What Do The NewPension Accounting Rules Mean To Governmental        DB Plans  William G. Karbon, COPA, MSPA, CPC Vice Pres...
What We Will Cover• GASB Statements 67 and 68    – Brief background    – Why change the rules?    – Significant changes   ...
Abbreviations•   EAN = Entry Age Normal•   FMV = Fair Market Value•   NPL = Net Pension Liability•   NFP = Net Fiduciary P...
Background             4
Background• Current pension accounting and financial  reporting standards    – GASB 25, Financial Reporting for Defined Be...
Background• Current pension accounting and financial  reporting standards    – GASB 50, Pension Disclosures       • Issued...
Background• January 2006 - Board approved project to  gather information regarding effectiveness of  Statements 25 and 27•...
Background• October 2009 through June 2010 – Board  reached tentative conclusions on basic  employer accounting and financ...
Background• Exposure Draft Issued July 8, 2011    – Proposed rules after receipt of comments on      Preliminary Views• GA...
Background• Effective Dates     – GASB Statement No. 67 – Financial Reporting for       Pension Plans        • Effective f...
Why The Change?                  11
Why The Change?• Standardize pension accounting• Clearer representation of pension obligations• Net pension liabilities be...
Significant Changes                      13
Significant Changes• TPL is calculated using uniform funding  method – EAN• NPL recognized on balance sheet14
Significant Changes• Separates accounting from funding     – Increased volatility• Assets recognized at FMV15
Significant Changes• Discount rate function of:     – Expected return     – Municipal bond index     – Sufficiency of proj...
Significant Changes• Uniform methodology to determine  income/expense and balance sheet liability     – Does not require c...
Requirements of GASB    Statement 67                       18
Requirements of GASB Statement 67• Establishes standards for state and local  governmental pension plans administered  thr...
Requirements of GASB Statement 67• Statement 67/68 requirements depend on  type of pension plan administered, as follows: ...
Requirements of GASB Statement 67• Statement requirements depend on the type  of pension plan administered, as follows:   ...
Requirements of GASB Statement 67• A defined benefit plan should present the  following financial statement:     – Stateme...
Requirements of GASB Statement 67• Net Position Restricted for Pensions     – Assets + Deferred Outflows of Resources –   ...
Requirements of GASB Statement 67• Assets reported at FMV should be subdivided     – Major categories        • i.e. cash, ...
Requirements of GASB Statement 67• Liabilities     – Benefits including refunds of participant       contributions        ...
Requirements of GASB Statement 67• Allocated insurance contracts are excluded  from assets if:     – Responsibility for be...
Requirements of GASB Statement 67• Statement of Changes in NFP     – Additions include:        •   Contributions from empl...
Requirements of GASB Statement 67• Statement of Changes in NFP     – Deductions, at a minimum must include:       • Benefi...
Requirements of GASB Statement 67• Notes to Financial Statements      – Plan Description         • Name of plan, who admin...
Requirements of GASB Statement 67• Notes to Financial Statements      – Plan Investments        • Investment policies, inc...
Requirements of GASB Statement 67• Notes to Financial Statements      – Receivables         • Terms of any long-term contr...
Requirements of GASB Statement 67• Notes to Financial Statements      – Allocated insurance contracts excluded from pensio...
Requirements of GASB Statement 67• Notes to Financial Statements      – Reserves        • If policy authorizes setting asi...
Requirements of GASB Statement 67• Financial Statement Disclosures     – Components of the liability        •   TPL       ...
Requirements of GASB Statement 67• Financial Statement Disclosures     – Significant assumptions (i.e. salary scale, infla...
Requirements of GASB Statement 67• Financial Statement Disclosures     – Discount rate        • Discount rate used to dete...
Requirements of GASB Statement 67• Financial Statement Disclosures     – Discount rate        • Periods of projected benef...
Requirements of GASB Statement 67• Supplementary Information     – 10-year schedule of changes in NPL        • Beginning &...
Requirements of GASB Statement 67• Supplementary Information     – 2nd 10-year schedule        •   TPL        •   Plan’s N...
Requirements of GASB Statement 67• Supplementary Information     – 3rd 10-year schedule        • Actuarially determined co...
Requirements of GASB Statement 67• Supplementary Information     – 3rd 10-year schedule        • Difference between actuar...
