GASB Pension Accounting and Financial Reporting Changes

1,036 views

Published on

This presentation reviews GASB pension fund accounting and financial reporting changes.

Published in: Economy & Finance
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
1,036
On SlideShare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
6
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

GASB Pension Accounting and Financial Reporting Changes

  1. 1. GASB Pension Accounting and Financial Reporting Changes Presented by: Frederick G. Lantz, CPA Partner-in-Charge, Government Services Sikich LLP 1415 W. Diehl Road, Suite 400 Naperville, IL 60563 (630) 566-8557 flantz@sikich.com
  2. 2. SIKICH LLP Welcome to our webinar on GASB Pension Fund Accounting and Financial Reporting Changes. • Over 100 participants • Illinois • Wisconsin • Missouri • Copy of the slides • Ask questions 2©2013 Sikich LLP. All Rights Reserved.
  3. 3. SIKICH LLP GASB Pension Fund Accounting and Financial Reporting Changes – the next big bang in state and local government. • Two primary issues that are being addressed: • Employers accounting for the costs of pensions • Significant changes will occur for most • Cost sharing plans have the most significant changes • Accounting and reporting by the Pension Plan • Not many substantive changes will occur 3©2013 Sikich LLP. All Rights Reserved.
  4. 4. GASB PENSION PROJECT • Where we have been • GASB Statement No. 4 (1986) • Don’t apply FASB S-87 • GASB Statement No. 5 (1986) • Required the use of projected unit credit (PUC) actuarial cost method for accounting and reporting • Also required disclosure of entry age normal (EAN) if used for funding • Will the real funded status please stand up! • Required Supplementary Information (RSI) • 10 years • Revenues and expenses 4©2013 Sikich LLP. All Rights Reserved.
  5. 5. GASB PENSION PROJECT • Where we have been • GASB Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans (1994) • GASB Statement No. 27, Accounting for Pensions by State and Local Governmental Employers (1994) • Both still effective today 5©2013 Sikich LLP. All Rights Reserved.
  6. 6. GASB PENSION PROJECT • Where we have been • GASB Statement No. 25 and No. 27 • Allowed the use of 5 different actuarial cost methods • Amortization over at most 30 years (after initial 10 years) • Assets generally at fair value • Asset or liability on face of the statement of position • Net Pension Obligation/Net Pension Asset (NPO/NPA) • Annual Required Contribution (ARC) versus funded • ARC > funding= NPO; ARC<funding= NPA • Actuarial Accrued Liability (AAL) in RSI • No RSI for cost sharing plans • GASB Statement No. 50 (2007) Moved 1 year of AAL into the notes 6©2013 Sikich LLP. All Rights Reserved.
  7. 7. GASB PENSION PROJECT • Where we have been • Problem with GASB Statement No. 27 • Budget friendly, modified accrual basis • Not in accordance with accrual basis of accounting • Liability when earned by employee, regardless of funding • Lack of comparability due to choices of actuarial valuation methods and assumptions • Not recognizing pension spikes, cost of retro benefits or true cost of pensions and any changes • Does not measure interperiod or intergenerational equity 7©2013 Sikich LLP. All Rights Reserved.
  8. 8. GASB PENSION PROJECT • Where are we now • Current pension project • Research agenda in January 2006 • Five roundtable discussions in 2007 • Current project agenda in April 2008 • Invitation to Comment (ITC) March 2009 • Preliminary Views (PV) June 2010 • Exposure Draft (ED) July 2011 • Final Pronouncements June 2012 8©2013 Sikich LLP. All Rights Reserved.
  9. 9. GASB PENSION PROJECT • Where are we are heading • “The final statements relate to accounting and financial reporting, not to how governments approach the funding of their pension plans. Pension funding is a policy decision made by government officials” • GASB has “divorced” accounting from funding • The new pronouncements do not: • Set funding guidelines • Lower discount rates used for funding 9©2013 Sikich LLP. All Rights Reserved.
  10. 10. PENSION FUNDING POLICY • GASB Statement No. 27 was based on funding • Many governments used this statement to develop their funding policy/philosophy • No longer true under revised standards • Every government should adopt a pension funding policy • Define your annual required contribution (ARC) methodology • Actuarial cost method • Adopted by the entity legally required to make the employer contribution to the plan • Government Finance Officers Association best practice • gfoa.org • IGFOA samples • Village of North Aurora, Illinois • IMRF funding policy • MO LAGERs funding policy • WRS funding policy 10©2013 Sikich LLP. All Rights Reserved.
