GASB for Beginners. Public Pension Financial Forum Nashville Tennessee October 2014 Brad Berls, CPA, Manager

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1 GASB for Beginners Public Pension Financial Forum Nashville Tennessee October 2014 Brad Berls, CPA, Manager

2 Agenda The focus of GASB Standards For Public Pension Funds The Key GASB Standards Applicable to the Public Pension Industry Professional Organizations Available to You Questions These seminar materials are intended to provide the seminar participants with guidance in accounting and financial reporting matters. The materials do not constitute, and should not be treated as professional advice regarding the use of any particular accounting or financial reporting technique. Every effort has been made to assure the accuracy of these materials. Eide Bailly LLP and the author do not assume responsibility for any individual's reliance upon the written or oral information provided during the seminar. Seminar participants should independently verify all statements made before applying them to a particular fact situation, and should independently determine consequences of any particular technique before recommending the technique to a client or implementing it on the client's behalf. 1

3 The Focus of GASB Standards For Public Pension Funds It s all about 1 word Accountability!

4 What is the GASB? Governmental Accounting Standards Board 6 member part-time independent board and full time chairman that is a recognized standard setter Established in 1984 by agreement of the Financial Accounting Foundation and 10 national stakeholder organizations to develop GAAP for state and local governments Audit community recognizes GASB as a standard-setting organization (also FASB, IASB, Federal Accounting Standards Advisory Board, International Public Sector Accounting Standards Board also recognized) Funding primarily from bond fees approved in Dodd-Frank Open due process with posted agendas, preliminary decisions, free standards, speeches, webcasts etc. 30 member advisory council from all aspects of government including public pensions (NASRA is a member) 3

5 The Focus of GASB Standards for Public Pension Funds It s all about accountability New pension standards are the end result of nearly 35 year evolution of public pension standards with goals of accountability and transparency Funding decisions will only have an indirect effect on liability (lower funding, lower discount rate) Irrevocable trusts are almost essential Plan information exchange with employers on a timely, transparent basis key to successful implementation plan-wide 4

6 The Focus of GASB Standards for Public Pension Funds It s all about accountability New pension standards are the end result of nearly 35 year evolution of public pension standards with goals of accountability and transparency Note disclosure will now have to be clear and concise Employers will use the disclosure in their financial statements Required supplementary information reporting on contributions secondary to accruals Only one method to attribute actuarial present value of projected benefit payments entry age normal Old standard allowed 6 methods 5

7 What Took So Long? GASB Pension evolution began in late 1970 s with simple note disclosure of the plan s existence Diversity in practices and plan designs hampered progress Focus was on budgetary reporting rather than accruals Technology wasn t available to perform complex calculations and allocations Much of the information was cash inflows and outflows contained in databases (or on paper) Excel and similar for analysis not available until

8 What Took So Long? GASB Pension evolution began in late 1970 s with simple note disclosure of the plan s existence Governments largely cash / modified cash basis Short term focus prevalent due to election cycles Unclear jurisdiction of GASB and pensions until 1990 s Prior to 1994 s GASB-25 and 27, FASB standards largely followed Employer reporting largely cash based (cumulative contributions vs. Actuarially Required Contributions) ARC misjudged not meant to be annual or required Many state laws aligned to ARC 7

9 What Took So Long? 2006 s issuance of GASB-43 and 45 on OPEB largely replicated GASB-25 and 27 model Problem surfaced in New York City pensions at same time GASB-50 provided transition disclosure NYC used aggregate cost method no liability for pensions disclosed Under entry age normal, liability was $49 billion Both methods were right! New Standards Due process began in

10 GASB standards are somewhat about Interperiod Equity Interperiod equity is the concept that taxpayers of today should pay for the services that they receive and should not shift the payment burden to taxpayers of the future. Interperiod equity measurement is the measure of whether current-year revenues were sufficient to pay for current-year services. New Pension standards have a basis in Interperiod equity through the accrual of net pension liability Almost direct correlation between Investment allocation Investment return Plan provisions 9 9

11 New Pension Standards Fit In Well With Accountability Model in Use Since 1987 New GASB Pension Standards Fit Here GASB Concepts Statement No. 1 Objectives of Financial Reporting, as amended 10

12 GASB s Jurisdiction is General Purpose External Financial Reporting GASB s purview in all standards not meant to drive management decisions HOWEVER Increased accountability / transparency may drive management decisions pensions prime example Many governments are in the process of pension reform (Rhode Island, California, others) Converting to hybrid plans Lowering target rates of return Reviewing plan provisions about retirement age and employee contributions Eliminating spiking and retroactive benefit adjustments All could be said as an indirect result of the new statements 11

13 What is General Purpose External Financial Reporting? CAFRs Annual Financial Reports Basic Financial Statements Required Supplementary Information Management s Discussion and Analysis Other RSI (budget : actual, modified approach, postemployment disclosures) Other Supplementary Information (not required) Combining statements Statistical Section Introduction Other sections (compliance, investments, actuarial) Popular / Citizens Centric Reports 12

14 Building blocks of Financial Statements for Plans Government wide financial statements Statement of Fiduciary Net Position (full accrual) Statement of Changes in Fiduciary Net Position (full accrual) Notes to the financial statements Required Supplementary Information Management s Discussion and Analysis (Not Auditor s Discussion and Analysis) Schedules of Required Supplementary Information Schedule of Changes in Net Pension Liability and Related Ratios Schedule of Contributions Schedule of Investment Returns Notes to Required Supplementary Information 13