Requirements of GASB Statement 67• Supplementary Information     – 4th 10-year schedule        • The annual money-weighted...
Requirements of GASB Statement 67• Frequency of valuation     – As of most recent fiscal year end; OR     – Roll forward t...
Requirements of GASB    Statement 68                       44
Requirements of GASB Statement 68• Establishes accounting/financial standards for  state and local governmental pension pl...
Requirements of GASB Statement 68• Applies to financial statements of all state and  local governmental employers who pens...
Requirements of GASB Statement 68• Single and Agent Employers     – Balance sheet liability recognized for the NPL       w...
Requirements of GASB Statement 68• Single and Agent Employers     – TPL should be determined as of:        • Measurement d...
Requirements of GASB Statement 68• Single and Agent Employers     – Projected benefit payments should include:        • Be...
Requirements of GASB Statement 68• Single and Agent Employers     – Discount rate        • For period of time the plan’s N...
Requirements of GASB Statement 68• Single and Agent Employers     – Discount rate        • Long-term expected rate of retu...
Requirements of GASB Statement 68• Single and Agent Employers     – Projection of plan’s NFP        • Incorporate all cash...
Requirements of GASB Statement 68• Single and Agent Employers     – Projection of plan’s NFP        • Professional judgmen...
Requirements of GASB Statement 68• Single and Agent Employers     – EAN used to attribute actuarial present value of      ...
Requirements of GASB Statement 68• Single and Agent Employers     – EAN used to attribute actuarial present value of      ...
Requirements of GASB Statement 68• Single and Agent Employers     – Changes in NPL recognized in pension expense        • ...
Requirements of GASB Statement 68• Single and Agent Employers     – Changes in NPL recognized in pension expense        • ...
Requirements of GASB Statement 68• Single and Agent Employers     – Changes in NPL recognized in pension expense        • ...
Requirements of GASB Statement 68• Single and Agent Employers     – Notes to financial statements        •   Pension liabi...
Requirements of GASB Statement 68• Single and Agent Employers     – Plan Description        • Name of plan, who administer...
Requirements of GASB Statement 68• Single and Agent Employers     – NPL – Assumptions and other inputs       • Assumptions...
Requirements of GASB Statement 68• Single and Agent Employers     – NPL – Discount rate        • Discount rate used to mea...
Requirements of GASB Statement 68• Single and Agent Employers     – NPL – Discount rate        • Periods of projected bene...
Requirements of GASB Statement 68• Single and Agent Employers     – Changes in NPL       • Beginning balances of TPL, NFP ...
Requirements of GASB Statement 68• Single and Agent Employers      – Additional disclosures regarding NPL         • Measur...
Requirements of GASB Statement 68• Single and Agent Employers      – Additional disclosures regarding NPL         • Pensio...
Requirements of GASB Statement 68• Single and Agent Employers• Supplementary Information     – 10-year schedule of changes...
Requirements of GASB Statement 68• Single and Agent Employers      – Supplementary Information        • 2nd 10-year schedu...
Requirements of GASB Statement 68• Single and Agent Employers      – Supplementary Information        • 3rd 10-year schedu...
Requirements of GASB Statement 68• Single and Agent Employers      – Supplementary Information        • 4th 10-year schedu...
Requirements of GASB Statement 68• Cost Sharing Employers     – Liability should be recognized for employer’s       propor...
Requirements of GASB Statement 68• Cost Sharing Employers     – Suggested employer proportionate share of       collective...
Requirements of GASB Statement 68• Cost Sharing Employers     – Proportionate share of collective NPL determined       at ...
Requirements of GASB Statement 68• Cost Sharing Employers     – Pension expense, deferred outflows and deferred       infl...
Requirements of GASB Statement 68• Cost Sharing Employers     – Changes in the employer’s proportion of the       collecti...
Requirements of GASB Statement 68• Cost Sharing Employers     – The following are determined using the same       methodol...
Requirements of GASB Statement 68• Cost Sharing Employers     – Similar disclosures as single and agent employers        •...
Examples           78
Example 1• Fact Pattern 1:     – Assets @ 12/31/14 = $1,000,000     – 2015 Payroll = $1,000,000     – Employer Contributio...
