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GASB 68Accounting and Reporting

for Pensionsan Amendment of

GASB Statement No. 27Presented by:

Kevin S. Wong, CPAGilbert Associates, Inc.

kswong@gilbertcpa.com

September 19, 2012

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Background and Overview

Background• Project initiated in January 2006• Exposure draft issued June 2011• Final standard issued June 2012

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Background and Overview (Continued)

Overview• Amends GASB 27 Accounting for Pensions by State

and Local Governmental Employers• Amends GASB 50 Pension Disclosures

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Background and Overview (Continued)

• Implementation date Fiscal years beginning after June 15 2014 (years ending

June 30, 2015, December 31, 2015) Deferred one year from implementation dates

published in exposure draft

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Big Picture – why?

1. Better transparency about pension costs• No more “kicking the can down the road”• Changes focus from a “funding” approach to

“earnings” approach

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Big Picture – why? (Continued)

2. Recognition of the entire net pension liability3. A more comprehensive measure of pension

expense4. Pension Actuaries full employment act

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Required Calculationsa. Net Pension Liabilityb. Pension expensec. Pension-related deferred outflows of resources and

deferred inflows of resources• New Accounting Formula!• GASB Concepts Statement No. 4, GASB 63, GASB 65• Deferred outflows – positive effect on net position, but not

assets• Deferred inflows – negative effect on net position, but not

liabilities• A+DOR-L-DIR=NP

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What kind of plan is it?

Single employer• Benefits the employees of only one employer

Agent multiple employer• Assets are pooled for investment purposes but

legally segregated

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What kind of plan is it? (Continued)

Cost-sharing, multiple employer• Participating employers pool their pension

obligations • Plan assets can be used to pay any participating

employer’s pension• Most JPA staff participate in CalPERS’ 2.0% or 2.7%

at 55 Miscellaneous pool

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What kind of plan is it? (Continued)

Calculations of Net Pension Liability, Pension Expense, and Pension-related Deferred Outflows of Resources and Deferred Inflows of Resources

i. Single-employer and Agent-employer Plans• 100% recognition

ii. Cost-sharing multiple employer Plans• Recognize their proportionate share

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What kind of plan is it? (Continued)

Presentation will discuss• What is required for Single and Agent Multiple

Employer Plans• What is required for Cost-Sharing, Multiple

Employer Plans• How to prepare for the change

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Required Calculations–Net Pension Liability

• Total Pension Liability – Plan Net Position = Net Pension Liability

• Determined as of no earlier than sponsoring entity’s prior fiscal year end (“measurement date”)

• Approach based on a “benefits-earned” rather than a “funding-due” perspective

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Determining Total Pension Liability (TPL-PNP=NPL)

Definition• The portion of the actuarial present value of

projected benefit payments that is attributed to past periods of employee service (what has been “earned”)

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Determining Total Pension Liability (TPL-PNP=NPL) (Continued)

Projecting future benefit paymentsi. Timing and frequency

1. Actuarial valuation as of the measurement date, or2. Update procedures from a prior actuarial valuation

a. Valuation no more than 30 months and one day earlier

3. Actuarial valuation at least biennially

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Determining Total Pension Liability (TPL-PNP=NPL) (Continued)

ii. Shall include1. All benefit terms and automatic changes2. Effects of projected salary increases3. Service credits4. COLAs, etc. (automatic and ad hoc)

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Determining Total Pension Liability (TPL-PNP=NPL) (Continued)

Discounting projected future benefit payments to present value

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Determining Total Pension Liability (TPL-PNP=NPL) (Continued)

Discount rate is the single composite rate of:• Long-term expected rate of return on pension plan

investments• To the extent plan investments are projected to be

sufficient to make benefit payments• Index rate for a 20-year, tax-exempt general

obligation muni bond rated AA/Aa or higher to the extent #1 is insufficient

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Determining Total Pension Liability (TPL-PNP=NPL) (Continued)

Attributing present value of projected benefit payments to past and future periods

• “Entry age actuarial cost method” should be used

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Determining Total Pension Liability (TPL-PNP=NPL) (Continued)

Recap – Total Pension Liability1. Project future benefits2. Discount to present value3. Attribute present value to past and future periods4. TPL = liability for benefits earned in past periods

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Determining Plan Net Position (TPL-PNP=NPL)

• Measured at the measurement date • Same valuation methods used by the Plan

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Determining Net Pension Liability (TPL-PNP=NPL)

Total Pension Liability – Plan Net Position

= Net Pension Liability

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Pension Expense

• Changes in Net Pension Liability• Incremental recognition over closed periods:

Differences between expected and actual• Economic or demographic factors• Investment earnings

Changes in assumptions

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Pension-related deferred outflows of resources and deferred inflows of

resources

• Unrecognized items not yet charged to pension expense

• Contributions from the employer after measurement date but before reporting period

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Note Disclosures

1.Description of the pension plan• Name of the plan, PERS or entity that administers,

type of plan• Descriptions of benefits and authority under which

benefit provisions are established or may be amended

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Note Disclosures (Continued)

• Classes and number of employees in the following groups

Inactive employees or beneficiaries currently receiving benefits

Inactive employees entitled to, but not yet receiving, benefits

Active employees• Contribution requirements• Whether the plan issues a stand-alone financial report

and how to obtain it

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Note Disclosures (Continued)

2. Assumptions used to measure total pension liability• Detailed disclosures about the discount rate

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Note Disclosures (Continued)

3. The pension Plan’s fiduciary net position• Can refer to Plan’s report• Plan’s basis of accounting

4. Brief description of change in benefit terms and assumptions that affect measurement of the total pension liability since prior measurement date

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Note Disclosures (Continued)

5. Measurement date, date of the actuarial valuation on which the recognized information is based and whether based on the use of update procedures to roll forward measurements• Nature of any significant changes impacting net

pension liability after measurement date• Amount of pension expense recognized in the

period

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Note Disclosures (Continued)

6. Employer’s policy for determining actual contributions to the plan

7. If not separately disclosed in the financial statements, disclose aggregate:a. Net pension liabilitiesb. Deferred pension outflows of resourcesc. Deferred pension inflows of resourcesd. Pension expense for the period

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Note Disclosures (Continued)

• Components of deferred pension inflows and outflows, with up to five elements of applicable categories

• Schedule of anticipated recognition of pension expense of deferred outflows/inflows for the next five years.

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Note Disclosures (Continued)

Additional disclosures for each Single-Employer or Agent Multiple-Employer Plan

• Detail of changes in a schedule of changes in net pension liability• Broken out by TPL, PNP, and NPL – 12 elements

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Note Disclosures (Continued)

Additional disclosures for Cost-Sharing Multiple-Employer Plans

• The employer’s proportion (amount and percentage) of the collective net pension liability, the basis on which its proportion was determined, and the change in its proportionate share since the prior measurement date.

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Note Disclosures (Continued)

Additional disclosures for Cost-Sharing Multiple-Employer Plans (Continued)

• The amounts of the net pension liability, deferred pension outflows and inflows, and pension expense recognized in the financial statements for each cost-sharing plan

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Required Supplementary Information

a. Ten-year schedule of changes in net pension liability (single-employer or agent multiple-employer plan only)

b. Ten-year schedule of components of net pension liability and covered payroll

c. Ten-year schedule of related contributions

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Required Supplementary Information (Continued)

d. Notes to required schedulesi. Information about factors that significantly affect

the identification of trends in the amounts reportedii. Significant methods and assumptions used in

determining actuarially calculated employer contributions

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Considerations for Cost-Sharingmultiple- employer plans

Recognition of proportionate share of collective net pension liability, collective pension expense, collective deferred inflows and outflows of resources related to pensions

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Considerations for Cost-Sharingmultiple- employer plans (Continued)

Proportion is calculated based on the employer’s projected long-term contributions effort as compared to the total of all projected contributions of the employers

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Considerations for Cost-Sharingmultiple-employer plans (Continued)

Calculation of Collective Net Pension Liability• Collective Net Pension Liability = Collective Total

Pension Liability – Plan Net Position

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Considerations for Cost-Sharingmultiple- employer plans (Continued)

Collective deferred outflows and inflows of resources related to pensions and collective pension expense

• Changes in collective net pension liability should be included in measures of collective deferred outflows and inflows of resources related to pension under the same guidelines as single-employer and agent plans

• Changes in plan net position should be included in measures of collective deferred outflows and inflows of resources related to pension under the same guidelines as single-employer and agent plans

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Considerations for Cost-Sharingmultiple- employer plans (Continued)

Accounting for a change in proportion• Recognized in pension expense over a closed period

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Effective date and transition

• Effective for financial statement periods beginning after June 15, 2014

• Earlier application is encouraged

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What Should I Do Now???

• Know the overview of changes• Familiarize yourself with your plan• Enlist the help of CalPERS• Begin educating stakeholders

(Management, Board, Pool Members)

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Questions?

Can you hear me now?