the most part, current year pension
expense. However, there are exceptions –
items that are recognized as expense in future
Certain changes in Net
Pension Liability (NPL) will
not immediately hit expense
 Changes in Actuarial Assumptions (including
Economic and Demographic items)
Differences between actual and assumed
actuarial experience
Differences between projected earnings and
actual earnings on investments
Changes in Proportionate Share
Employer contributions made after
measurement date
Your Plan is to Report Deferred
Outflows and Deferred Inflows
 This sounds really complicated but the fact is
unless you are in a single employer plan (very
few PHAs if any are in that situation), the plan
administrator should account for and report
deferred outflows and inflows to you
annually. I strongly recommend you ask that
question asap.
Agent vs Cost Sharing
 I do recommend that you determine as soon
as possible if you are participating in a “cost
sharing” plan. In that case the plan will need
to calculate each of these elements (NPL,
Expense, Deferred Outflow, Deferred Inflow)
and then report to you your allocable share of
each. This is because you would not have the
data to do so.
 Probably most Agent plans will also do this,
but it is possible (though unlikely) that they
could just provide the needed data to you and
drop it in your lap, since Agent plans track
everything separately by employer.
Employer Contributions
 Any contributions made during the current
fiscal year are to be treated as a reduction of
the Net Pension Liability (NPL). What this
means in reality of course is that when the
NPL is updated these contributions will
become part of the pension expense. So it
makes little difference whether the
contributions are coded as a debit to the
liability or a debit to expense as far as I can
Employer Contributions
 A similar situation exists with bad debt write-
offs. Technically under GAAP accounting bad
debts are written off to the Allowance for
Doubtful Accounts, and then when the
Allowance is updated periodically the writeoffs flow through to expense. Many PHAs
take the write-offs directly to expense – and
essentially end up at the same place (that is,
with the same amount of expense either
way). To me, the same applies to employer
retirement contributions, so I don’t
understand why GASB requires this.
Pension Contributions made
after the measurement date
 In a defined benefit pension plan, if there are
employer contributions that are made after
the measurement date for the Net Pension
Liability (NPL), these are shown as a deferred
outflow, and not as expense nor a reduction
to the NPL. These contributions will reduce
the NPL in the following fiscal year.
 Most PHAs will have this situation, unless
your year end is the same as the plan year
Recording retirement contributions
made after measurement date
This fiscal year end:
Dr Deferred Outflow of Resources – Pension Plans
Cr Cash
To record pension contributions made after the
measurement date
Next fiscal year:
Dr Net Pension Liability (or expense is ok)
Cr Deferred Outflow of Resources – Pension Plans
To reclassify pension contributions made in
previous fiscal year after measurement date, from
deferred outflow to reduce net pension liability
Accounting Issues
At the end of fiscal year 6/30/2015, 9/30/2015,
12/31/2015 or 3/31/2016, the Housing Authority
will need to make an entry to book the Net
Pension Liability (NPL), current year expense,
deferred outflows of resources, deferred inflows
of resources, and other items. Note that the net
amount of the pension liability balance at the
beginning of this first implementation/transition
year will not be charged to expense, but will be a
charge to beginning net position (equity), like a
prior period adjustment.
Prior Period Adjustment
Therefore the initial entry will be as follows for
the NPL beginning balance as of July 1, 2014,
October 1, 2014, January 1 2015, or April 1, 2015:
Dr Net Position (i.e. Equity)
Cr Net Pension Liability
To record beginning balance of NPL
What about allocating this liability between
Allocation of NPL
 GASB has given no guidance regarding
allocation of the Net Pension Liability
between programs, as far as I can tell
 HUD has give no guidance regarding
allocation of the Net Pension Liability
between programs
 In fact, an online search has yielded no results
on this, everybody seems to be ignoring it or
maybe just “stymied”!
Allocation of NPL (cont’d)
 So what is the “correct” way to allocate the
Net Pension Liability / NPL?
 It seems like this would involve:
 Step 1 Determining for each current worker and
retiree every program that they have worked in,
and how much the liability increased during the
time they worked for that program, or at least the
amount of salary each was paid in that timeframe
 Step 2 (good luck with that)
Allocation of NPL (cont’d)
 I suppose a more realistic alternative would
be to just allocate the liability based upon
current labor cost in each program – this is
not 100% correct, but what else can we do?
 Other Ideas?
COCC and Legacy Liabilities
 What we will give up with this simplified
method of allocation (for those PHAs that
have COCCs) is the opportunity to fund the
NPL as of the date you entered Asset
Management with AMP, HCV, and other
 In other words HUD per the PIH 2007-9
supplement allowed COCC legacy liabilities to
be funded from federal programs.
 Can you determine what your NPL was in
2008 when you converted?
Year End Accounting
 At some point you will receive a reconciliation
or statement for the retirement plan (PERS,
or equivalent).
