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GASB 68

Diane E. Scott, CPA, CGMA

May 6, 2015

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Overall memo related to audit approach and summary of packet

Schedules of Employer Allocations & Pension Amounts by Employer

SOC 1 Type 2 report Note Disclosures and RSI info for a cost-

sharing employer Employer specific info and journal entries

What is in my packet?

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Overall Memo on Audit Approach

◦ AICPA Whitepapers published by State and Local Government Expert Panel Governmental Employer Participation in Cost-Sharing

Multiple-Employer Plans: Issues Related to Information for Employer Reporting

Single-Employer and Cost-Sharing Multiple-Employer Plans: Issues Associated with Testing Census Data in an Audit of Financial Statements

◦ Description of Schedule of Employer Allocations and Schedule of Pension Amounts by Employer

◦ Additional information regarding census data testing

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Overall Memo on Audit Approach

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Completeness Assertion Risk approach How sample was selected:

◦ > 20% Contributions—every year—No employers◦ >5% Contributions—once every 5 years—3

employers◦ <2% Contributions in aggregate—no testing—40

employers◦ All other employers: 166 employers—rotate so

that each is tested once every 10 years

Audit Considerations of Schedule of Employer Allocations

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GASB Statement 68GASB Statement 68 replaces the financial reporting requirements under GASB Statement 27 for participating employers in public pension plans. Major financial reporting and accounting changes for cost sharing plans include recognizing or reporting:

1. Liability for your proportionate share of the collective net pension liability calculated for all employers in the plan

2. Your proportionate share of collective pension related deferrals and collective pension expense

3. Deferred Inflows and Outflows of Resources of your proportional share of the total (GASB 71 related to Employer Contributions)

4. Additional Note Disclosures and Required Supplementary Information (RSI)

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Schedules of Employer Allocations and Pension Amounts by Employer

1. Specified Element Report2. Audit opinion by RSA auditors (pages 1-2)3. Each participating employer’s proportion of specified

elements is listed (pages 3-13)4. Notes to schedules (pages 14-17)5. Notice that some numbers are in dollars and some in

thousands6. Supplementary schedules included:

A. Reconciliation of total contributions to contributions used to obtain allocation percentage (FY2013 and FY2014—pages 20-31)

B. Amortization of deferred inflows/outflows, Sensitivity of discount rate, Contributions related to calculation of Collective Net Pension Liability (pages 32-34)

TRS Employer Rate

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Contributions Used for Allocation Percentage

◦ Reconciliation of total contributions to contributions used to obtain allocation percentage (FY2013 and FY2014—pages 20-31)

◦ Total Contributions =Monthly ER Contributions+ Error Service – Refunds

◦ Reduced Monthly ER Contributions by components of employer rate not considered in calculating the Collective Net Pension Liability: PRDB, TLI, and Admin Expense

◦ Reduced Total Contributions by “add-on” component for two special units

◦ Annualized new units◦ Formula: Contributions x (Normal + Accrued Liability

Rate) / Total Employer Rate

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Report on Management’s Description of Retirement Systems of Alabama’s System and

the Suitability of the Design and Operating Effectiveness of Controls

◦SOC 1 Type 2 report for period Jan 1, 2014—Sept 30, 2014 (to be prepared annually)

◦Audit firm: A-lign CPA’s◦Controls reviewed and tested around

following : Contributions/Enrollments Investments Disbursements for benefits Valuations and Census Data

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A-lign SOC 1 Type 2 Report

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Provide to your auditors Complimentary User Entity Controls section

—pages 19-20 Review your organization’s controls around

the following user entity controls:◦ Enrollment◦ Contributions◦ Census Data◦ Distributions◦ IT General Controls

SOC 1 Type 2 Report—Why do I need this?

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Enrollment-providing timely enrollment forms to new employees

Annual checklists—promptly process, review, correct and certify to RSA the completeness of the Annual Checklist

Completion of non-enrollee forms Timely and accurate termination of

employment and last contribution remitted

Examples of User Entity Controls

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Follows requirements of GASB 68 Contains disclosures specific to TRS for your

September 30, 2015 financials These disclosures as presented have been run

through a GAAP disclosure checklist relative to GASB 68 and 71 disclosures

Note: Summary of Significant Accounting Policies—see suggested language

Note X—this is your note that gives more specific information about the TRS plan

References to “See Detail Table or Report”