  11. 11. GASB STATEMENT NO. 67 • Pension Plan Reporting • Defines a pension plan • Administered through an irrevocable trust • Retains current basic financial statements • Statement of plan net position • Statement of changes in plan net position • Accrual basis of accounting • Economic resources measurement focus • Notes greatly expanded • RSI greatly expanded • Can reduce disclosures in employers report • Multi-employer plan reports generally do not contain information by individual employer 11©2013 Sikich LLP. All Rights Reserved.
  12. 12. GASB STATEMENT NO. 67 • Pension Plan Reporting • Effective for plan periods beginning after June 15, 2013 • Fiscal years ending June 30, 2014 and thereafter • One year before GASB Statement 68 and employer reporting is effective 12©2013 Sikich LLP. All Rights Reserved.
  13. 13. GASB STATEMENT NO. 68 • Issued June 2012 • Accounting and financial reporting for defined benefit pensions and defined contribution pensions provided to employees and volunteers of state and local government employers plans • Employer reporting • Special funding non-employer situations • Illinois Teachers Retirement System (TRS) 13©2013 Sikich LLP. All Rights Reserved.
  14. 14. GASB STATEMENT NO. 68 • Covers pension plans administered through trusts or similar arrangements if: • Contributions to the plan are irrevocable • Plan assets dedicated to providing pensions to plan members • Plan assets are protected from creditors and plan administrator • Otherwise continue to follow GASB S-27, S-50 14©2013 Sikich LLP. All Rights Reserved.
  15. 15. GASB STATEMENT NO. 68 • Effective for fiscal periods beginning after June 15, 2014 • Fiscal year ending June 30, 2015 and thereafter • September 30, 2015 • December 31, 2015 • April 30, 2016 • May 31, 2016 • Early implementation allowed and encouraged • May depend on others such as MO LAGERs, IMRF, WRS, SURS, TRS • Does not cover other post employment benefits other than pensions (OPEB) • Continue to follow GASB S-45 • Probable change in the future 15©2013 Sikich LLP. All Rights Reserved.
  16. 16. GASB STATEMENT NO. 68 • Defines two types of pensions • Defined contribution • Individual account for each employee • Contribution employer makes is defined • Benefits received based on balance in employee’s account • Employee bears market risk of investments • Defined benefit • Income or other benefits to be received by employee are defined by the benefit terms • Employer bears market risk of investments 16©2013 Sikich LLP. All Rights Reserved.
  17. 17. GASB STATEMENT NO. 68 • Defines types of defined benefit plans • Single employer • Police and Fire Pension plans in Illinois • Multiple employer • Agent • IMRF • Cost-sharing • IMRF, MO LAGERS, WRS, TRS, SURS • May also apply to component unit reports issued separately from the primary government • Village Libraries in Illinois 17©2013 Sikich LLP. All Rights Reserved.
  18. 18. GASB STATEMENT NO. 68 • Special Funding Situations • Non-employer entity is legally required to be responsible for making contributions directly to a pension plan that provides pensions to employees of another entity or entities and either • Amount of non-employer contributions not dependent on occurrence of a future event unrelated to pensions, or • The non-employer entity is the only one legally required to contribute to the plan • TRS, SURS 18©2013 Sikich LLP. All Rights Reserved.
  19. 19. GASB STATEMENT NO. 68 • Liabilities for defined benefit pensions • Current • Liabilities for payments to a defined benefit pension plan • Net Pension Obligation • Future • Liabilities to employees for pension benefits as earned by the employee • Total pension liability 19©2013 Sikich LLP. All Rights Reserved.
  20. 20. GASB STATEMENT NO. 68 • Accrual basis, economic resources measurement focus financial statements (Entity-wide, enterprise funds) • Recognize and record a net pension liability • Total pension liability • Actuarial present value of projected benefit payments • Less pension plans net position (net assets) • Measured as of employers fiscal year end • No more than one year old • Apply consistently 20©2013 Sikich LLP. All Rights Reserved.
  21. 21. GASB STATEMENT NO. 68 • Recognize and record a net pension liability • Measured as of employers fiscal year end or 1 year old, consistently • Timing of multiple employer plans • Same or different than employer • Timing of single employer plans Police and Fire • Funding versus accounting/reporting • Not as of employer year end • Interim contributions are deferred outflows • Actuarial valuations performed at least biennially • Annually if significant changes in plan benefits or demographics 21©2013 Sikich LLP. All Rights Reserved.
  22. 22. GASB STATEMENT NO. 68 • Measuring the total pension liability • Projected benefit payments • Assumptions – Actuarial Standards of Practice • Future salary increases (if part of the formula for benefits) • COLAs • Projected service credits • Investment rate of return (IRR) • Supported by expected IRR by asset class 22©2013 Sikich LLP. All Rights Reserved.