Example 1• Fact Pattern 1:     – Fund will deplete in 19 years     – Discount rate will be blended rate of 7.75% for 19 ye...
Example 1• Fact Pattern 2:     – Assets @ 12/31/14 = $1,000,000     – 2015 Payroll = $1,000,000     – Employer Contributio...
Example 1• Fact Pattern 2:     – Fund will NOT deplete over next 35 years     – Can use the long-term expected rate of ret...
Example2• Disclosure of discount rate         Asset Class        Target Allocation       Long-Term                        ...
Example 2• Disclosure of discount rate     – Actuarial Assumptions        • Inflation                   3.5%        • Sala...
Example 2• Disclosure of discount rate     – Long-term ROR determined using building block method     – Best estimate rang...
Example 2• Disclosure of discount rate     Domestic equity           .46 X 5.4   2.5%     International equity      .21 X ...
Example 3                    Actives        Inactives       TotalExpected Pension      $2,000,000      $1,000,000    $3,00...
Example 3                    Actives         Inactives        TotalNumber of                     100               50     ...
Upcoming SlideShare
Loading in...5
×

What Do The New Pension Accounting Rules Mean To Governmental DB Plans

645
-1

Published on

GASB presentation given at the 2012 Annual Conference of the American Society of Pension Professionals and Actuaries (ASPPA)

Published in: Economy & Finance
1 Comment
1 Like
Statistics
Notes
  • Contact Bill Karbon, the author of this presentation for more information at wkarbon@cbiz.com or 609-895-5332
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
No Downloads
Views
Total Views
645
On Slideshare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
1
Comments
1
Likes
1
Embeds 0
No embeds

No notes for slide

What Do The New Pension Accounting Rules Mean To Governmental DB Plans

  1. 1. What Do The NewPension Accounting Rules Mean To Governmental DB Plans William G. Karbon, COPA, MSPA, CPC Vice President, Director of Compliance CBIZ Benefits & Insurance Services, Inc. Lawrenceville, NJ
  2. 2. What We Will Cover• GASB Statements 67 and 68 – Brief background – Why change the rules? – Significant changes – Requirements of GASB Statement 67 – Requirements of GASB Statement 68 – Examples2
  3. 3. Abbreviations• EAN = Entry Age Normal• FMV = Fair Market Value• NPL = Net Pension Liability• NFP = Net Fiduciary Position• TPL = Total Pension Liability3
  4. 4. Background 4
  5. 5. Background• Current pension accounting and financial reporting standards – GASB 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for DC Plans • Issued November 1994 • Effective for periods beginning after June 15, 1996 – GASB 27, Accounting for Pensions by State and Local Governmental Employers • Issued November 1994 • Effective for periods beginning after June 15, 19975
  6. 6. Background• Current pension accounting and financial reporting standards – GASB 50, Pension Disclosures • Issued May 2007 • Effective for periods beginning after June 15, 20076
  7. 7. Background• January 2006 - Board approved project to gather information regarding effectiveness of Statements 25 and 27• April 2008 – Postemployment benefit accounting and financial reporting project added to GASB’s technical agenda7
  8. 8. Background• October 2009 through June 2010 – Board reached tentative conclusions on basic employer accounting and financial reporting issues presented for public comment in the Invitation to Comment• Preliminary Views on Pension Accounting and Financial Reporting Issued June 26, 20108
  9. 9. Background• Exposure Draft Issued July 8, 2011 – Proposed rules after receipt of comments on Preliminary Views• GASB Statements 67 and 68 Issued June 25, 2012 – Amends GASB Statements 25, 27 and 509
  10. 10. Background• Effective Dates – GASB Statement No. 67 – Financial Reporting for Pension Plans • Effective for fiscal years beginning after June 15, 2013 – GASB Statement No. 68 – Accounting and Financial Reporting for Pensions • Effective for fiscal years beginning after June 15, 2014 – Earlier application of new rules is encouraged10
  11. 11. Why The Change? 11
  12. 12. Why The Change?• Standardize pension accounting• Clearer representation of pension obligations• Net pension liabilities become balance sheet item• Provides users of financial reports with clearer picture of the size and nature of the defined benefit plan’s financial obligations12
  13. 13. Significant Changes 13
  14. 14. Significant Changes• TPL is calculated using uniform funding method – EAN• NPL recognized on balance sheet14
  15. 15. Significant Changes• Separates accounting from funding – Increased volatility• Assets recognized at FMV15
  16. 16. Significant Changes• Discount rate function of: – Expected return – Municipal bond index – Sufficiency of projected assets• Accelerated amortization of: – Plan changes – Gains / losses – Assumption changes16
  17. 17. Significant Changes• Uniform methodology to determine income/expense and balance sheet liability – Does not require change to funding method or contribution strategy – Volatility in accounting does not cause change to contribution strategy • However, determination of discount rate may impact contribution strategy17
  18. 18. Requirements of GASB Statement 67 18
  19. 19. Requirements of GASB Statement 67• Establishes standards for state and local governmental pension plans administered through trusts in which: – Contributions and earnings on those contributions are irrevocable – Plan assets are dedicated to providing pensions to plan members in accordance with benefit terms – Plan assets are protected from creditors19
  20. 20. Requirements of GASB Statement 67• Statement 67/68 requirements depend on type of pension plan administered, as follows: – Single-employer pension plans • Pensions provided to employees of only one employer – Agent multiple-employer pension plans • Plan assets are pooled for investment purposes, separate accounts maintained for each individual employer – Employer’s share of assets can only be used to pay benefits of its employees20
  21. 21. Requirements of GASB Statement 67• Statement requirements depend on the type of pension plan administered, as follows: – Agent multiple-employer pension plans • Plan assets are pooled for all purposes – Assets are used to pay benefits of the employees of any employer21
  22. 22. Requirements of GASB Statement 67• A defined benefit plan should present the following financial statement: – Statement of NFP – Statement of changes in NFP22
  23. 23. Requirements of GASB Statement 67• Net Position Restricted for Pensions – Assets + Deferred Outflows of Resources – Liabilities - Deferred Inflows of Resources23
  24. 24. Requirements of GASB Statement 67• Assets reported at FMV should be subdivided – Major categories • i.e. cash, receivables, investments and assets used for plan operations – Principal components of receivables • i.e. Employer contributions, employee contributions and interest / dividends – Investment Categories • Asset classes24
  25. 25. Requirements of GASB Statement 67• Liabilities – Benefits including refunds of participant contributions • Recognized when benefits are currently due and payable – Accrued investment and administrative expenses25
  26. 26. Requirements of GASB Statement 67• Allocated insurance contracts are excluded from assets if: – Responsibility for benefits are irrevocably transferred to insurer – All required payments to acquire the contracts have been made – Remote likelihood that employer or plan will have to make additional payments to cover benefits• Same rule for Statement 6826
  27. 27. Requirements of GASB Statement 67• Statement of Changes in NFP – Additions include: • Contributions from employers • Contribution from nonemployer contributing entities • Participant contributions • Net investment income, must separately identify: – investment income – investment related expenses27
  28. 28. Requirements of GASB Statement 67• Statement of Changes in NFP – Deductions, at a minimum must include: • Benefit payments (including refund of participant contributions) • Total administrative expense28
  29. 29. Requirements of GASB Statement 67• Notes to Financial Statements – Plan Description • Name of plan, who administers plan, identify whether plan is single-employer, agent or cost-sharing • # of participating ers & # of non-er contributing entities • Information regarding plan’s board / trustees • Number of participants in each class (i.e. retirees, term vested, actives), state if plan is closed to new entrants • Authority establishing and description of benefit terms • Description of contribution requirements for er, non-er contributing entities and participants 29
  30. 30. Requirements of GASB Statement 67• Notes to Financial Statements – Plan Investments • Investment policies, including: – Procedures for establishing & amending investment policy decisions – Policies pertaining to asset allocation – Description of significant investment policy changes during the reporting period • Description of how FMV is determined • Identification of investments in any organization that represents 5% or more of plan’s NFP • Annual money-weighted rate of return 30
  31. 31. Requirements of GASB Statement 67• Notes to Financial Statements – Receivables • Terms of any long-term contracts for contributions to the plan between employer or nonemployer contributing entity and the plan • Balances outstanding on any such long-term contracts at the end of the plan’s reporting period 31
