The New Pension Standards GASB Statements 67,68 & 71

Florida Court Clerks & Comptrollers

February 6, 2015

Mark White CPA, Audit Partner

Purvis Gray & Company LLP

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Mark…..We Really Love Pension CPE!

Two New Statements Issued June 2012

Amends No. 25

Effective FYE 2014

No. 67 Plan

Reporting Amends No. 27

Effective FYE 2015

No. 68

Employer

Reporting

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4

Final Statements

Issued 2012

Research Project

Agendas 2006/2008

Invitation To Comment

2009

Preliminary Views

2010

Exposure Draft 2011

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The GASB’s Deliberative Process

Mostly Notes and

RSI Changes

Change In Pension

Liability

Aggregate Employer

Information

Annual Rate of Return on Plan Assets

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Summary 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

The No. 68 Big Picture

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Unfunded Defined Benefit Pension

Liability

Will Now Be Booked in Members

SONP of Economic Resources FS

Formerly Disclosed In FRS

Notes & RSI

No. 71 Contributions Made After MD

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ReportingDate (RD)9/30/15

Employer FYE

MeasurementDate (MD)6/30/15

Contributions Made - Deferred Outflow

MD Must Be Within One Year of RD

Who is included?

No. 68 Applies Equally To;

Single Employer

(Local Muni Plans )

Multi-Employer

Agent Plans (FLC)

Multi-Employer

Cost Sharing Plans (FRS)

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FRS Members

Member C, D……

Member B

Member A

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Each Member Will Record Their Pro-rata Share Of the Overall FRS Net Pension

Liability

Implementation

• Applied Retroactively, Restate Opening Net Position and New Pension Liability at BOY (PPA Like)

• Applied Retroactively, Restate Opening Deferred Outflows Including Contributions made After MD

• This is Unlike No. 45 OPEB Implementation Which is Being Re-examined and May Soon Change

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Up Until Now

Accounting Funding

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Same

Up Until Now

• Employer accounting and actuarial funding/contributions have been ONE

• Old GASB Statement No. 27 (current)

– The employer’s obligation is to fund the plan

– Accounting expense = (ARC) --

an actuarial funding contribution

– Almost Cash Basis, Very Little BS

effect

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Member

PlanEmployer Funding Obligation

From Now On

• Employer accounting and funding Have Been Separated!

• “We do accounting; actuaries do funding.” – Bob Attmore, GASB Chairman

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Accounting (Apples)

Funding

(Oranges)

From Now On

• New GASB Statement No. 68 Looks At It This Way;

– The employer’s obligation is “ultimately to the members”

– The Accounting Expense = More Accrual Based (Earned) No Longer Based on Actuarial Funding Contribution

– The BS Liability = Old Unfunded Accrued

Actuarial Liability

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Plan

Member

Employer

FRS - Two Actuarial Reports Now Needed

Actuarial Report For Accounting Actuarial Report

For Funding

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Will Allocate NPL In Accounting Report By

Member

Play on Words• I kept wondering why the baseball kept getting

bigger and bigger………then it hit me.

• I know a guy who is addicted to brake fluid…he says he can stop anytime.

• They told me I had “Type A” blood, but it was really …..

a Type-O.

• .

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The New Pension Liability Equation

TPL•Total Pension Liability, Minus

PNP•Plan Net Position, Equals

NPL•Net Pension Liability

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Terminology-Definitions– 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.

– Plan Net Position (PNP) - 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 PNP

– 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 - (No. 68 only) 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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GASB Liability Definition

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Liabilities are present obligations to sacrifice resources that the government has little or

no discretion to avoid.

GASB Concepts Statement No. 4

Discount Rate = LTEROR For Plan Assets

Plan Net Position = No Asset Smoothing

TPL Calculated Using Traditional Entry Age Normal Actuarial Cost Method

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Calculating The Net Pension Liability

Change in Plan

Net Position

Change in Total Pension Liability

Change In Net Pension Liability

Deferred Inflows Outflows

Pension Expense

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Change in TPL

Recognize Some Parts Immediately

Recognize Some Parts Gradually

Deferred Outflows/In

Change in PNP

Recognize Some Parts Immediately

Recognize Some Parts Gradually

Deferred Outflows/In

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Immediate vs. Gradual Recognition

Expense Immediately

Annual Service

Cost

Benefits Paid

Plan Benefit

Changes

Interest on PY NPL

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Changes in TPL Expensed Immediately

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Changes in TPL Expensed Gradually

Assumption Changes

Actuarial Gains and

Losses

Expense Gradually

Recognized

Immediately

Projected Investment

Earnings

Benefits Paid

Administrative Expenses

Actual Contributions

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Changes in PNPGradual Recognition

For Difference In Projected Vs. Actual Investment Earnings

Deferred Inflows and Outflows

Deferred Inflows and

Deferred Outflows

Concept Statement No.