 Hopefully, the statement will reflect the
unfunded pension liability (i.e. the NPL), the
amount of deferred outflows, the amount of
deferred inflows, and the pension expense.
 This information will likely be as of the plan’s
fiscal year end, but could be as of your fiscal
year end. Remember the allowable
measurement dates.
Year End Entry
Each of the following entries would be made to
update to the current balance as of the required
measurement date per the plan statement:
Dr Deferred Outflows of Resources
Cr Deferred Inflows of Resources
Cr Net Pension Liability
Dr/Cr Pension Expense for the net result of the
above three items
Could also include: administrative expense if
not already recorded
Reporting of these balances
 Net Pension Liability –
Beginning Balance
 Prior Period Adjustment, is
not recorded as expense
 Net Pension Liability –
 Long Term Liability, unless
Ending Balance
 Pension Expense
 Deferred Outflows
 Deferred Inflows
there is a payable at FYE
 Income Statement
 Bal Sheet below Assets
 Bal Sheet below Liabilities
Special Funding Situations
If another entity is legally responsible for some
or all of the PHA’s defined benefit expense, and
(a) the amount the other entity is required to
contribute is not based on events or
circumstances unrelated to pensions, and/or (b)
the contributing entity is the only entity legally
required to contribute to the plan, then it is
considered a “special funding situation”.
Reporting Examples
Reporting Examples
Reporting Examples
Special Funding (Continued)
Mentioned under the section for defined
contribution plans and it also applies to defined
benefit plans. In the PHA world this could occur
if the employees are under the City or County
plan and the City or County covers the cost.
What happens in this case is that the full
pension expense is reported in the financial
statements of the PHA (the contribution from
the PHA as well as the third party, such as the
City or County). Then the third party, non-PHA
share, is reported as revenue in the financial
statements reflecting their contribution.
Note Disclosures and
Required Supplementary
Information (RSI)
 The Notes and RSI required by GASB 68 are
 The remainder of this session will be
dedicated to providing a list of mandatory
disclosures and required supplementary
Note disclosures
 Descriptive information on the plan,
 Type of plan and the administrator
 Benefit terms including types of benefits,
key elements of the benefit formula,
classes of employees covered, etc
 Basis and authority for contributions, rates,
and contributions in the reporting period
 Availability of plan report
 Significant assumptions related to the Total
Pension Liability (TPL)
 Inflation, salary changes, postemployment
benefit changes, mortality assumptions,
experience studies
 Information concerning the discount rate –
the rate, assumptions used, how the rate
was determined for anticipated return on
plan investments, how the rate was
determined for the 20yr muni bond, which
periods each was applied to, and other
related information
 Information regarding the pension plan’s
fiduciary net position or reference to the plan
The measurement date
The actuarial valuation date
Changes in: assumptions, other inputs,
benefit terms
Changes subsequent to measurement date
Pension expense in current reporting period
 Deferred outflows and inflows of resources
 Balances by source
 Net Impact on pension expense in each of
the next 5 years
 Amount that will be a reduction of the Net
Pension Liability
 For single plans and agent multi-employer
 Number of employees covered, active and
 Allocated insurance contracts
 Schedule of changes in Net Pension
Liability by source for the reporting period
including service cost, interest, benefit
changes, contributions by source, plan
investment income, etc
 All data concerning special funding
situation if applicable
 For cost sharing multi-employer plans:
 Employers allocated proportion, basis for
the allocation, and the change in the
Employers proportionate share of NPL
Data concerning special funding situation if
Third party proportionate share
Employer’s proportionate share
Required Supplementary
Information - Agent Plans
 10 year schedules for the following:
 Changes in Net Pension Liability (NPL) by
 Total Pension Liability (TPL), Pension Plan’s
Net Position, Net Pension Liability (NPL),
Pension Plan’s Net Position expressed as
percentage of TPL, covered employee
payroll, NPL as percentage of covered
employee payroll (this information may be
presented with first item, changes in Net
Pension Liability by source
 Actuarially determined employer
contribution (ADEC), contributions in
relation to ADEC, difference, covered
employee payroll, contributions as
percentage of covered employee payroll
 If there is no ADEC, then the statutory or
contractual contribution requirements
 Notes to RSI with methods and assumptions
for ADEC and significant changes
Additional Required
Supplementary Information
for Cost Sharing Plans
 10 year schedules for the following:
 Employer’s proportionate share of NPL
expressed as a percentage, the
proportionate share of NPL expressed as an
amount, covered employee payroll,
proportionate share as a percentage of
covered-employee payroll, pension plan’s
net position as a percentage of TPL
 If there is a special funding situation, then
also the third party’s proportionate share
and employers proportionate share
 If there are statutory and/or contractual
contribution requirements, the required
contributions, contributions in relation to
those required, difference, covered
employee payroll, and contributions as a
percentage of covered employee payroll