GASB Pension Reporting Update

Transcription

1 GASB Pension Reporting Update Minnesota Society of CPAs: School District Audit Conference June 2, 2014 Presented by: Dave DeJonge, Assistant Executive Director, PERA John Wicklund, Assistant Executive Director, TRA

2 On the doorstep of implementation GASB 67: Pension Plan Reporting PERA and TRA will implement for their CAFRs for the period ending June 30, GASB 68: Accounting and Financial Reporting for Pensions School districts will implement for CAFRs for the period ending June 30,

3 Major reporting changes: Statement of net position Adds net pension liability (NPL) similar to the unfunded liability PERA and TRA report today (government-wide financial statements). Pension expense for school district is the difference between beginning NPL and ending NPL. Deferred inflows and deferred outflows retained from GASB 63. Affects timing of expenses. Example: Investment gains or losses smoothed over five years. 3

4 Required supplementary information Schedule of the Net Pension Liability: Ten year schedule presenting: Employer s percentage and amount of NPL Employer s covered employee payroll Employer s NPL as percentage of covered employee payroll Pension plan s FNP as a percentage of TPL 4

5 Required supplementary information 5

6 Required supplementary information Schedule of Employer Contributions Ten-year schedule presenting: Statutorily required employer contribution Actual contributions paid by employer Difference between required contributions and paid contributions Amount of contributions paid in relation to required contributions as a percentage of the employer s coveredemployee payroll 6

7 Required supplementary information Schedule of Employer Contributions 7

8 Notes to the financial statements Adds more extensive note disclosures, including sensitivity analysis of investment return assumption Requires employer to track annual balances of deferred outflows of resources and inflows of resources. Must describe significant assumptions and other inputs used to measure total pension liability. PERA/TRA to provide suggested footnotes 8

9 GASB timeline: Measurement dates for school districts Measurement period Actuarial valuation measurement date Release of 7/1/14 actuarial valuation results Retirement systems transmit results to school districts School districts use 7/1/14 actuarial valuation results School district CAFRs w/gasb 68 published July 1, 2013 June 30, 2014 Dec. 1, 2014 June 30, 2015 Late 2015 Key point: There will be a one-year lag in school district reporting of GASB 68 results. Example: School districts, in their FY 2015 reporting, will use FY 2014 actuarial valuation results from PERA and TRA. 9

10 GASB 68 implementation guide Released January Q&A (questions ): Cost-sharing employers. Appendix 3 (PERA and TRA are multi-employer costsharing plans). Illustration 3a, 3b are helpful. 10

11 PERA TRA plan level Perform annual actuarial valuations to determine funded status and liabilities Require plan actuary to calculate collective amount of items requiring deferred treatment Engage external auditor to audit actuarial census data and schedule of employer s proportionate share Communicate results to the school districts Provide RSI and suggested footnotes 11

12 12

13 Determination of employer proportionate share Allocation based on employer contributions for fiscal year Time lag schools will use FY14 results and data for their FY15 CAFR PERA/TRA to provide GASB 68 allocations to each employer based on plan totals calculated by actuary Allocation policy is in progress 13

14 GASB 71 Amends paragraph 137 of Statement 68 Contributions after the measurement date prior to fiscal year end Booked to deferred outflows rather than pension expense At the beginning of the period in which the provisions of Statement 68 are adopted the government should recognize a beginning deferred outflow of resources only for its pension contributions 14

15 GASB 71 Measurement Period Prior Measurement Date Prior Fiscal Year End Measurement Date Employer s Fiscal Year End Reduce NPL Def Outflows June 30, 2014 December 31, 2014 June 30, 2015 December 31, 2015 Example cities/counties 15

16 Example A: Determination of employer proportionate share Schedule of employer allocations (6/30/20X5) Employer Actual Employer Contributions Employer Allocation Percentage Employer 1 $2,143, Employer 2 268, Employer 3 322, Employer 4 483, Employer 5 633, Employer 6 144, Employer 7 95, Employer 8 94, Employer 9 795, Employer , Employer , Employer , Employer 13 68, Employer 14 6, Employer 15 2, Total $5,893,

17 Example A: Net pension liability (employer 2) Employer proportionate share 4.554% TRA unfunded liability $4 billion Employer 2 initial liability on July 1, 2014 $182,160,000 17

18 Pension expense NPL Components immediately recognized in PE: Item Service Cost (Normal Cost) Interest on the TPL Projected Investment Earnings Member Contributions Administrative Costs Benefit Provision Changes Effect on PE Increase Increase Decrease Decrease Increase Increase or Decrease 18

19 Pension expense Components deferred and recognized later include: Item Difference between actual and projected earnings on investments Changes in actuarial assumptions (mortality, disability, salary growth, inflation, payroll growth, etc.) Difference between actual and assumed actuarial experience Amortization Period 5 Years Closed period equal to the average of the expected remaining service lives of all employees (active, inactive, and retirees) Deferred portions are accumulated as deferred outflows of resources or deferred inflows of resources and recognized as PE in future years 19

20 Pension expense Item Pension Expense Deferred Outflows Deferred Inflows Service Cost $20,000 Interest on TPL $10,000 Projected Investment Earnings $ (8,000) Member Contributions $ (1,000) Admin Expenses $ 100 Change in Benefit Provisions $ (200) Change in Assumptions (8 years) $ 100 $ 1,000 $ 300 Diff. Between Assumed and Actual Experience (8 years) Diff. Between Actual & Projected Investment Earnings (5 Years) $ (50) $ 150 $ 500 $ (100) $ 400 Total $20,850 $ 1,150 $1,200 20

21 Example B: Schedule of collective pension amounts 21

22 Example B: Schedule of pension amounts by employer 22

23 Auditing of GASB results External auditor for the statewide retirement systems: Two AICPA white papers (February 2014) Three auditing standards AICPA (April 2014) Minnesota Office of the Legislative Auditor (OLA) 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 AU-C Section 9500: Audit evidence AU-C Section 9600: Audit of group financial statements AU-C Section 9805: Audits of single financial statements and specific elements, accounts or items 23

24 Auditing of census data PERA and TRA annually compile a data file of demographic and payroll information about all members, active and retired. Source file for the annual actuarial valuation supporting GASB reporting. Met with external auditor on audit responsibilities and scope. Vision is for the audit work to be performed centrally at the retirement system. Example: Birthdate, years of service credit, employer unit, salary for fiscal year. 24

25 Auditing issues related to information for employer reporting Recognizing proportionate shares of collective pension amounts. Statement 68 does not specify which party (retirement systems or school districts) are responsible for calculating the allocation percentages. Retirement systems planning to provide a schedule of employer allocations of pension amounts and method used. (slide 16) GASB 68 does not specify any one methodology to determine the allocation. Retirement systems likely to use most recent fiscal year employer contributions. 25

26 What PERA and TRA are doing Working on GASB 67 implementation for FY 2014 CAFRs Developing Employer Proportionate Share methodology Developing framework for deferred inflows and outflows. No retroactivity required Revising actuarial services contracts to reflect expended deliverables required from actuary Negotiating audit scope and responsibilities with TRA s external auditor (Office of the Legislative Auditor) Establishing communications plan with employers and other stakeholders 26

27 Key messages GASB 68 divorces funding and accounting (Your GASB 68 pension expense will not match what the employer actually contribute to the plan.) Unfunded pension liabilities exist today (GASB 68 changes who reports them) Unfunded pension liabilities may be very large to the employer (liabilities represent pension payments due over decades of time) Governing boards will still need to develop a funding policy to pay off the liabilities (No different than today) 27

28 PERA-TRA resources Visit the Employer tab on PERA s and TRA s websites. You ll find: Links to GASB publications. Links to AICPA audit guidance. Toolkit of informational guides/articles. Frequently asked questions. News and developments on implementation. Questions? Dave Dejonge (PERA) dave.dejonge@mnpera.org, or John Wicklund (TRA) jwicklund@minnesotatra.org. 28