  32. 32. Requirements of GASB Statement 67• Notes to Financial Statements – Allocated insurance contracts excluded from pension plan assets • Amount reports in benefit payments attributable to purchase of allocated insurance contracts • Description of pensions for which allocated insurance contracts were purchased in current period • Fact that obligation for payment of benefits has been transferred to insurance company 32
  33. 33. Requirements of GASB Statement 67• Notes to Financial Statements – Reserves • If policy authorizes setting aside assets for specific purposes such as benefit increases or contribution reductions – Description of policy related to such reserves – Authority under which policy was established and may be amended – Purpose for / condition under which reserves are required or permitted to be used – Balances of the reserves 33
  34. 34. Requirements of GASB Statement 67• Financial Statement Disclosures – Components of the liability • TPL • Plan’s NFP • NPL • Plan’s NFP as a % of TPL – If cost-sharing plan, the above should be presented for the plan as a whole34
  35. 35. Requirements of GASB Statement 67• Financial Statement Disclosures – Significant assumptions (i.e. salary scale, inflation, ad hoc COLAs) used to measure the TPL • Source of mortality assumption • State if assumptions are based on an experience study and the date of such a study35
  36. 36. Requirements of GASB Statement 67• Financial Statement Disclosures – Discount rate • Discount rate used to determine TPL for current year, change is rate since prior fiscal year • Assumptions regarding projected cash flows into and out of the plan • Long-term expected rate of return and description of how it was determined • If discount rate incorporates a municipal bond rate, the rate used and source of the rate36
  37. 37. Requirements of GASB Statement 67• Financial Statement Disclosures – Discount rate • Periods of projected benefit payments to which the long-term rate of return and municipal bond rate will be applied to determine discount rate • Assumed asset allocation and long-term expected real rate of return for each major asset class • NPL calculated using discount rate which is 1% higher and 1% lower than the discount rate used for disclosure purposes37
  38. 38. Requirements of GASB Statement 67• Supplementary Information – 10-year schedule of changes in NPL • Beginning & ending balances of TPL, plan’s NFP & NPL • Effect on changes to above for each component (i.e. service cost, interest on TPL, change in benefit terms, experience gains/losses, assumption changes, contributions, net investment income, benefit payments and administrative expenses) • Cost-sharing plans are presented for plan as a whole38
  39. 39. Requirements of GASB Statement 67• Supplementary Information – 2nd 10-year schedule • TPL • Plan’s NFP • NPL • Plan’s NFP as % of TPL • Covered payroll • NPL as % of covered payroll • Cost-sharing plans are presented for plan as a whole39
  40. 40. Requirements of GASB Statement 67• Supplementary Information – 3rd 10-year schedule • Actuarially determined contributions of employer/nonemployer contributing entity • For cost-sharing plans – contractually required contribution of employer/nonemployer contributing entity • Contributions recognized during fiscal year in relation to actuarially determined contribution40
  41. 41. Requirements of GASB Statement 67• Supplementary Information – 3rd 10-year schedule • Difference between actuarially recognized contribution and the amount of contributions recognized by the plan in relation to the actuarially determined contribution • Covered-employee payroll • Amount of contributions recognized by the plan in relation to the actuarially determined contribution as a % of covered-employee payroll41
  42. 42. Requirements of GASB Statement 67• Supplementary Information – 4th 10-year schedule • The annual money-weighted rate of return for each fiscal year42
  43. 43. Requirements of GASB Statement 67• Frequency of valuation – As of most recent fiscal year end; OR – Roll forward to most recent fiscal year-end from an actuarial valuation no more than 24 months prior to most recent fiscal year-end43
  44. 44. Requirements of GASB Statement 68 44
  45. 45. Requirements of GASB Statement 68• Establishes accounting/financial standards for state and local governmental pension plans administered through trusts in which: – Contributions and earnings on those contributions are irrevocable – Plan assets are dedicated to providing pensions to plan members in accordance with benefit terms – Plan assets are protected from creditors45
  46. 46. Requirements of GASB Statement 68• Applies to financial statements of all state and local governmental employers who pension plans are administered through trusts as noted in previous slide.• If not administered through trust as described in previous slide, GASB Statements 27 and 50 continue to apply46
