Governmental Update. GASB Statements 5/15/2018 RACHEL WALLEN, CPA.CFE RACHEL SQUIBB, CPA GASB 75. June 15,

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1 Governmental Update RACHEL WALLEN, CPA.CFE RACHEL SQUIBB, CPA GASB Statements GASB Statement Number Description Effective for Fiscal Years / Reporting Periods Beginning After Effective Fiscal Year for Implementation GASB 75 Accounting and Financial Reporting for Postemployment Benefits Other than Pensions June 15, GASB 81 Irrevocable Split-Interest Agreements December 15, GASB 83 Certain Asset Retirement Obligations June 15, GASB 84 Fiduciary Activities December 15, GASB 85 Omnibus 2017 June 15, GASB 86 Certain Debt Extinguishment Issues June 15, GASB 87 Leases December 15, GASB 88 Certain Disclosures Related to Debt, Including Direct Borrowings and Direct Placements June 15,

2 GASB 75: Accounting and Financial Reporting for Post-Employment Benefit Plans Other than Pension Plans What are Other Post-Employment Benefit Plans? Plans that provide benefits other than pensions to retired employees Common plan types include: Healthcare Life Insurance Disability Long-Term Care 2

3 Abbreviations OPEB Other Post-Employment Benefit NCE Nonemployer Contributing Entity DB Defined Benefit Plan DC Defined Contribution Plan RSI Required Supplementary Information Purpose Replaces GASB Statement Nos. 45 and 57 New Reporting Requirements Include: Recognize entire OPEB liability and improved measurements of expense Provide explanations for how/why OPEB liability changed Allow for evaluation of the portion of OPEB liability covered Streamline measurement and recognition of liabilities, deferred inflows / outflows and expenses to improve comparability 3

4 Scope State / Local Governmental Employers providing OPEB DB Plans administered through a Trust DB Plans not administered through a Trust DC OPEB Plans Special Funding Situations Plan Arrangements Requirements are different depending on the plan arrangement Single Employer Plans: OPEB provided to employees of one employer Agent Multiple-Employer Plans: Assets are pooled for investment, but separate accounts are maintained for each employer to pay benefits to only its employees Cost-Sharing Multiple-Employer Plans: Assets are pooled for investment and used to pay the pooled benefit obligations of more than one employer 4

5 Measurement of OPEB Liability Total OPEB Liability - OPEB Plan s Fiduciary Net Position = Net OPEB Liability Total OPEB Liability is determined through actuarial valuation Must be calculated every other year, with more frequency encouraged Measurement Date: No earlier than prior fiscal year end and no later than current fiscal year end Projected benefits must be based on claims costs benefit terms outlined in the written plan document Single and Agent Employers Financial Statements (Proprietary Funds) Items expensed immediately in the reporting period, except: Differences in expected and actual experience changes in inputs / assumptions expensed over a closed period equal to the average of the expected remaining service lives of all participants Differences in projected and actual earnings on OPEB Plan Investments expensed over closed period of 5 years Employer contributions subsequent to the measurement date Other changes in the liability not expensed are reported as deferred inflows or deferred outflows, as appropriate 5

6 Single and Agent Employers Financial Statements (Governmental Funds) Net OPEB Liability Amounts expected to be liquidated with current resources OPEB Expenditures Amounts paid by the employer, including benefit payments Change between beginning and ending liability Single and Agent Employers - Disclosures Description of plan Benefit terms, including types of benefits provided, classes of covered employees, etc. Number of employees covered by type Basis for determining employer contributions If stand-along report is issued, and how to obtain Significant assumptions and other inputs used and any changes Sources of changes in net OPEB liability for the current reporting year The date of the actuarial valuation, or measurement date, if different Benefit terms Any allocated insurance contracts purchased 6

7 Single and Agent Employers Required Supplementary Information Must present as of the measurement date, for 10 years Sources of changes in the net OPEB liability Components of the net OPEB liability and related ratios Fiduciary net position as a % of total OPEB liability Net OPEB liability as a % of covered-employee payroll If actuarially determined contribution is calculated, 10 years of Actuarially determined contribution Actual contributions and related ratios Significant methods and assumptions (notes to RSI) Cost-Sharing Employers Financial Statements (Proprietary Funds) Same guidelines as single and agent employer plans, except Employer s proportionate share used to record net OPEB liability, expenses, deferred outflows/inflows Encouraged to use the employer s projected long-term contribution effort to the OPEB Plan as compared to the total of all employers as the basis for proportion calculation Change in proportion year-over-year Expensed over closed period equal to average of expected remaining service lives of all plan participants 7

8 Cost-Sharing Employers Financial Statements (Governmental Funds) Same guidelines as single and agent employer plans, except Employer s proportionate share of net OPEB liability to be paid within the next year Expense amounts paid employer and changes in prior year and current year Cost-Sharing Employers Notes and RSI Required disclosures Descriptive information about the plan, discount rate and assumptions regarding proportionate share, and how contributions are determined RSI presented for 10 years Net OPEB liability and certain related ratios Information about required contributions, actual contributions, and related ratios 8

9 Defined Benefit OPEB Not Administered Through Trusts Insured Benefits premiums paid during active service, insurance company pays the OPEB obligations Recognize OPEB expense equal to the premiums paid Disclose benefits provided Other than Insured Benefits - similar to requirements for those administered through trusts Measurement of OPEB liabilities, expense, deferred outflows/inflows Similar note disclosures and RSI Modifications to reflect the absence of OPEB plan assets Defined Contribution OPEB Plans OPEB expense: contributions/credits to the employee accounts, net of forfeited amounts Record change in liability for the difference between the expense and the amount actually provided to the plan Note disclosures include plan description, benefit terms, contribution rates and determination, amounts attributed to employee service, and forfeitures 9

