precision experience assurance the new pension standards gasb statements 67 and 68 milestone...
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Precision Experience Assurance
The New Pension Standards GASB Statements 67 and 68
Milestone Professional Services, CPE DaySeptember 13, 2013, Kissimmee FL
Mark White CPA, Audit PartnerPurvis Gray & Company, LLP
Tallahassee / Gainesville / Ocala / Sarasota
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Precision Experience Assurance
No!…. Anything But Pension CPE!No!…. Anything But Pension CPE!
Precision Experience Assurance
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Two New Statements Issued June 2012
Amends No. 25
Effective FYE 2014
No. 67 Plan
Reporting Amends No. 27
Effective FYE 2015
No. 68EmployerReporting
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Final Statements
Issued 2012
Research Project
Agendas 2006/2008
Invitation To Comment
2009
Preliminary Views2010
Exposure Draft 2011
The GASB’s Deliberative Process
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The No. 68 Big Picture
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Unfunded Defined Benefit Pension Liability
Will Now Be Booked in BS of Economic Resources FS
Formerly Disclosed In Notes & RSI
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Notes and RSI Changes
Change In Pension Liability
Aggregate Employer
Information
Annual Rate of Return on Plan Assets
Highlights of No. 67 – Plan Reporting
Very Few FS Recognition Changes
From No. 25
Clarified That Drop Liability Not
Recorded During Buildup
Applies to Pension Plan FS Issued Separately or
as P/T/F of Local Government
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Who is included?
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Applies Equally To;
Local Municipal
Plans
Multi- Employer
Agent Plans (FLC)
Multi- Employer
Cost Sharing Plans (FRS)
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Implementation• Applied Retroactively, Restate Opening Equity and
New Pension Liability at BOY (PPA Like)
• Applied Retroactively, Restate Opening Deferred Inflows if Available, Otherwise Start at Zero
• This is Unlike No. 45 OPEB Implementation Which is Being Re-examined and May Soon Change
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Up Until Now• Government-wide employer accounting and actuarial
funding/contributions have been ONE• Old GASB Statement No. 27 (current)
– The employer’s obligation is to fund the plan– The accounting expense (ARC) --
an actuarial funding contribution– The balance sheet liability --
contributionshortfall
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Member
PlanEmployer Funding Obligation
Benefits
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Up Until Now
Accountin
g
Funding
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Same
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From Now On
• Government-wide employer accounting and funding have been delinked, decoupled, . . . DIVORCED !
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Accountin
g
Funding
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From Now On
• Accounting and actuarial funding will be separate
• The GASB has found a completely new, way to define the government-wide expense and liability
• “We do accounting; actuaries do funding.” – Bob Attmore, GASB Chairman
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Precision Experience Assurance
From Now On• Now the GASB is looking at it this way:• New GASB Statement No. 68
– The employer’s obligation is “ultimately to the members” – The accounting expense -- not determined w.r.t. to any
actuarial funding contribution
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Plan
Member
Employer Benefit Obligation
• The balance sheet liability --an unfunded actuarial accruedliability
Benefits
Funding
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Two Actuarial Reports Now Needed
Actuarial Report For Accounting Actuarial Report
For Funding
Likely Done at the Same Time From Same
EE Demographics
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The New Pension Liability Equation
TPL
• Total Pension Liability, Minus
NPP
• Net Plan Position, Equals
NPL
• Net Pension Liability
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Terminology-Definitions
• New (GASB 67/68)– Total Pension Liability (TPL) – the portion of the actuarial present value of
projected benefit payments that is attributable to past periods of employee service in conformity with the requirements of Statement 68.
– Net Plan Position - Fair Value of Plan Assets less plan liabilities - FMV as of the measurement date (no longer smoothed
– Net Pension Liability (NPL) – difference between the TPL and the value of plan assets available to pay pension benefits.
– Projected Benefit Payments – All benefits estimated to be payable through pension plan to current active and inactive employees as a result of their past service and their expected future service.
– Measurement Date - TPL and NPL measured as of the same date not more than 12 months before the reporting date.
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TPL Illustrated
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Discount Rate = LTEROR For Plan Assets
Net Plan Position = No More Asset Smoothing
TPL Calculated Using Entry Age Normal A/C/M Only
Calculating The Net Pension Liability
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Pension Expense =
Change in NPL
Change in NPP
Change in TPL
Pension Expense
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Change in TPL
Expense Some Parts Immediately
Expense Some Parts Gradually
Deferred In/Outflows
Change in NPP
Expense Some Parts Immediately
Expense Some Parts Gradually
Deferred In/Outflows
Immediate vs. Gradual Recognition
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Expense Immediately
Annual Service
Cost
Benefits Paid
Plan Benefit
Changes
Interest on PY NPL
Changes in TPL Expensed Immediately
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Changes in TPL Expensed Gradually
Assumption Changes
Actuarial Gains and
Losses
Expense Gradually
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RecognizedImmediately
Projected Investment
Earnings
Benefits Paid
Administrative Expenses
Actual Contributions
Changes in NPPGradual Recognition
For Difference In Projected Vs. Actual Investment Earnings
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Deferred Inflows and Outflows
Deferred Inflows and
Deferred Outflows
Concept Statement No.