15 Building blocks of CAFR for Plans (Optional) Introductory Section Introductory Letter Board of Governance Organizational Chart List of consultant / professional services Awards Financial Statements (see previous slide) Other supplementary information Administrative expense schedules Investment expense schedules Consultant / professional services schedules Investment Section Actuarial Section Statistical Section Compliance Section (if applicable) 14

16 Statistical Information for Separately Issued Pension and OPEB Minimum Additions by source Deductions by type Changes in Net Position Membership and Retired members by type of benefit Average benefit payments Participating employers for each individual pension and OPEB

17 Key GASB Standards Applicable to the Public Pension Industry

18 GAAP Standards are Evolving But Have Common Themes For Public Pensions Assets are at fair value Liabilities are limited to payments in transit or trade-date settlements Note disclosure and required supplementary information is limited compared to general purpose governments Only 2 basic financial statements needed (unless multiple plans administered by one entity) Fiduciary component units of Plans do not have common GAAP yet 17

19 Assets at Fair Value Basic Standards GASB-31- Accounting and Financial Reporting for Certain Investments and for External Investment Pools Defines and investment (until future Fair Value standards will change it) Requires fair value on most investments that do not have a net asset value or are permitted to report at amortized cost GASB-40 Deposit and Investment Risk Disclosures Classifies major investment risks in notes to financial statements Custodial credit risk Concentrations Interest rate risk Foreign currency risk 18

20 Assets at Fair Value Basic Standards GASB-52, Land and Other Real Estate Held as Investments by Endowments Requires fair value for real estate changes in fair value as investment income Forthcoming Fair Value Measurement and Application Likely amends or supersedes 31, 40, 52 Redefines investments Investments at fair value unless NAV allowed in standard Investments where no readily determinable fair value Liabilities held as investments of others would be fair valued Disclosure very similar to for-profit standards (FASB ASC -820) Proposed effective date periods beginning after June 15, 2015 with restatement of prior periods 19

21 Liabilities GASB-67 Financial Reporting for Pension Plans an amendment of GASB Statement No. 25 Only consist of Benefits payable to plan members Refunds of contributions Accrued investment and administrative expenses Allocated insurance benefits excluded Rest of reporting model is also in GASB-67 Statement of Fiduciary Net Position Statement of Changes in Fiduciary Net Position 20

22 XYZ County Pension Plan Statement of Fiduciary Net Position December 31, 2014 and 2015 Like a Balance Sheet Assets Cash and Cash Equivalents 2,001,113 2,254,000 Receivables Receivables from Employer Contributions 399, ,003 Receivables from Non-Employer Contributing Entities 3,999,003 4,250,000 Interest/Dividend Receivables 123, ,990 Receivables from Brokers (Unsettled Trades) 4,553,990 5,445,990 Total Receivables 9,076,217 10,312,983 Prepaid Expenses 422, ,844 Investments Domestic Equity 70,888,346 35,000,023 International Equity 41,007,445 57,000,345 Real Estate 1,003,456 2,331,234 Private Equity 456, ,998 Total Investments 113,355,579 94,986,600 Securities Lending Cash Collateral 334, ,332 Capital Assets (net of accum. depr.) 100, ,000 Assets used in Pension Plan Operations 239, ,667 Total Assets 125,530, ,966, Liabilities Benefits Payable 98,700,643 78,861,243 Securities Lending Cash Collateral 334, ,332 Broker Fees Payables (Unsettled Trades) 23,445 34,998 Refunds of Plan Member Contributions 556, ,332 Accrued Investment Expenses 340, ,000 Accrued Administrative Expenses 386, ,322 Total Liabilities 100,342,077 80,481,227 Net Position Restricted for Pensions 25,187,955 28,485,

23 XYZ County Pension Plan Statement of Changes in Fiduciary Net Position December 31, 2014 and 2015 Like an Income Statement + Additions - Deductions = Net Increase/Decrease + Beginning Statement of Changes in Fiduciary Net Position Additions Member Contributions 4,349,902 Employer Contributions 4,338,998 Total Contributions 8,688,900 Investment Income (Loss) Interest Income 344,588 Dividend Income 400,223 Net Increase in Fair Value of Investments 1,677,580 Securities Lending Income 112,332 Less: Investment Expenses Investment Expenses (Direct) (1,000,000) Securities Lending Expenses (920,702) Net Investment Income 614,021 Other Income 40,000 Total Additions 9,342,921 Deductions Service Benefits 4,204,455 Disability Benefits 455,332 Death Benefits 1,123,445 Refunds 23,455 Administrative Expenses 238,990 Total Deductions 6,045,677 = Ending Statement of Changes in Fiduciary Net Position Net Increase/(Decrease) 3,297,244 Net Position Restricted for Pensions Beginning of the Year 25,187,955 End of the Year 28,485,

24 Common Resources Supporting the Public Sector Focusing on Public Pensions

25 Common Resources to Turn To for Information Advocacy and Information Sharing Organizations Association of Government Accountants ( Council of State Governments ( Government Finance Officers Association ( International City / County Management Association ( National Association of State Auditors, Comptrollers and Treasurers ( National Association of State Retirement Administrators ( National Governors Association ( National League of Cities ( P2F2 ( 24

26 Common Resources to Turn To for Information Audit and Consulting Organizations American Institute of Certified Public Accountants ( Eide Bailly LLP ( Award Programs AGA (Citizens Centric Report) GFOA (CAFR and Popular Reports) Public Pension Coordinating Council (part of NASRA) 25

27 Questions! Brad Berls, CPA Manager Eide Bailly LLP 877 W. Main St., Ste. 800 Boise, ID T M E bberls@eidebailly.com Experience the Eide Bailly Difference

Illinois Community College Chief Financial Officers Spring 2016 Conference GASB Update

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