Michigan Public School Employees Retirement System. Supreme Court Update GASB 68

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1 Office of Retirement Services Serving more than 530,000 customers Michigan Public School Employees Retirement System June 2015 Agenda Supreme Court Update GASB 68 Overview Timelines for ORS and Reporting Units ORS Implementation Resources 1

2 Supreme Court Update PA 300 Supreme Court ruled it is constitutional 3% from 9/4/12 to present are all VALID PA 75 Waiting for ruling 3% HCC from 2010 to 9/3/12 Once this is received, ORS will request a PLR from the IRS. What Is GASB 68? The Governmental Accounting Standards Board Statement 68 (GASB 68) Sets accounting and reporting requirements for state and local government employers regarding pensions (not OPEB such as health). Only Pensions In effect for all employers for fiscal years beginning after June 15, Shifts focus of reporting from a funding-based approach to an accounting-based approach. 2

3 Why GASB 68? The new standards are intended to: Enhance usefulness of employer-level pension information in financial reports. Improve transparency retirement system s liability is shared by all participants (employers) in the plan. Make it easier to compare public pension plans by standardizing financial reporting requirements. What does GASB 68 require? GASB 68 requires the annual government-wide financial statements of MPSERS reporting units to include: The proportionate share of net pension liability The proportionate share of pension expense Additional pension-related note disclosures (Notes to Financial Statement) Additional pension-related Required Supplemental Information Proportionate Share 3

4 Net Pension Liability Net pension liability is the liability of employers for benefits provided to plan members through a defined benefit pension plan. Total Pension Liability (TPL) minus Market Value of Assets (MVA) equals Net Pension Liability (NPL) Based on market value (cash value of pension assets at a given time), not actuarial value (like UAAL). Total Pension Expense GASB 68 also requires employers to recognize a new measure of their proportionate share of the total pension expense on their financial statements. No longer equal to the contribution amount dictated by the contribution rate. Now represents the change in net pension liability from year to year. Can change materially from one year to the next. 4

5 Proportionate Share: How is it calculated? Each plan year, ORS will provide each reporting unit s proportionate share (%). Proportionate share is based on reporting unit s historical pension contributions to the system. UAAL Retirement Incentive Normal Costs Calculated as a percent of the total pension contributions required from all reporting units in the plan. Based on the plan s fiscal year (Oct. 1 Sept. 30) Proportionate Share Example ABC District s Proportionate Share of Net Pension Liability Fiscal Year Ending September 30, 2013 ABC District s required pension contributions (October 1, 2012 September 30, 2013) $1,351,000 ORS s total pension contributions required from all reporting units (October 1, 2012 September 30, 2013) $1,124,330,000 Calculation: Row 1 divided by row or 0.12% MPSERS total net pension liability on September 30, 2013 $23,824,188,000 (~$23.8 billion) ABC District s proportionate share of the liability $28,589,000 5

6 Date Definitions Fiscal year end (FYE) for MPSERS (the plan ) is different from the FYE for your reporting unit: MPSERS fiscal year ends September 30 GASB 68 calls this the measurement date Your reporting unit fiscal year ends June 30 GASB 68 calls this the reporting period Reporting unit must provide all information for the period subsequent to the measurement date (October 1 June 30). Fiscal year timeline and GASB terms Calendar 2013 Jan Jul Oct Reporting Unit Calendar FY (July-June) 2014 Reporting Unit Calendar FY (July-June) 2015 Jan Jul Oct Jan Jul Oct Reporting period MPSERS (Plan) Measurement period FY (Oct.-Sept.) MPSERS (Plan) Measurement date (9/30/14) FY (Oct.-Sept.) 6

7 Covered-Employee Payroll GASB 68 definition: covered-employee payroll is total payroll, not pensionable payroll* Total payroll (of covered employees) = gross wages Includes (for example) bonuses, stipends, other nonreportable compensation. See ORS Reporting Instruction Manual (RIM) Pensionable payroll = reportable compensation Defined in ORS RIM Chapter 4 (not required for GASB 68) *GASB 68 Implementation Guide, Question 210, page 54 Covered-Employee Payroll: Translating GASB terms GASB 67 and 68 define covered-employee payroll as total payroll of covered employees, not pensionable payroll. It then defines total payroll as gross wages.* GASB 68 MPSERS Total coveredemployee payroll Pensionable payroll Gross wages for coveredemployees (not currently reported to ORS) Reportable compensation (reported to ORS on DTL2) 7

8 Covered-Employee Payroll Ongoing national discussion of the GASB 67/68 definition (gross wages). Gross wages of covered employees typically not provided to retirement systems; obtaining data presents issues for both plans and employers. Plans need it for GASB 67 Employers need it for GASB 68 Implementing GASB 68 When: 2015 Time frame Responsibilities of ORS and its partners Reporting Unit responsibilities How: GASB 68 area on Employer Information website (michigan.gov/psru) Overview of the website and its sections Using Data Tables, Notes, and RSI sample language Archiving 2013 plan data estimates on June 15 8