  23. 23. GASB STATEMENT NO. 68 • Measuring the total pension liability • Projected benefit payments • Assumptions – Actuarial Standards of Practice • Discount rate – single rate that reflects • Long-term expected rate of return on plan investments to the extent that the plan’s net position is sufficient to make projected benefit payments, assuming assets are invested to achieve that return • Yield or index rate for 20 year, tax exempt GO municipal bond rated AA/aa or higher • Blended rate 23©2013 Sikich LLP. All Rights Reserved.
  24. 24. GASB STATEMENT NO. 68 • Discount rate calculation • Projected cash inflows • Employer and employee contributions related to current employees, active and inactive • Based on five year history • Pension funding policy • Should have adopted 2 years ago • Payments to existing retirees and future retirees (currently active or inactive) • Net position > benefit payments – IRR • Otherwise blended rate impacted by borrowing rate • Calculation of the Discount Rate > see Illustration 1 at the end of this document 24©2013 Sikich LLP. All Rights Reserved.
  25. 25. GASB STATEMENT NO. 68 • Measuring the net pension liability • Entry age actuarial cost method is required, regardless of actuarial cost method used for funding • Attribution made on individual employee basis • Each employees service cost level as a percentage of projected pay • Inflation rate if no projected pay (e.g., volunteers) • Start as of date employees service credits begin to accrue 25©2013 Sikich LLP. All Rights Reserved.
  26. 26. GASB STATEMENT NO. 68 • Report net pension liability (NPL) in all accrual based financial statements • Generally offset is to unrestricted net position • Many governments will report a deficit unrestricted net position • Changes in the NPL recognized as pension expenses in the current period except for: • Difference between projected and actual investment rate of return • Amortize over closed 5 years • Differences between expected and actual economic or demographic assumptions and/or changes in these assumptions • Amortize over a closed period reflecting remaining service lives 26©2013 Sikich LLP. All Rights Reserved.
  27. 27. GASB STATEMENT NO. 68 • Difference not reported as pension expense of the current period are reported as deferred outflows or deferred inflows of resources related to pensions • As defined in GASB Statement No. 63 27©2013 Sikich LLP. All Rights Reserved.
  28. 28. GASB STATEMENT NO. 68 • Modified accrual basis/current financial resources measurement focus financial statements (e.g., general fund) • Net pension liability to the extent liquidated with available spendable resources (unlikely) • Pension expenditure = • Amounts paid by the employer to the pension plan • Change in NPL to the extent liquidated with available spendable resources • Unpaid matured benefits (no plan assets) 28©2013 Sikich LLP. All Rights Reserved.
  29. 29. GASB STATEMENT NO. 68 • Notes to financial statements • Total of all • Pension liabilities • Pension assets • Deferred inflows/outflows of resources related to pensions • Pension expense/expenditure for the period • Unless fully disclosed on face of financial statements • May be if you participate in only one pension plan for all your employees 29©2013 Sikich LLP. All Rights Reserved.
  30. 30. GASB STATEMENT NO. 68 • Notes to financial statements • Separate disclosures for each plan you participate in • Separate primary government from discretely presented component units for disclosures • Difficult if you participate in a multiple employer plan • Information usually provided only for employer as a whole • Plan description • Name • Type of plan • Benefit terms • Classes of employees covered • Types of benefits 30©2013 Sikich LLP. All Rights Reserved.
  31. 31. GASB STATEMENT NO. 68 • Notes to financial statements • Plan description (continued) • Key elements of benefit formula • Benefit changes • COLAs • Authority for establishing and amending benefit changes • Number of employees covered • Inactive receiving benefits • Inactive not receiving benefits • Active employees 31©2013 Sikich LLP. All Rights Reserved.
  32. 32. GASB STATEMENT NO. 68 • Notes to financial statements • Contribution Requirements • Employee • Employer • Authority for changing • Basis for determining employer contributions • Contribution $ amount or % of covered payroll • Reference to pension plan separate financial statements • And how to obtain separate report • Multi-employer plans do not include data by employer • Do not reference something that does not exist 32©2013 Sikich LLP. All Rights Reserved.
  33. 33. GASB STATEMENT NO. 68 • Notes to financial statements • Information about the net pension liability • Assumptions • Inflation • Salary changes • COLAs • Mortality assumptions and table • Dates of experience studies • Discount rate • Change from prior period • Cash flow assumptions • Long-term expected rate of return 33©2013 Sikich LLP. All Rights Reserved.
  34. 34. GASB STATEMENT NO. 68 • Notes to financial statements • Discount rate (continued) • Bond index rate incorporated, if applicable • Period of projected benefit payments each rate applies to • Assumed asset allocation of the portfolio • Long-term expected real rate of return for each asset class • RRR Arithmetic or geometric means • Impact on net pension liability of 1% swing higher and lower in discount rate 34©2013 Sikich LLP. All Rights Reserved.
  35. 35. GASB STATEMENT NO. 68 • Notes to financial statements • Pension Plans Fiduciary Net Position • Reference to separately issued plan report • Otherwise disclose summary plan financial information in notes for each plan • Required for multi-employer plans 35©2013 Sikich LLP. All Rights Reserved.
  36. 36. GASB STATEMENT NO. 68 • Notes to financial statements • Schedule of changes in net pension liability for each pension plan the employer participates in • Beginning balance of total pension liability, the plans fiduciary net assets and the net pension liability • Service cost • Former “normal” cost • Interest on total pension liability • Changes of benefit terms • Differences between actual and expected experience • Changes in assumptions or other inputs • Contributions from employer/non-employer contributor • Contributions from employees 36©2013 Sikich LLP. All Rights Reserved.
  37. 37. GASB STATEMENT NO. 68 • Notes to financial statements • Schedule of changes in net pension liability • Plan net investment income • Benefit payments • Refunds • Administrative expenses • Other changes in net pension liability, disclosed separately • Spikes • Retroactive benefits • Early retirement incentives • Ending balance of total pension liability, plan fiduciary net position and net pension liability 37©2013 Sikich LLP. All Rights Reserved.
  38. 38. GASB STATEMENT NO. 68 • Notes to financial statements • Measurement date of net pension liability, date of actuarial valuation used to calculate total pension liability, and if roll forward procedures were used • Brief description of changes in assumptions • Description of changes in benefit terms • Pension expense recognized in the period • Deferred inflows/outflows related to pensions 38©2013 Sikich LLP. All Rights Reserved.
  39. 39. GASB STATEMENT NO. 68 • Notes to financial statements • Deferred inflows/outflows related to pensions • Changes due to expected/actual experience • Changes in assumptions or other inputs • Net difference between projected and actual investment experience • Employer contributions to the plan subsequent to the measurement date of the net pension liability (if not the employer’s fiscal year end) 39©2013 Sikich LLP. All Rights Reserved.
  40. 40. GASB STATEMENT NO. 68 • Notes to financial statements • Schedule of deferred inflows/outflows related to pensions by year for 5 years and in the aggregate thereafter that will be recognized in pension expenses • Schedule that will be recognized as a reduction of the net pension liability • Greatly expanded disclosures • Note Disclosures and Required Supplementary Information for a Single Employer > see Illustration 2 at the end of this document 40©2013 Sikich LLP. All Rights Reserved.
  41. 41. GASB STATEMENT NO. 68 • Required Supplementary Information • Separate for each plan • 10 years of information (prospective) • Schedule of changes in net pension liability, as of measurement date • Same information required for notes to financial statements 41©2013 Sikich LLP. All Rights Reserved.
  42. 42. GASB STATEMENT NO. 68 • Required Supplementary Information • Schedule reporting • Total pension liability • Plans fiduciary net position • Net pension liability • Plan fiduciary net position as a % of total pension liability • Used to be funded status • Covered payroll • Net pension liability as a % of covered payroll 42©2013 Sikich LLP. All Rights Reserved.
  43. 43. GASB STATEMENT NO. 68 • Required Supplementary Information • If employer contributions are actuarially determined, a schedule reporting • A-Actuarially determined contribution • B-Actual contributions • C-A-B • D-Covered payroll • E-B/A as a % of D 43©2013 Sikich LLP. All Rights Reserved.
  44. 44. GASB STATEMENT NO. 68 • Required Supplementary Information • If employer contributions are not actuarially determined • A-Statutory or contractually required contribution • B-Actual contributions • C-A-B • D-Covered payroll • E-B/A as a % of D 44©2013 Sikich LLP. All Rights Reserved.
  45. 45. GASB STATEMENT NO. 68 • Notes to Required Supplementary Information • Significant methods and assumptions used each year • Factors that significantly impact trends 45©2013 Sikich LLP. All Rights Reserved.
  46. 46. GASB STATEMENT NO. 68 • Cost sharing plans • Most significant changes relate to participation in cost sharing plans • Employer recognizes proportionate share of collective net pension liability in accrual basis financial statements • Your employer contribution as a % of total employer contributions • Record as previously discussed • Proportionate share of pension expense and deferred inflows/outflows related to pensions calculated using the same methodology • Change in proportionate share • Recognize in expense using a systematic and rational method • Closed period reflecting average remaining service lives • Contributions after measurement date but before year end • Deferred outflow 46©2013 Sikich LLP. All Rights Reserved.
  47. 47. GASB STATEMENT NO. 68 • Cost sharing plans • Timing of measurement date • No later than 30 months and 1 day before employer fiscal year end • Modified accrual basis/current financial resources measurement focus financial statements (e.g., general fund) • Proportionate share of net pension liability to the extent liquidated with available spendable resources (unlikely) • Pension expenditure = • Amounts paid by the employer to the pension plan • Change in NPL to the extent liquidated with available spendable resources • Notes to financial statements • Similar to agent/single employer plans • Additional disclosures related to proportionate share calculation • Required Supplementary Information • Again similar to agent/single employer, except report employers proportionate share • Note Disclosures and Required Supplementary Information for a Cost- Sharing Employer > see Illustration 3 at the end of this document47©2013 Sikich LLP. All Rights Reserved.
  48. 48. GASB PENSION REPORTING • Communication between employer and plan administrators is critical for timing • Required actuarial information greatly expanded • More time for preparation • Separate actuarial valuations for accounting versus funding versus state minimum mandate or contractual minimum 48©2013 Sikich LLP. All Rights Reserved.
  49. 49. QUESTIONS? Call or E-mail: Frederick G. Lantz, CPAPartner-in-Charge, Government Services Sikich LLP 1415 W. Diehl Road, Suite 400 Naperville, IL 60563 (630) 566-8557 flantz@sikich.com 49
  50. 50. About Sikich• Sikich is an accounting, advisory, investment banking, technology and managed services firm with eight offices in four states and with clients throughout the United States and internationally.• We boast a reputation for professional excellence, $76M in revenue in 2012 unsurpassed client service, and timely and cost effective service delivery. 6,776 public and private sector clients• We employ more than 400 people including 71 partners, all of whom devote their careers to a 7,364 individual clients focused area. 153,882 square feet to serve clients• Accounting Today ranks the Firm 47th nationally among the top 100 accounting firms and 12th in the top 100 VARs. 400+ total personnel• May 1, 2012 was our 30th anniversary. 71 partners• In 1998, Sikich began expanding through merging 8 offices in 4 states with firms already successful in target areas and hiring talent and developing service lines from scratch. 1 collaborative and positive culture
  51. 51. Honors & RecognitionsAccounting Technology• #47 in Accounting Today’s • Top 1% of all ERP solution 2012 Top 100 Accounting partners in the world Firms • 2012 Microsoft Dynamics• INSIDE Public Accounting’s Inner Circle Top 50 Accounting Firms in • 2012 Microsoft Dynamics 2012 Presidents Club• INSIDE Public Accounting’s • #12 on Accounting Todays Top All-Star Firms in 2012 100 VARs in 2012 • #13 on Bob Scotts Top 100 VAR List for 2012
  52. 52. Tracing Our Roots 2012 30th Anniversary$80,000,000$70,000,000 2008-2011 Merges with 4$60,000,000 CPA firms and 1998 solidifies$50,000,000 position in the Top 50 with Merges with Intelligent Computer$40,000,000 1982 Solutions LLC and starts its more than 375 employees technology practice Sikich Gardner & Co. was$30,000,000 formed; takes up residence in Aurora and Springfield$20,000,000$10,000,000 $0 52
  53. 53. Sikich Service Lines Advisory Business Valuation Accounting, Audit & Tax Dispute Advisory Financial Reporting Investment Banking Employee Benefit Plan Audit Financial Advisory Accounting Services Flex-Staff Solutions Tax Planning Human Resources Marketing & Communications Supply Chain Technology Investment Banking Accounting & ERP Software Managed Services Acquisitions Advisory CRM Software Outsourced Accounting Sales Advisory IT Infrastructure Managed IT Capital Raises Cloud & Hosting Solutions Outsourced Human Resources Strategic Advisory Strategic IT Planning Outsourced Marketing & Communication & Collaboration Communications IT ConsultingSecurities are offered through Sikich Corporate Finance LLC, a registered broker dealer with the Securities Exchange Commission and a member of FINRA/SIPC.Advisory services offered through Sikich Financial, a Registered Investment Advisor. General securities offered through Triad Advisors, Member FINRA/SIPC.
  54. 54. Industry Expertise, Tailored Approach» Government» Non Profit Deep industry experience and» Healthcare longevity.» Higher Education» Agriculture Cross sectional teams» Construction with a depth and breadth» Manufacturing & Distribution of experience to handle the complete solution.» Professional Services» Real Estate» Retail Solution centric and product agnostic.

×