W a s h i n g t o n S t a t e A u d i t o r ’ s O f f i c e

GASB 68 – Year 2

Washington Finance Officers AssociationFebruary 8, 2017

W a s h i n g t o n S t a t e A u d i t o r ’ s O f f i c e 2

Updated pension illustration – Year 2

Lessons learned from implementation

Contributions

Deferred Outflows and Inflows

Pension expense

Notes and RSI

Today’s presentation

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Year 1 –Done!

Year 2 – New Spreadsheet

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1) From the PEFI – your employer allocation % -both beginning and ending.

2) Amount of your employer contributionssubsequent to the plan measurement date of 6/30.

3) Your amortization schedules for the prior year changes in proportionate share.

4) Amount of your employer contributions for your fiscal year.

For each plan – you will need

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For PERS 1 (and TRS 1), you may need two allocation percentages – the regular employer allocation and the Plan 1 UAAL allocation.

Both percentages can be added together –they are not separate plans.

Employer allocation %

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• Reconciling items, like timing differences, are OK.

• Provides information needed to reconcile the change in the net pension liability to pension expense.

Reconcile your

contributions reported in

the DRS PEFI to your

accounting system.

Contributions

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Use the eServices Contribution Reconciliation system

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•Process date is generally the day after the transmittal date.

•Transmittal date can be up to 15 days after the reporting date.

For the PEFI, DRS

calculates contributions based on the process date;

not the reporting

date.

Contributions

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• RCW 41.45.060

• Affects deferred outflows for employer’s contributions subsequent to the measurement date.

• Affects pension expense for each plan.

• Affects amounts reported in RSI.

A significant portion of PERS 2/3, SERS 2/3,

and PSERS 2 employer

contributions actually go to

PERS 1.

Contributions

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PERS 2/3 – employer contribution rate = 11.18%

• 6.23% - PERS 2/3

• 4.77% - PERS 1 (UAAL)

• .18% - admin fee

• 11.18% - Total

PSERS 2 – employer contribution rate = 11.54%

• 6.59% - PSERS

• 4.77% - PERS 1 (UAAL)

• .18% - admin fee

• 11.54% - Total

Contributions

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Use monthly transmittal summary reports

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For all calculations –You must use actual contributions to the plans.

Contributions

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True or False?

“I have only PERS 2/3 employees and so I don’t make contributions to PERS 1.”

oTrue

oFalse

Question #1

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True or False?

“I have only PERS 2/3 employees and so I don’t make contributions to PERS 1.”

oTrue

oFalse

Question #1

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Download from GAAP BARS manual

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• Multiply the collective pension amounts from the PEFI by your individual employer allocation percentage.

• Don’t forget – For PERS 1 (and TRS 1) you need both the regular employer allocation and the Plan 1 UAAL allocation.

• Note that the spreadsheet shows debits as positive amounts and (credits) as negative amounts.

Step 1 –Calculate and record your share of the current year

collective pension

amounts.

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• Each plan spreadsheet includes a table to calculate a deferred outflow (debit) or deferred inflow (credit).

• The change is calculated as of the beginning of the period.

• For PERS 1 and LEOFF 1 –recognition period is only 1 year, so no need to record and amortize the changes.

Step 2 –Calculate

your current year change

in proportionate

share.

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Calculate your change in proportionate share

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• PERS 2/3, PSERS, LEOFF 2 –spreadsheets include sample amortization tables.

• 2016 data is populated from Step 2.

• You must enter your 2015 data.

Step 3 –Amortize the current and prior years’ changes in

proportionate share.

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Calculate amortization

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Record amortization

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The provisions of GASB statements “need not be applied to immaterial items.”

Consider adopting an amortization threshold for DO/DI related to changes in proportionate share, similar to setting a capitalization threshold for capital assets.

The threshold should be applied at the individual plan level and should be immaterial to pension expense.

Changes in proportionate share

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For example – look at PSERS worksheet:

Do you really need to amortize $403 over 7 years?

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DRS includes amortization in the calculations of plan level DO/DI:

• Differences between actual and projected earnings on plan investments

• Differences between expected and actual experience

• Changes of assumptions

Employers should not record additional amortization for these!

LESSON

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Don’t do this

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• The amounts are for each plan as a whole

• You must allocate to the correct funds and activities for reporting in the financial statements.

Step 4 –Summary

tab

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Summary Tab

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•Reconcile the annual change in the net pension liability/asset to pension expense.

Are the numbers

reasonable?

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LESSON

That’s not pension expense; that’s an adjustment to pension expense:

Net this adjustment with your actual contributions for the year to calculate pension expense.

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Calculate pension expense

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Compare to expected pension expense

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Multiply total contributions excluded from allocations by your employer %

Excluded contributions

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• The State, as a non-employer contributing entity, has a legal obligation to make contributions to the plans (RCW 41.26.275)

• Employers report “state’s share of the pension asset associated with the employer.”

• Employers recognize pension expense (and revenue) for the “state’s share of pension expense that is associated with the employer.”