10 Special Funding Situations (NCE) NCE is responsible for the OPEB support of another entity, such as contributions or benefit payments, whether or not it is administered by a trust Amount not dependent on events unrelated to OPEB NCE is the only party required to fund Employer must adjust the amounts reported for the involvement of the NCE Disclose the amount of NCE assistance in notes and 10 years in RSI GASB 81: Irrevocable Split-Interest Agreements 10

11 Implementation Examples include: Charitable lead trusts Charitable remainder trusts Life-interests in real estate Recognition of assets, liabilities and deferred inflows vary based on: If the government is the intermediary If the government has the right to the lead interest or remainder interest If the real estate is considered a capital asset or investment The presence of maintenance responsibilities for real estate Recognize revenue when resources become applicable to the period GASB 85: Omnibus

12 Scope Variety of topics including Blending component units Goodwill Fair value measurement Postemployment benefits Detail of Clarifications Goodwill Pre-existing to implementation of GASB 69 Reclassify to be deferred outflow of resources Deplete in accordance with GASB 69 with PPA to align prior depletion back to implementation of GASB 69 (FY2015) Negative Goodwill from Prior to GASB 69 PPA to remove Fair Value Measurement Insurance entities holding real estate should, by unit of account, classify each as an investment or a capital asset, based on GASB 72 Some money market investments and participating interest-earning investment contracts MAY be measured at amortized cost, but this is not required 12

13 Detail of Clarifications Postemployment Benefits For governmental funds, liabilities for DB pensions or OPEB plans should be measured at the end of the reporting period On-Behalf Payments For governmental funds, expenditures for on-behalf payments for pensions or OPEB should include: Amounts paid during reporting period by NCE to the pension or OPEB Plan Change between NCE s beginning and ending balances of amounts For governmental funds, revenues should be recorded in an equal amount Presentation of Payroll-Related Measures for OPEB in RSI For single employer and cost-sharing plans, measure should be covered payroll For OPEB Trusts, measure should be covered payroll or covered-employee payroll Detail of Clarifications Postemployment Benefits Employer-Paid Member Contributions for OPEB Should be classified as employee contributions Should be recognized in the period for which the contribution is assessed and classified in the same manner as the employer classifies similar compensation other than OPEB, e.g., salaries / wages, fringe benefits Alternative Measurement Method for OPEB Specific modifications to method assumptions Recognition and Measurement for OPEB provided through Certain Multiple- Employer DB Plans These plans are not state or local governmental OPEB Plans Are used to provide DB OPEB both to employees of state or local governmental employers AND to employees of employers that are not 13

14 GASB 86: Certain Debt Extinguishment Issues Scope In-substance Defeasance of Debt Using ONLY Existing Resources Cannot be from the proceeds of refunding debt Funds placed in an irrevocable trust for the sole purpose of extinguishing debt 14

15 Implementation For Government-Wide and Proprietary Fund Statements: In the period of defeasance, recognize gain/loss on any difference between reacquisition price and the net carrying amount of the debt defeased in substance using only existing resources Disclosures should include: In the year of implementation: if the substitution of monetary assets that are not essentially risk-free for assets that are essentially risk-free is not prohibited In subsequent periods: the amount of debt defeased in substance that remains outstanding for which that risk of substitution exists The amount of defeased debt that remains outstanding at period end Other GASBs Coming Your Way 15

16 GASB 83, Certain Asset Retirement Obligations (ARO) Effective FY2019 to be applied retrospectively, with earlier application encouraged What is an ARO? Legally enforceable liability associated with the retirement of a tangible capital asset Recognized when the liability is BOTH incurred and reasonably estimable ARO Liability with a Deferred Outflow of Resources GASB 84, Fiduciary Activities Effective for FY2020 with earlier application encouraged Types of Fiduciary Activities Pension (and other employee benefits) trust fund Investment trust fund Private-purpose trust fund Custodial fund 16

17 GASB 84, Fiduciary Activities Does the government control the activities? Are the assets derived solely from the government s own-source revenues? Does the government have administrative involvement or direct financial involvement with the assets? Are the assets for the benefit of organizations or other governments NOT part of the reporting entity? GASB 87, Leases Effective FY2021 with earlier application encouraged Excludes: supply contracts, such as power purchase agreements Leases of inventory Leases of biological assets Leases of intangible assets Short-Term Leases 17

18 GASB 87, Leases Long-Term Leases No change in ownership of underlying asset Lessee Governmental Funds Recognize as expenditure and other financing source Government-Wide Reporting and Proprietary Funds - Recognize a lease liability and an intangible right-of-use asset (capital asset) Lessor All Fund Types - Recognize a lease receivable and deferred inflow of resources Leased asset should not be derecognized GASB 88, Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements Effective FY2019 with earlier application encouraged New requirements to disclose the following: Unused Lines of Credit Assets Pledged as Collateral for Debt Agreement Terms with financial-related consequences for: Default Termination Events Subjective Acceleration Clauses Direct Borrowings and Direct Placements should be separate from other debt 18

19 Uniform Guidance Update Procurement Requirements Must be applied for FY2019 for non-federal entities Areas required to be covered: Competition Documented Policies Must be specific to entity Oversight Conflicts of Interest Necessary Purchases Records 19

20 Resources GASB website at Statement Details and Summaries Implementation Guides General guidance effective for periods beginning after June 15, OPEB guidance effective for periods beginning after June 15, 2017 Questions? If questions arise, please feel free to contact us Rachel Wallen, CPA.CFE Assurance Manager Rachel Squibb, CPA Assurance Manager Blackburn, Childers & Steagall, PLC (423)