  47. 47. Requirements of GASB Statement 68• Single and Agent Employers – Balance sheet liability recognized for the NPL which is the TPL net of the plan’s NFP. • NPLs associated with different plans can be displayed in the aggregate, aggregated liabilities and assets should be displayed separately • NPL should be measured as of date no earlier than end of prior fiscal year applied consistently from year to year47
  48. 48. Requirements of GASB Statement 68• Single and Agent Employers – TPL should be determined as of: • Measurement date; OR • Roll forward to measurement date from an actuarial valuation no more than 30 months and 1 day prior to most recent fiscal year-end48
  49. 49. Requirements of GASB Statement 68• Single and Agent Employers – Projected benefit payments should include: • Benefit provided to current active and inactive employees in accordance with benefit terms and legal agreements to provide benefits that are in force as of the measurement date • Effects of automatic and ad hoc postemployment benefit changes including COLAs • Projected salary increases • Projected service credits49
  50. 50. Requirements of GASB Statement 68• Single and Agent Employers – Discount rate • For period of time the plan’s NFP is sufficient to make projected benefit payments, use long-term expected rate of return. • If plan’s NFP is not sufficient, use a yield or index rate for 20-year, tax-exempt general obligation municipal bonds with an average rating of AA/Aa or higher50
  51. 51. Requirements of GASB Statement 68• Single and Agent Employers – Discount rate • Long-term expected rate of return – Based on nature and mix of current and expected plan investments over a period representative of expected length of time between an employee’s date of hire and the time all of their benefits have been paid51
  52. 52. Requirements of GASB Statement 68• Single and Agent Employers – Projection of plan’s NFP • Incorporate all cash flow for employer and nonemployer contributing entities intended to finance benefits for current active and inactive employees and participant contributions from current employees • Cannot include contributions for future employees unless contributions are projected to exceeded service cost of the future employees52
  53. 53. Requirements of GASB Statement 68• Single and Agent Employers – Projection of plan’s NFP • Professional judgment should be applied to project cash flows – Contribution amounts established by statute or contract – Formal, written funding policy – Average of contributions over most recent five-year period53
  54. 54. Requirements of GASB Statement 68• Single and Agent Employers – EAN used to attribute actuarial present value of projected benefit payments • Attribution made on individual employee basis • Employee’s service costs should be level as % of that employee’s project pay (use inflation rate if no projected pay) • Attribution begins with first period in which employee’s service accrues pensions under benefit terms54
  55. 55. Requirements of GASB Statement 68• Single and Agent Employers – EAN used to attribute actuarial present value of projected benefit payments • Service cost of all pensions should be attributed through all assumed exit ages, through retirement • Service cost determined on same benefit terms reflected in employee’s actuarial present value of projected benefit payments55
  56. 56. Requirements of GASB Statement 68• Single and Agent Employers – Changes in NPL recognized in pension expense • Present value of attributed benefit accruals • Interest on NPL • Present value of benefit change resulting from plan amendment56
  57. 57. Requirements of GASB Statement 68• Single and Agent Employers – Changes in NPL recognized in pension expense • Amortization of liability experience gains/losses and impact of assumption change – Amortized over expected remaining service lives (actives and inactives) – Remaining service life for inactive is zero – Liability experience gains/losses and changes due to assumption changes not recognized in pension expense should be reported as deferred inflow/outflow57
  58. 58. Requirements of GASB Statement 68• Single and Agent Employers – Changes in NPL recognized in pension expense • Five year amortization of asset experience gains/losses – Liability experience gains/losses and changes due to assumption changes not recognized in pension expense should be reported as deferred inflow/outflow58
  59. 59. Requirements of GASB Statement 68• Single and Agent Employers – Notes to financial statements • Pension liabilities • Pension assets • Deferred outflows of resources • Deferred inflows of resources • Pension expense/expenditures59