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GASB 53 Derivatives
GASB 60 SCA
GASB 63 Financial Reporting
GASB 68 – Pensions
GASB 65 – Items
Previously Recognized
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Calculation of Pension ExpenseTotal Pension
LiabilityPlan Fiduciary Net Position
Net Pension Liability
(a) (b) (a) – (b)
Balances at 12/31/X8 3,045,893$ 2,283,333$ 762,560$ 289,881$ 30,107$ Changes for the year:
Service cost 101,695 101,695 101,695$ Interest 231,141 231,141 231,141 Changes of benefit terms - - Differences between expected and actual experience (69,638) (69,638) - 63,582 (6,056) Changes of assumptions - - - - - Contributions—employer 109,544 (109,544) Contributions—employees 51,119 (51,119) (51,119) Net investment income 199,273 (199,273) (16,804) - (182,469) Benefit payments, including refunds (126,863) (126,863) - Administrative expense (3,427) 3,427 3,427 Other 8 (8) (8) Expense for beginning deferred amounts (60,320) (3,592) 56,728 Net changes 136,335 229,654 (93,319) (77,124) 59,990
Balances at 12/31/X9 3,182,228$ 2,512,987$ 669,241$ 212,757$ 90,097$ 153,339$
Pension Expense
Deferred Outflows of Resources
Deferred Inflows of Resources
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Timing Issues
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Full Actuarial Report
Actuarial Update
Full Actuarial Report
Financial Reporting Actuarial Valuation Required Every Two Years, Can Do an Update
In Between
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Timing Issues
Actuarial Valuation completed within 30 months and 1 day of
RD – 3/31/12
Measurement Date Must Be Within 1
Year of RD - 10/1/14
Reporting Date (RD) FYE 9/30/15
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Timing Issues
9/30/15 FS Date
Measurement Date
Actuarial Valuation DateEmployer FYE
Prior FYE
9/30/14MD
9/30/13 Beg Bal.
Date
30 months + 1 day
3/31/12
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Timing Issues• Get AV as of 9/30/14 or Roll Forward
of 9/30/13 AV to 9/30/14FYE 9/3015
Municipal Audit
• Get Allocated FRS AV as of 6/30/15 or Roll forward of 6/30/14 AV to 6/30/15
FYE 9/30/15 County Audit
• Get Allocated FRS AV as of 6/30/14FYE 6/30/15 School Bd. Audit
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Contributions Made After MD
9/30/15 FS Date
Measurement Date
Actuarial Valuation DateEmployer FYE
Prior FYE
9/30/14MD
9/30/13 Beg Bal.
Date
30 months + 1 day
3/31/12
Contributions Made - Deferred
Outflow
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Note Disclosure• Additional disclosures Depends Upon Plan Type - Generally:
– In the Notes to Financials• Plan description, benefit terms, employee groups• Changes in all components of the NPL• Significant Assumptions – discount rate, mortality, etc.
Numerous other disclosures– In the Required Supplementary Information
10 Year table(s) for: TPL, Plan Net Position, NPL, Net Position as a % of TPL, Covered Payroll (PR), NPL as % of Covered Payroll, Required & Actual Contributions, Covered PR, Contributions as % of PR.• Other disclosures
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High-Level Implications
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More Fuel to Pension Rollback Movement
Net Position May Go Negative
Higher Profile in CAFR
Liability From Notes to BS
Precision Experience Assurance
High-Level Implications
More Volatile FS as Pension Liability and Expense Bounce With Market Fluctuations
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Precision Experience Assurance
High-Level Implications
Executive Staff and Elected Officials
Press
Employees
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Communication Challenges
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High-Level Implications
Amortization Periods and Methods
Disciplined Process For LTEROR
Actuarial Cost Methods
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Revisit Funding Policies
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High-Level Implications
Local Governments
Rush For Actuarial Services
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Start Talking With Your Actuary and Auditors Now
Precision Experience Assurance
Wow, That Was Sure A Lot Of Fun!Wow, That Was Sure A Lot Of Fun!
Precision Experience Assurance
The New Pension Standards GASB Statements 67 and 68
Milestone Professional Services, CPE DaySeptember 13, 2013, Kissimmee FL
Mark White CPA, Audit PartnerPurvis Gray & Company, LLP
Tallahassee, Gainesville, Ocala, Sarasota
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