Note Disclosures and Required Supplementary Information

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Note Disclosures and Required Supplementary Information

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Valuation Date: September 30, 2013 Measurement Date: September 30, 2014 Measurement Period: Oct 1, 2013-Sept

30, 2014 Financial Statement Date: September

30, 2015 Collective Net Pension Liability for

9/30/2013 was rolled forward to 9/30/2014 using standard roll-forward procedures by actuary

Important Dates

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◦ Proportionate Share of Net Pension Liability GASB 68, paragraph 81a Covered employee payroll

Not pensionable payroll Covered employee payroll during Measurement

Period (FY2014)◦ Schedule of Contributions

GASB 68, paragraph 81b Contributions only for normal and accrued liability

component of employer rate Covered employee payroll—during fiscal year of

your audit report (FY2015)

Note Disclosures and Required Supplementary Information (RSI)

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Proportionate Share of Net Pension Liability

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Schedule of Contributions

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Example:

Covered/Pensionable Payroll

Employee 1

Employee 2 Employee 3Annual Salary:

$500,000Annual Salary: $150,000

Works 5 hours per month

Pensionable Payroll*: $260,000

Covered Payroll: $500,000

Pensionable Payroll: $0

Pensionable Payroll: $150,000

Covered Payroll: $150,000

Covered Payroll: $0

* Per IRS Code 26 U.S.C. 401(a)(17), 2014 Annual Pensionable Compensation Limit is $260,000. For 2015- $265,000.

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◦ Pages 1-2—Information necessary for note disclosures◦ Page 3—building blocks for amounts included in

journal entries◦ Page 4—Agency specific journal entries

First two entries record the beginning amounts of the liability and deferred outflow of resources as of the implementation date (10/1/2014). These entries are only made at implementation.

Entry 3 records amounts necessary to amortize the deferred inflows/outflows, adjust proportionate share of liability and record pension expense

Entry 4 records the deferred outflow for current year employer contributions in accordance with GASB 71

Employer Specific Data

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Employer Specific Data

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Employer Specific Data

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Employer Specific Data

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Employer Specific Data

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Net Pension Liability Example

Net Assets Remain PositiveXYZ School System

Statement of Net Assets Before

(in thousands)After

(in thousands)AssetsCurrent Assets $ 15,000 $ 15,000Deferred Outflows 2,000Capital Assets 25,000 25,000Total Assets $ 40,000 $ 42,000

Liabilities Current Liabilities $ 6,000 $ 6,000Net Pension Liability 26,000Deferred Inflows 1,000Total Liabilities $6,000 $ 33,000Total Net Assets $ 34,000 $ 9,000

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Net Pension Liability Example

Net Assets are NegativeXYZ School System

Statement of Net Assets Before

(in thousands)After

(in thousands)AssetsCurrent Assets $ 15,000 $ 15,000Deferred Outflows 2,000Capital Assets 25,000 25,000Total Assets $ 40,000 $ 42,000

Liabilities Current Liabilities $ 6,000 $ 6,000Net Pension Liability 44,000Deferred Inflows 1,000Total Liabilities $ 6,000 $ 51,000

Total Net Assets $ 34,000 $ (9,000)

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Deferred Inflows and Outflows of Resources

1. Economic & Demographic Gains and Losses 2. Changes in Economic & Demographic Assumptions and Inputs3. Changes in the Proportionate share 4. Difference between projected and actual investment earnings

Numbers 1 – 3 above are to be recognized over the expected service life of active and inactive plan members (5.3 years as of 9/30/13). Number 4 is to be recognized over a closed five year period.

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Pension Expense Under prior standards, employers report a pension expense equal to

their contractually required annual contributions

Changes in the NPL will be reported either immediately as a pension expense or over a period of time as deferred outflows/inflows of resources.

FY 2014 (amts. in thousands)

Pension Expense = + Service Cost $602,605+ Interest on TPL 2,352,804 + Changes in Plan Benefits ---- Member Contribution (480,849) - Projected Earnings on Plan Investments (1,617,082)+/- Recognition of portion of (170,283) deferred inflows/outflows- Pension Expense related to additional (19) rate for special units ___________

Pension Expense to allocate to participating ERs $687,176

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TRS Retirement Employer Portal

Project Update

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TRS Retirement Employer Portal Design Requirements- Early 2016

Transition to New Employer Portal May 2017

New data elements will be required

Your IT Vendor will need to be involved

Project Schedule