9 ORS and its external partners ORS s actuary Performs valuations of the retirement system Instrumental in preparing the GASB 68 data Michigan s Office of the Auditor General (OAG) Expected to attest to the accuracy and validity of the data provided by ORS and its actuary All partners are communicating and working together to plan implementation of GASB 68. OAG engagement ORS is engaging OAG to audit MPSERS plan as of 9/30/2014 (FYE) AICPA GAAS Audit Type AICPA guidelines (AU-C Section 9805) Exhibit 1 Schedule of Employer Allocations Required Employer Contributions Basis; NOT Actual Employer Contributions Basis Exhibit 2(b) Schedule of Collective Pension Amounts at reporting unit level 9

10 Exhibit 1 AU-C Section 9805 (AICPA Audit Guidelines) This "Actual" means "Required" Exhibit 2(b) AU-C Section 9805 (AICPA Audit Guidelines) 10

11 2015 Time Frame: ORS January mid-june: Actuary and ORS generate data and compile sample language for Notes and RSI Mid-June late July: Office of the Auditor General (OAG) reviews and attests to data Will be posting the actual and required contributions Late July early August: ORS posts data and sample language on web and Data Exchange Gateway (DEG) August: ORS work with reporting units and their auditors to implement GASB 68 This is the ER only contributions Need to start to collect this date; This is ONLY the Pension Piece; 2015 Time Frame: Reporting Units Now early August: Prepare to collect data: Actual pension contributions made between measurement date and reporting period (October 1, 2014 June 30, 2015) Covered-employee payroll for the measurement period (October 1, 2013 September 30, 2014) Covered-employee payroll information for the reporting period (July 1, 2014 June 30, 2015) August (as soon as ORS publishes the information) retrieve data from the website and the DEG incorporate information into financial statements work with auditors to check information 11

12 Implementing GASB 68: Employer Information Website The GASB 68 section of Employer Information website (michigan.gov/psru) provides Data tables (Proportionate share calculations for all reporting units, through the measurement date (9/30) Sample language for Notes to Financial Statements Sample schedules for Required Supplemental Information and some data for these schedules Additional resources (FAQ, glossary, links to resources provided by GASB) GASB 68 Website 24 12

13 GASB 68 Website Financial Data Tables GASB 68 Website Using the financial data tables 13

14 GASB 68 Website Sample Notes to Financial Statements GASB 68 Website Excerpt from Sample Note 3 ORS will provide the stuff in the green box We need to get the blue box 14

15 GASB 68 Website Required Supplemental Information (RSI) Two schedules showing 10 years of historical data: Schedule of Reporting Unit s Proportionate Share of Net Pension Liability Schedule of Reporting Unit s Pension Contributions These two schedules don t use same time period. Reporting Unit will maintain and update both schedules as additional years of data are added. RSI: Schedule of RU s Proportionate Share of Net Pension Liability Based on the measurement period* (MPSERS FY) October 1 September 30 ORS provides some data (in the data tables) Reporting unit must provide covered-employee payroll information (gross wages) See GASB 68 Implementation Guide, Illustration 3a, page 159 *GASB 68 Implementation Guide, Question 211, page 54 15

16 RSI: Schedule of RU s Proportionate Share of Net Pension Liability Measurement period Until a 10-year trend is compiled, present information for years for which information is available. Each year a new column will be completed and the previous years information retained, until a full 10-year history is shown. Green=ORS Information Provided Blue=LEA Provided Schedule of Reporting Unit s Pension Contributions Based on the reporting period the RU fiscal year: July 1 June 30 Reporting Units will provide (for this period): Covered-employee payroll (gross wages) Required pension contributions not OPEB (Health) Actual pension contributions not OPEB (Health) 16

17 RSI: Reporting Unit Contributions (reporting period) (actual contributions) Total payroll (gross wages) Reporting Unit provides data for Rows A, B, and D and performs calculations for Row C (B minus A) and Row E (B divided by D) Data Exchange Gateway ORS will use the Data Exchange Gateway to deliver any data that is deemed sensitive. Only for the measurement period (October 1 September 30) Example: details regarding a reporting unit s actual contributions. When: approximately the same time as the information on the GASB 68 website. 17

18 Resources: GASB.org GASB.org go to Standards and Guidance Guidance: Guide to Implementation of GASB Statement 68 (Implementation Guide) Multiple Employer Cost-Sharing Plans sections (ignore other sections they are for different plan categories) Illustration 3 (pp ) Pronouncements GASB Statement 68 GASB Statement 71 (amends one paragraph of GASB 68) Resource: GASB Definition of Employer Compensation National Council on Teacher Retirement (NCTR) s national webinar on April 30, 2015: GASB Definition of Employer Compensation Addresses definition of covered-employee payroll Audio recording of the webinar available: 18

19 Resource: NASACT Webinar National Association of State Auditors, Comptrollers and Treasurers (NASACT) webinar May 27, 2015 GASB 68 Accounting and Auditing Issues Implementation is Coming Soon Are You Ready? Printable copy of presentation available at Journal Entry Examples (Source: NASACT webinar) 19

20 Questions? Contact Information: ORS GASB 68 Anastasia C. Ferguson-Nelligan (517) Kevin Kubacki (517) Disclaimer: Information provided in this presentation reflects the position of the Office of Retirement Services (ORS) as of June 2, 2015, regarding GASB 68 and decisions made by ORS and its partners about ORS s implementation. GASB Statement No. 68 and its corresponding Implementation Guide should be considered the final authority on all matters. 20

21 ORS General Contact Information Employer Reporting Questions Website: Call Center: Member Questions Website: Call Center: