GASB Technical Update
Mark Thomas
KPMG LLP
Year-End GAAP Training
April 18, 2014
GASB Standards on Pensions
• GASB Statement No. 67, Financial Reporting for
Pension Plans, Effective 6/30/14 [PLAN]
• GASB Statement No. 68, Accounting and Financial
Reporting for Pensions, Effective 6/30/15
[EMPLOYER]
• GASB Statement No. 71, Pension Transition for
Contributions Made Subsequent to the Measurement
Date (amendment of GASB Statement No. 68),
Effective 6/30/15
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Other GASB Statements:
• Statement No. 69 Government Combinations and
Disposals of Government Operations
• Statement No. 70 Accounting and Financial
Reporting for Nonexchange Financial
Guarantees
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GASB Statement No. 67
• Replaces the requirements of Statement No. 25,
Financial Reporting for Defined Benefit Pension
Plans and Note Disclosures for Defined
Contribution Plans and No. 50, Pension
Disclosures
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Statement No. 67 (continued)
• Defined Benefit Pension Plans –
are pensions for which the income or other
benefits that the plan member will receive at or
after separation from employment are defined by
the benefit terms.
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Statement No. 67 (continued)
• Defined Contribution Pension Plans – are
pensions having terms that:
Provide that the pensions a plan member will
receive will depend only on the contributions to
the plan member’s account, and actual earnings
on investments of those contributions.
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Statement No. 67 (continued)
• Defined Benefit Pension Plans –
a.Single-employer – pensions are provided to the
employees of one employer
b.Agent multiple-employer –plan assets are pooled
for investment purposes but separate accounts
are maintained for each individual employer
c.Cost-sharing multiple-employer – pension assets
and obligations are pooled
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Statement No. 67 (continued)
• A defined benefit pension plan should present
the following, prepared on the accrual basis of
accounting:
a. A statement of fiduciary net position
b. A statement of changes in fiduciary net position
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Summary of Plan Provisions
• Recognition, measurement and presentation of
financial statement amounts generally similar to
current guidance with exception of receivables
for contributions.
• Receivables for contributions recognized only for
contributions due pursuant to legal requirements
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Summary of Plan Provisions (continued)
• Note disclosures:
• Similar to nature of disclosures for employers with
the addition of information on investment policies
and actual rates of return on plan assets
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GASB Statement No. 68
Replaces the requirements of Statement No. 27,
Accounting for Pensions by State and Local
Government Employers and No. 50, Pension
Disclosures
Moving from a funding approach to an earned
approach
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Statement No. 68 (continued)
• Addresses accounting and financial reporting for
pensions that are provided to the employees of
state and local governmental employers
• Employers should report in their financial
statements a net unfunded pension liability
• Pension liability determined as of a date no
earlier than the end of the employer’s prior fiscal
year (i.e., measurement date)
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Pension Liability
• Employers participating in single-employer or
agent multiple-employer plans recognize 100
percent of the pension liability for each plan
• Employers participating in cost-sharing multipleemployer plans recognize their proportionate
share of the collective liability for the plan as a
whole.
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Net Pension Liability
• Net Pension Liability = Total pension liability
less fiduciary net position (assets)
• Total pension liability is the actuarial present
value of projected benefit payments attributed to
past employee service.
• Required actuarial valuations at least every two
years (strict actuarial parameters)
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Deferred Outflows/Inflows of
Resources
• Changes in resulting in deferred inflows/outflows
of resources:
• Effects of actuarial differences and changes in
assumptions related to economic or demographic
factors
• Differences between actual and projected earnings
on plan investments
• Employer contributions made directly by the
employer subsequent to the measurement date
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Recognition of Deferred Outflows/Inflows
• Amortization due to changes in total pension
liability should be over the average of the
expected service lives of all employees
• Amortization due to differences between
projected and actual earnings on investments
over five years beginning with the year in which
the difference occurred
• Results in the creation of “layers”, which are
amortized over closed period
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Participation in Cost-Sharing MultipleEmployer Plans
Cost-sharing Multiple-Employer plans – those in which the
pension obligations to the employees of more than one
employer are pooled (plan assets can be used to pay the
benefit of the employees of any employer)
• An employer should recognize its proportionate
share of the collective net pension liability,
pension expense, and deferred inflows/outflows
of a cost-sharing plan
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Participation in Cost-Sharing MultipleEmployer Plans (continued)
• Basis for proportion should be consistent with
manner in which required contributions are
determined
As a practical matter, it is anticipated the calculation of
proportion will be performed based on either required
contributions or covered payroll
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Participation in Cost-Sharing MultipleEmployer Plans
Proportionate share concept results in two types of
potential changes in pension liability:
• effect of a change in the employer’s proportion of the
plan’s collective net pension liability - recognized as
deferred inflow/outflow in the period of change
• difference during the measurement period between
actual plan contributions and the amount of the
employer’s proportionate share of collective contributions
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Relevant Employer Note Disclosures
• Balances of deferred pension outflows/inflows of
resources as of employer’s fiscal year-end
• Schedule for each of subsequent five years
amount of deferred pension outflows/inflows that
will be recognized in pension expense
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Relevant Employer Note Disclosures
• The employers’ proportionate share ($ and %) of
the net pension liability
• Basis on which its proportion was determined
• Changes in proportion since prior measurement
date
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Statement No. 71
• GASB Statement No. 71, Pension Transition for
Contributions Made Subsequent to the
Measurement Date (amendment of GASB
Statement No. 68)
• Issued November 2013
• Effective date: Simultaneously with Statement
No. 68 (effective June 30, 2015)
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Statement No. 71 (continued)
• Amendment of Statement No. 68:
• par. 137……It may not be practical for some
governments to determine the amounts of all deferred
inflows of resources and deferred outflows of
resources related to pensions, as applicable, at the
beginning of the period when the provisions of this
Statement are adopted. In such circumstances,
beginning balances for deferred inflows of resources
and deferred outflows of resources related to
pensions should not be reported.”
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Statement No. 71 (continued)
• Amendment to Statement No. 68 (par. 137)
• Recognize a beginning deferred outflow of resources
only for its pension contributions, if any, made
subsequent to the measurement date of the
beginning net pension liability, but before the start of
the government’s fiscal year.
• No beginning balances for other deferred outflows of
resources and deferred inflows of resources related to
pensions should be recognized
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Issues Related to Cost-Sharing
Multiple-Employer Plans
Cost-Sharing Multiple-Employer Plans
(AICPA Proposed Recommendations)
Issues
Information for Employer
Reporting
Census Data
April 2014
AICPA 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
• Substantially finalized
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Cost-Sharing Multiple-Employer Plans
Issues
• Audited financial statements of the plan only
include disclosure of the collective net pension
liability for the plan as a whole. They do NOT
include:
• Deferred outflows/inflows of resources by category
• Pension expense
• Each participating employer’s share of collective
pension amounts
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Cost-Sharing Multiple-Employer Plans
Issues (continued)
• Issues over allocations:
• Standard is silent on who (plan or each individual
participating employer) should calculate allocation
percentages
• Audited financial statements of the plan may not
include necessary information to calculate
allocation percentages
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Cost-Sharing Multiple-Employer Plans
Issues (continued)
• Standard provides flexibility in approach to
determine allocations
• Standard encourages an allocation method would
be extremely difficult to audit as it is based on
projected future contributions
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Cost-Sharing Multiple-Employer Plans Issues
(AICPA Proposed Recommendations) (continued)
Information for Employer Reporting
• Plan prepares the following for which plan auditor is engaged to provide opinion:
1. Schedule of employer allocations
• Use allocation method based on covered payroll or required (actual)
contributions depending on whether resulting allocations are expected to
be representative of future contributions
• Projected future contributions could be used if necessary
2.
Schedule of pension amounts by employer
• Includes the following elements: net pension liability, deferred outflows of
resources by category, deferred inflows of resources by category and
pension expense
• Alternative: Prepare a “schedule of collective pension amounts”
(excluding employer specific deferrals) for the plan as a whole
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Cost-Sharing Multiple-Employer Plans Issues
(AICPA Proposed Recommendations) (continued)
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Cost-Sharing Multiple-Employer Plans Issues
(AICPA Proposed Recommendations) (continued)
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Cost-Sharing Multiple-Employer Plans Issues
(AICPA Proposed Recommendations) (continued)
Information for Employer Reporting (Plan Auditor)
• Plan auditor issues opinion on the employer allocations and on the total of each of
the four “elements”:
•
Net pension liability
•
Total deferred outflows of resources
•
Total deferred inflows of resources
•
Total pension expense for the sum of all participating entities
Plan auditor needs to consider the appropriateness of the materiality (precision)
used in the audit of plan financial statements
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Cost-Sharing Multiple-Employer Plans
Issues (Employer Responsibilities)
• Complete and accurate data to plan
Report
• Appropriateness of information used to record financial statement amounts
Evaluate
• Whether plan auditor’s report on schedules are adequate and appropriate for
employer purposes
• Amounts in schedules specific to employer
Verify and
recalculate
April 2014
•
Employer amount used in allocation percentage (numerator)
•
Recalculate allocation percentage of employer
•
Recalculate allocation of pension amounts based on allocation percentage
of employer
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Cost-Sharing Multiple-Employer Plans Issues
(Employer Auditor Responsibilities)
Report
•
Sufficiency and appropriateness of audit evidence
•
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 the plan auditor has necessary competence and independence
•
Determine whether named as specified user
•
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
•
Census data submitted to plan
Evaluate
Verify and
recalculate
Test
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Cost-Sharing Multiple-Employer Plans
Issues (Census Data)
Testing Underlying Census Data for Active Employees
• Responsibility of the Plan auditor to test census data
• Employer auditor may perform agreed-upon procedures over census data for
purposes of the Plan audit
• Census data tested should coincide with the data used in the preparation of the
actuarial report (measurement date)
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Next Steps
Develop a comprehensive implementation plan
Meet with SCO to determine approach and timing of CSU
allocations
Working with KPMG to plan for the testing of Census Data
Draft new financial statements and disclosures
Monitor progress of implementation
Communicate implementation progress to constituent
groups/Board
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Q&A
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