Step 5 –LEOFF special funding

situation

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What goes in this table?

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For LEOFF 2 only:

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Where did the $897,905 come from?

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Notes to the Financial Statements

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Which is correct; A or B?

A) Always:

Deferred Outflows = Debit

Deferred Inflows = Credit

B) Sometimes:

Deferred Outflows = Credit

Deferred Inflows = Debit

Question #2

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Which is correct; A or B?

oA - Always

oB – Sometimes

Deferred Outflows = Debit

Deferred Inflows = Credit

Question #2

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What goes in this table?

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Note disclosures

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What goes in this table?

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The amortization tables in the notes should report the amortization of all deferred

outflows and inflows,

not just the employer specific change in proportionate share.

LESSON

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Not like this

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And not like this

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Like this

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• Amounts in the schedules are “layered” amortization.

• Multiply amounts in the PEFI schedules by your proportionate share.

Use the amortization tables in the

PEFI to prepare the

amortization tables in

your notes.

LESSON

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Amortization schedules from PEFI

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Layered amortization

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Amortization schedules from PEFI

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Layered amortization

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Layered amortization

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Multiply collective amortization amounts by your %

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Multiply collective amortization amounts by your %

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Multiply collective amortization amounts by your %

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Sum by plan – including your changes in proportionate share

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Totals are the amounts for your tables in the notes

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Which deferred outflows/inflows can be netted across years?

•A) Differences between projected and actual earnings on plan investments

•B) Differences between expected and actual experience

•C) Changes of assumptions

•D) Changes in proportionate share

Question #3

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Which deferred outflows/inflows can be netted across years?

• A) Differences between projected and actual earnings on plan investments

• Only A!

Question #3

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Amortization guidelines for DO/DI related to pensions

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Required Supplementary Information ( RSI)

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• Previous slide example:

• PERS 2/3 = $61,136

• PERS 1 = 46,858

GASB 68, paragraph 81.b - The RSI schedule

of employer contributions should report the amount of

contributions recognized by the pension plan.

• Previous slide example:

• PERS 2/3 = $987,666

• PERS 1 = $987,666

GASB 82, paragraph 5 -Covered payroll is the

payroll on which contributions to a

pension plan are based.

RSI

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RSI has two different measures of covered payroll:

• Schedule of Proportionate Share of the Net Pension Liability – dated as of the measurement date(example – state plans = 6/30)

• Schedule of Employer Contributions – dated as of employer’s year end (example – 12/31)

It’s unlikely that the amount for Covered Payrollwould be the same on both schedules.

LESSON

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Required Supplementary Information should be presented as RSI – not in the notes!

No RSI in NOTES

LESSON

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Volunteer Fire Fighters and Reserve Officers Relief and Pension Fund

Go to www.bvff.wa.gov

Click on link to spreadsheet

Net Pension Asset is calculated for you

Plan is not considered material and so there are no deferred outflows or deferred inflows.

VFFRPF

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GASB 78 – Pensions Provided Through Certain Multiple-Employer Defined Benefit Pension Plans

Example – a union sponsored plan

No pension liability or deferred outflows or deferred inflows

Pension expense = contributions to the plan

Note disclosures – see BARS Manual

RSI – 10-year schedule of employer contributions

Non-governmental pension plans

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Don’t make contributions for other entities under your ID number.

Employers who don’t have their own organization ID number should contact DRS ASAP and get one.

LESSON

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Net pension assets are restricted assets –a component of restricted net position

Net pension liabilities, deferred outflows and deferred inflows related to pensions are unrestricted – components of unrestricted net position

LESSON

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Local Plans - The net pension liability, deferred outflows and deferred inflows are not reported in the pension trust fund.

Pension liabilities are liabilities of the employer to the plan; not liabilities of the plan.

They are reported on the employer’s financial statements.

LESSON

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GASB Statement No. 74 – Financial Reporting for OPEB Plans(supersedes GASB 43)

Effective for fiscal years ending in 2017

Establishes the financial reporting requirements for OPEB plans

GASB Statement No. 75 – Accounting and Financial Reporting for OPEB Plans (supersedes GASB 45)

Effective for fiscal years ending in 2018

Establishes the accounting and financial reporting requirements for OPEB plan sponsors/employers

Reminder: New GASB OPEB standards are effective soon

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The new OPEB standards mirror the new pension standards:

Liability on the statement of net position

Deferred outflows/inflows

Discount rate

The alternative valuation method is still allowed.

The implicit rate subsidy still applies.

OPEB: new standards

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Do I need to prepare a Schedule of Employer Contributions for LEOFF 1?

oYes

o No

Question #4

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Do I need to prepare a Schedule of Employer contributions for LEOFF 1?

o Yes

o No

Question #4

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Department of Retirement Systems (DRS) – Employers

www.drs.wa.gov

Governmental Accounting Standards Board (GASB)

www.gasb.org

Resources online

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Contact the Local Government Support team

Debra Burleson, CPA, Assistant Audit Manager

Debra.Burleson@sao.wa.gov

Resources at the State Auditor’s Office

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Questions?

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