Communicating the Facts on GASB 68Presented by: [Insert Name]

About GASB 68• GASB stands for the Governmental Accounting Standards

Board• It is the governing body that sets best practices and issues

“statements” that set the standard for public sector accounting and financial reporting

• GASB 68 is a new requirement that changes the way government entities that offer defined benefit plans report pension liabilities

• The most notable change is the separationof accounting calculations from funding calculations

• The statement does not apply to post-employment health benefits (OPEB)

Summary of the Change  Pre-GASB 68

(Statements 27 & 50)Post-GASB 68

Balance Sheet(Government Wide Financial Statement)

Long-term liability was recorded in the footnotes of the financial statements

A new calculation of long-term liability, called Net Pension Liability, will be on the balance sheet and the footnotes will be more extensive

Income Statement(Government Wide)

Pension expense equaled the annual required contribution

Pension expense will now be calculated based on accrual accounting, thus it will not equal the annual required contribution

Deferred Outflows and Inflows

New requirement

Required Contributions

The annual actuarial valuation process calculates the required contributions

Same process

Summary of the Change, cont.• Currently, government entities include only the yearly

contributions required to cover pension benefits on the balance sheets in their annual reports

• Under GASB 68, government entities will be required to include the total long-term cost of benefits as a liability on the balance sheets• A similar total long-term cost of benefits, called Unfunded

Accrued Liability, was included prior annual reports, but was not listed on the balance sheet

• This goes into effect for all annual reporting after June 15, 2014

Unfunded Accrued Liability (UAL)• Before GASB 68 statement, we disclosed long-term pension liability,

called UAL, in our footnotes • This long-term pension liability was calculated the following way:

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• The total value of benefits earned by members under a plan to date

• This number uses the actuarial assumed rate of return, which is currently 8%

Actuarial Accrued Liability

• The value of pension plan investments

• This calculation uses a smoothed asset value, which causes the amount to be different than the amount actually held in the trust for the plan (market value of assets)

Actuarial Value of Assets

UAL

A New Calculation• After GASB 68 statement, we need to disclose a new calculation of long-

term pension liability, called Net Pension Liability on our balance sheet• This new calculation is calculated the following way:

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• The actual amount of assets held in the pension trust for a plan at the measurement date (market value of assets)

Fiduciary Net Position• This number is similar

to the Actuarial Accrued Liability, however for some plans the number will be calculated using a different discount rate

Total Pension Liability

NPL

What Will This Mean for Our Municipality?• Though these new long-term pension number may seem

different, the current financial situation of our retirement plan has not changed

• The new requirement will not change how much we are required to contribute to our plan each year

• Our retirement plan is part of MERS, however each plan is maintained in a separate trust• This means we get the benefits of pooling resources for

investments while maintaining the integrity and individuality of our plan

How Will MERS Help Us?• MERS will work closely with us to provide all of the information

required to comply with new reporting rules• Information will come in two pieces, the annual actuarial valuation

and the annual financial report• There is no need to hire an actuary on our own• MERS is available to answer any of our questions

• MERS is also available to assist us in answering any questions with local media and the public• Again, while the new requirement will provide an accurate picture of

all future costs, it may overstate a government entity’s current financial challenges, causing confusion and overreaction

• The MERS team has been trained to explain the issues clearly• They will work in partnership with us to deliver a consistent message

across the state and to our local media

Choose an implementation timeline from the following slides based on your fiscal year

June – November Fiscal Years

December Fiscal Years

January – March Fiscal Years

April – May Fiscal Years