  60. 60. Requirements of GASB Statement 68• Single and Agent Employers – Plan Description • Name of plan, who administers plan, identify whether plan is single-employer or agent • Description of benefit terms • Number of participants in each class (i.e. retirees, term vested, actives) • Description of contribution requirements for er, non-er contributing entities and participants • State whether plan issues a stand-alone financial report or if included in report of PERS or another government60
  61. 61. Requirements of GASB Statement 68• Single and Agent Employers – NPL – Assumptions and other inputs • Assumptions/inputs used to measure TPL – Inflation – Salary changes – Ad hoc postemployment benefit changes – Source of mortality assumptions – Dates of experience studies impacting significant assumptions61
  62. 62. Requirements of GASB Statement 68• Single and Agent Employers – NPL – Discount rate • Discount rate used to measure TPL – Change in discount rate since last measurement date • Assumptions about cash flows in and out of plan • Long-term expected rate of return – How was it determined – Significant methods and assumptions • If rate uses municipal bond rate, municipal bond rate used and source of the rate62
  63. 63. Requirements of GASB Statement 68• Single and Agent Employers – NPL – Discount rate • Periods of projected benefit payments to which long- term rate/municipal bond rate are applied • Assumed asset allocation of portfolio – Long-term expected real rate of return for each major class – Whether expected rates are arithmetic or geometric means • Measures of NPL using discount rate which is 1.0% higher and 1.0% lower than rate used for financial statement purposes63
  64. 64. Requirements of GASB Statement 68• Single and Agent Employers – Changes in NPL • Beginning balances of TPL, NFP and NPL • Effects of following during the period: – Service cost – Interest on NPL – Change of benefit terms – Difference between expected and actual liability experience – Change of assumptions – Contributions - employer, noncontributing entity & employee – Net investment income – Benefit payments – Administrative expenses – Other64 • Beginning balances of TPL, NFP and NPL
  65. 65. Requirements of GASB Statement 68• Single and Agent Employers – Additional disclosures regarding NPL • Measurement date of NPL including date of actuarial valuation used to determine TPL • If employer has special funding situation, employer’s % of collective NPL • Brief description of change to assumptions or benefits • Description/amount – purchased allocated insurance contracts • If significant, description of changes between NPL measurement date and employer’s reporting date 65
  66. 66. Requirements of GASB Statement 68• Single and Agent Employers – Additional disclosures regarding NPL • Pension expense recognized in reporting period • Balances of deferred outflows and inflows, classified as: – Difference between expected and actual experience in TPL – Changes of assumptions – Difference between expected and actual earnings on investments • Employer contributions subsequent to NPL measurement date 66
  67. 67. Requirements of GASB Statement 68• Single and Agent Employers• Supplementary Information – 10-year schedule of changes in NPL • Beginning and ending balances of TPL, plan’s fiduciary net position and NPL • Effect on changes to above for each component (i.e. service cost, interest on TPL, change in benefit terms, experience gains/losses, assumption changes, contributions, net investment income, benefit payments and administrative expenses)67
  68. 68. Requirements of GASB Statement 68• Single and Agent Employers – Supplementary Information • 2nd 10-year schedule – TPL – Plan’s NFP – Collective NPL – Nonemployer contributing entity’s share of collective NPL – Employer’s share of collective NPL – Covered payroll – Employer’s share of collective NPL as % of payroll – Plan’s NFP as % of TPL 68
  69. 69. Requirements of GASB Statement 68• Single and Agent Employers – Supplementary Information • 3rd 10-year schedule – Actuarially determined contributions of employer – Contributions recognized during fiscal year in relation to actuarially determined contribution – Difference between actuarially recognized contribution and amount of contributions recognized by plan in relation to actuarially determined contribution – Covered-employee payroll – Amount of contributions recognized by plan in relation to actuarially determined contribution as % of payroll 69
  70. 70. Requirements of GASB Statement 68• Single and Agent Employers – Supplementary Information • 4th 10-year schedule (contribution not actuarially determined, contributions established by statute/contract) – Statutorily or contractually required employer contribution – Contributions recognized during fiscal year in relation to statutorily or contractually required contribution – Difference between statutorily or contractually required contribution and amount of contributions recognized by plan in relation to statutorily or contractually required contribution – Covered-employee payroll – Amount of contributions recognized by plan in relation to statutorily or contractually required contribution as % of payroll 70
  71. 71. Requirements of GASB Statement 68• Cost Sharing Employers – Liability should be recognized for employer’s proportionate share of collective NPL • Measured as of a date no earlier than end of employer’s prior fiscal year end71
  72. 72. Requirements of GASB Statement 68• Cost Sharing Employers – Suggested employer proportionate share of collective NPL = (1) ÷ (2) × (3) as follows: (1) = Employer’s projected long-term contribution effort to the plan (including nonemployer contribution entities) (2) = Long-term contribution effort to the plan of all employers (including nonemployer contribution entities) (3) = Collective NPL72
  73. 73. Requirements of GASB Statement 68• Cost Sharing Employers – Proportionate share of collective NPL determined at measurement date. Use valuation date if contribution is actuarially determined73
  74. 74. Requirements of GASB Statement 68• Cost Sharing Employers – Pension expense, deferred outflows and deferred inflows should be employer’s proportionate share of collective pension expense, collective deferred outflows and collective deferred inflows. – Proportionate share should be determined using employer’s proportion of collective NPL74
  75. 75. Requirements of GASB Statement 68• Cost Sharing Employers – Changes in the employer’s proportion of the collective NPL since prior measurement date should be amortized in the employer’s pension expense. • Amortization period is the expected remaining service lives of all employees (active and inactive)75
  76. 76. Requirements of GASB Statement 68• Cost Sharing Employers – The following are determined using the same methodologies as single and agent employers: • Collective NPL • Timing and frequency of valuations • Selection of assumptions • Projection of benefit payments • Discount rate76
  77. 77. Requirements of GASB Statement 68• Cost Sharing Employers – Similar disclosures as single and agent employers • Plan Description • Assumptions • NFP • 10 year schedules77
  78. 78. Examples 78
  79. 79. Example 1• Fact Pattern 1: – Assets @ 12/31/14 = $1,000,000 – 2015 Payroll = $1,000,000 – Employer Contribution Rate = 5.0% of Payroll (Per Funding Policy) – 2015 Benefit Payments = $100,000 – Municipal bond index rate = 4.5% – All benefits promised by plan will be paid in next 35 years79
  80. 80. Example 1• Fact Pattern 1: – Fund will deplete in 19 years – Discount rate will be blended rate of 7.75% for 19 years and 4.5% for 16 years – Blended rate = 6.25%80
  81. 81. Example 1• Fact Pattern 2: – Assets @ 12/31/14 = $1,000,000 – 2015 Payroll = $1,000,000 – Employer Contribution Rate = 10.0% of Payroll (Per Funding Policy) – 2015 Benefit Payments = $100,000 – Municipal bond index rate = 4.5% – All benefits promised by plan will be paid in next 35 years81
  82. 82. Example 1• Fact Pattern 2: – Fund will NOT deplete over next 35 years – Can use the long-term expected rate of return of 7.75% – Since funds will not deplete, no need to blend long-term rate of return with municipal bond rate82
  83. 83. Example2• Disclosure of discount rate Asset Class Target Allocation Long-Term Expected Real Rate of Return Domestic Equity 46% 5.4% International Equity 21% 5.5% Fixed Income 26% 1.3% Real Estate 6% 4.5% Cash 1% 0.0% Total 100%83
  84. 84. Example 2• Disclosure of discount rate – Actuarial Assumptions • Inflation 3.5% • Salary Increases 4.5%, including inflation • Investment rate of return 7.75%, net of expenses, including inflation84
  85. 85. Example 2• Disclosure of discount rate – Long-term ROR determined using building block method – Best estimate ranges of future arithmetic rates of return (net of expenses and inflation) developed for each asset class – Long-term ROR developed by weighting the expected future real rates of return by target asset allocation %85
  86. 86. Example 2• Disclosure of discount rate Domestic equity .46 X 5.4 2.5% International equity .21 X 5.5 1.2% Fixed income .26 X 1.3 0.3% Real estate .06 X 4.5 0.3% Cash .01 X 0.0 0.0% Weighted return less inflation 4.3% Inflation 3.5% Total return 7.8%86
  87. 87. Example 3 Actives Inactives TotalExpected Pension $2,000,000 $1,000,000 $3,000,000LiabilityLiability Loss $75,000 $25,000 $100,000Assumption Change $100,000 $25,000 $125,000Benefit Change $50,000 $25,000 $75,000Pension Liability $2,225,000 $1,075,000 $3,300,000
  88. 88. Example 3 Actives Inactives TotalNumber of 100 50 150ParticipantsAvg Remaining 10 0 6.7Service LifeAmount Subject to $175,000 $50,000 $225,000AmortizationImmediately $50,000 $25,000 $75,000Recognized
  1. A particular slide catching your eye?

    Clipping is a handy way to collect important slides you want to go back to later.

×