4

GASB 53-Derivatives

GASB 60 -SCA

GASB 63-Financial Reporting

GASB 65 –Items

Previously Recognized

GASB 68–

Employer Pension

Reporting

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Play on Words• I tried to catch some fog the other day but…

I mist.

• I’m reading a book about anti-gravity,…

I can’t put it down.

• I couldn’t remember how to throw a boomerang…….

but eventually it came back to me.

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Calculation of Pension Expense

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Total Pension

Liability

Plan 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

No. 68 Timing Issues

Reporting Date (RD)=

BS Date

Measurement Date (MD) =

Within 1 Year of RD

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No. 68 Timing Issues – School Board

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6/30/15 RD

Employer and FRS FYE Are The Same

One Year

6/30/14MD

6/30/13 Beg Bal. Date

Restate For Beginning Bal

Adjust To Ending Bal

No. 68 Timing Issues – County

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9/30/15 RD

Employer FYE

Three Months

6/30/15FRS NPL

6/30/14 FRS Beg NPL

FRS FYE

Restate For Beginning Bal

Adjust to Ending Bal

9/30/14Not Available

No. 71 Contributions Made After MD

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9/30/15 RD

Measurement Date

Employer FYE

Three Months

6/30/15MD

6/30/14 Beg Bal.

Date

Contributions Made - Deferred

Outflow

Timing Issues

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I don’t know about you but I’m getting a headache!

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What about FYE 2014?

FRS Members

No Change From PY, Same Note Disclosures, Because No. 67 Applies

to Plan Reporting Only (FRS Must Implement It, Not You!)

• I don’t trust these stairs because……….

they’re always up to something.

• Police were called to a day care where a 3 year old was………..

resisting a rest.

• I used to have a fear of hurdles, but………

I got over it.

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Play on Words

No. 68 Note Disclosures Cost Sharing Plans

Plan Description

Name, Type, Terms, Admin

Classes Covered, Benefits, Authority

# participants, contributions

Assumptions

All NPL Assumptions,

LTEROR Overall and by Investment Class

Discount Rate, NPL +1%, -1% Disc. % Change

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No. 68 Note Disclosures Cost Sharing Plans

Plan FS

How to Get a Copy of the FRS FS

Significant Changes in Plan FS

Other Relevant Plan FS Information

Other Info

MD of NPL, Changes from MD to RD

Makeup of Deferred Inflow/Outflows

5 year Expected Changes in DI/ DO

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No. 68 RSI Cost Sharing Plans

10 Yr. NPL & Change in NPL

Employer’s proportion % and amount of NPL, DI & DO

Employers Covered Payroll

NPL as % of Covered Payroll, Plan Net Position as % of TPL

10 Yr. Schedules of

Actuarial Contributions, Required & Actual

Difference in Above

Actual Contributions as % of Covered PR

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Issues With Cost Sharing Plans - FRS

Need Total FRS NPL Allocated To;

Member A

Member C Member D

Member B

Member E

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Issues With Cost Sharing Plans FRS

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AICPARECENTLY ISSUED;

TWO WHITE PAPERS

DESCRIBING ISSUES

THREE AUDIT INTERPRETATIONS

PRESCRIBING SOLUTIONS

TESTING CENSUS DATA & INFO FOR

ER REPORTING

PLAN AUDITOR TO ISSUE

REPORT ON INFO BY PLAN PARTICIPANT

AND TEST CENSUS DATA

Audited CS Plan FS

Unaudited Participant

Data

Not Sufficient ER Audit Evidence

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AICPA Audit Interpretations

WHY?

Audited CS Plan FS

Audited Participant

Data

Sufficient ER Audit Evidence

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AICPA Audit Interpretations

However ER auditor has responsibility to recalculate the numerator of the percentage used in the allocation process by the plan.

Materiality Level?

Play on Words

• The dead batteries were given away……

free of charge.

• I was going to look for my lost watch but..

I could never find the time.

• A popular new broom just came out, it’s…….

really sweeping the nation.

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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

High-Level Implications

More Volatile FS as Pension Liability Bounces With Market Fluctuations

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High-Level Implications

Executive Staff and Elected Officials

Press

Employees

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Communication Challenges

High-Level Implications

Local Governments

Rush To Implement New Std.

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Start Talking With Your Auditors & FRS

Now

Play on Words• I was struggling to figure out how lightning

works……….

then it struck me.

• I used to be addicted to soap, but……..

I’m clean now.

• A hole was found in the nudist colony’s wall, the police are……..

looking into it.

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The New Pension Standards GASB Statements 67,68 & 71

Florida Court Clerks & ComptrollersFebruary 6. 2015

Mark White CPA, Audit PartnerPurvis Gray & Company LLP

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