GASB Pension Accounting Standards

Transcription

1 GASB Pension Accounting Standards Michelle Czerkawski, Senior Project Manager Governmental Accounting Standards Board The views expressed in this presentation are those of Ms. Czerkawski. Official positions of the Governmental Accounting Standards Board on accounting matters are determined only after extensive due process and deliberation. Copyright 05 by Financial Accounting Foundation, Norwalk, CT Background Two Statements issued summer 0 - Statement 67 pension plans Effective FYs beginning after June 5, 0 - Statement 68 pension accounting for employers and nonemployer contributing entities Effective FYs beginning after June 5, 04 Why new standards? Significant changes - Pension liabilities - Timing of the reporting of pension costs - Additional information in financial reports

2 Pension Liabilities What will be reported? - Net pension liability (NPL) Portion of total pension liability not covered by net resources in trust How will liability be measured? - Discount rate Generally, based on long-term expected rate of return; may also incorporate municipal bond rate - Single method of determining amount of benefits earned to date - Asset smoothing eliminated Which governments will report liabilities? - Employers single, agent, and cost-sharing - Nonemployer contributing entities in special funding situations Timing of the Reporting of Pension Costs Standardized approach for all employers Most changes in NPL in expense in when change in the liability is reported - Examples: service cost, interest on NPL, effects of benefit changes Some changes in NPL in expense over more than one period - Average of the expected remaining service lives of actives/retirees Difference between expected and actual experience in total liability Changes of assumptions - Five years Difference between projected and actual earnings on pension plan investments 4

3 Additional Information in Financial Reports Note disclosures - Discount rate LTeRoR and how determined If applicable, muni bond rate, assumptions about cash flows, etc. Assumed asset allocation/expected real rates of return NPL at discount rare +/- % - Amounts that will affect pension expense in the future - Detailed information about the sources of changes in single and agent employers net pension liabilities Required supplementary information (RSI) schedules - 0 years - NPL components, sources of changes, and ratios - Contributions 5 TEXPERS GASB 67/68 PANEL AUGUST 8, 05 ACTUARIAL PERSPECTIVE BY MARK FENLAW

4 Implications for Boards of GASB 67 and 68. Two new separate reports from board s actuary every year - GASB 67 disclosures for system s financials - GASB 68 information for employer s financials net pension liability (NPL) pension expense disclosures. Increased significance of GASB 68 requirements for employer - NPL on balance sheet - Pension expense proscribed by GASB 68 not what is contributed very different calculation from GASB 5 ARC increasingly more details over time. Additional actuarial calculations and disclosures required - required accounting information is different from funding information - more interaction with auditors (plan s and employer s) - one key is the discount rate Questions of Boards about GASB 67 and 68. What is the discount rate? - rate of return used to calculate the present value of future benefits - either (a) the long-term expected rate of return or (b) a lower rate blended from (a) and a 0-year muni rate. When is the discount rate likely to be less than the long-term expected rate of return? - adequate contribution arrangement? - recent contribution history? - written funding policy?. Without the ARC, what minimum funding requirement should be disclosed? - PRB December 04 report to Legislature actuarial valuations should adequately disclose total contribution levels needed for systems to have appropriate amortization periods - HB 0 effective in June 05 The valuation must include a recommended contribution rate needed for an amortization period that does not exceed 0 years. 4

5 Consequences for Boards from GASB 68. Change in the focus - from long-term view to short-term status - from employer s responsibility to plan s status - from adequate contribution arrangement to unfunded liability (NPL). Confusion in the financials - pension expense vs. actual funding contributions - employer s NPL vs. plan s UAAL. Criticism in the future - because of the focus on the short-term unfunded status - because of the volatility of the pension expense 4. Chance for the favorable - potential for establishing a written funding policy - potential for strengthening an existing funding policy - opportunities to emphasize the importance of an adequate contribution arrangement for the long term, both for the employer and the plan 5