May 16, 2016 National Conference on Public Employee Retirement Systems

Transcription

1 May 16, 2016 National Conference on Public Employee Retirement Systems GASB Update: What NCPERS Members Need to Know David A. Vaudt GASB Chair The views expressed in this presentation are those of Mr. Vaudt. Official positions of the GASB on accounting and financial reporting matters are determined only after extensive due process and deliberation. Copyright 2015 by Financial Accounting Foundation, Norwalk, CT 1

2 Overview Suite of Postemployment Benefits: Recent Statements Addressing Pension Related Issues Key OPEB and Pension Differences Fair Value Highlights Glimpse at the Current Technical Agenda and Pre- Agenda Research Q&A 2

3 Postemployment Benefits: Pensions and Retiree Health Care Benefits 3

4 Pensions GASB Statements 67 & 68 OPEB GASB Statements 74 & 75 What: significantly revises postretirement accounting & financial reporting standards. Why: review of effectiveness found significant room for improvement When: Pensions issued in 2012 Plans fiscal years ending June 30, 2014 & later Employers fiscal years ending June 30, 2015 & later OPEB issued in 2015 Plans fiscal years ending June 30, 2017 & later Employers fiscal years ending June 30, 2018 & later 4

5 Pensions GASB Statement 78 Employers Pensions Provided through Certain Multiple-Employer Pension Plans What: Governments with employees who are provided defined benefit pension benefits through federally sponsored or private multiple-employer pension plans (such as Taft-Hartley plans) Why: The Board addresses requests to revisit existing standards when the concerns are significant and raise new issues separated from other pension issues in order to quickly address this issue When: Effective for periods beginning after December 15, 2015 with earlier application encouraged 5

6 Pensions GASB Statement 78 Employers Pensions Provided through Certain Multiple-Employer Pension Plans Provides an exception to the general requirements of Statement 68 Applies only to a cost-sharing multiple-employer defined benefit pension plan that meets all three of the following criteria: It is not a state or local governmental pension plan Provides defined benefit pensions both to employees of state or local governments and to employees of employers that are not state or local governmental employers No predominant state or local governmental employer Requirements of 68 replaced with recognition of required contributions and descriptive note disclosures 6

7 Pensions GASB Statement 82 Plans & Employers Pension Issues What: Concerns raised by stakeholders during the implementation process of Statements 67 & 68 Why: As with Statement 78, the concerns were significant and raised new issues the multiple-employer plan issue addressed by Statement 78 was separated from these issues in order to quickly address that one issue When: Effective for reporting periods beginning after June 15, 2016 (except requirements related to the selection of assumptions in a circumstance in which an employer s NPL is measured as of a date other than the employer s most recent FYE) with earlier application encouraged. 7

8 Pensions GASB Statement 82 Plans & Employers Pension Issues Return to the use of covered payroll, defined as the payroll on which contributions to a pension plan are based, for the RSI schedules Clarifies that a deviation from the guidance in Actuarial Standards of Practice, as the term is used in ASOPs, is not considered to be in conformity with the requirements of Statements 67, 68, or 73 Requires payments made by an employer to satisfy contribution requirements identified by plan terms as plan member contributions to be: Classified as plan member contributions for purposes of Statement 67 and as employee contributions for purposes of Statement 68 Classified as a type of compensation expense/expenditures - NOT as pension expense/expenditures by the employer 8

9 What is OPEB? Other postemployment benefits all postemployment benefits promised to employees other than pensions Principally, retiree health insurance but also life insurance, disability, legal services, and other benefits Includes: payments directly to retirees, payments made to insurance companies on behalf of retirees, and subsidizing retiree premiums by allowing them to be insured in the same group as active employees 9

10 What are the Fundamental Principles of the New Postemployment Benefit Standards? As you will remember, the new pension and OPEB standards: View the cost within the context of an ongoing, careerlong employment relationship Use an accounting-based versus funding-based approach to measure and report any net pension liability on the statement of net position Require effective communication and coordination efforts between the plan, the employers, the actuary, and the auditor to effectively implement 10

11 Postemployment Benefit Standards: The Big Changes Portion of the total liability not covered by plan assets will be recognized as a liability on the face of the financial statements the net pension or OPEB liability. Cost-sharing plans participating employers/nonemployer contributing entities report proportional share of the collective net pension or OPEB liability Discounting at the long-term expected rate of return is limited to the extent that assets are expected to be available to cover future benefit payments remainder discounted at the municipal bond rate Now only one actuarial valuation approach permitted (entry age, as a level percentage of payroll) 11

12 Postemployment Benefit Standards: The Big Changes Asset smoothing is eliminated from the measurement of the liability Amortization is eliminated for most changes in the liability and greatly shortened for others More robust note disclosures like sensitivity analysis Much more extensive required supplementary information (RSI) schedules 12

13 Efforts to Support Implementation of Postemployment Benefit Standards Two Pension Implementation Guides - Plan implementation guide released 6/13 - Employer implementation guide released 1/14 Outreach to all 50 states - Identify implementation issues - Provide technical support Pension Communication Resources Group - Learning curve to understanding standards - Equip governments with roadmap and resources OPEB Implementation Guides on the agenda 13

14 Key OPEB Differences Versus Pensions Because assets are generally not set aside in a trust for OPEB: The discount rate to calculate the liability is the municipal bond rate without consideration of the long-term expected rate of return The employer reports the liability without netting plan net position (the total OPEB liability) A third difference relates to the sensitivity analysis: A sensitivity analysis on the healthcare cost trend rate (in addition to the discount rate) 14

15 Visit for More Information On Pensions & OPEB 15

16 Fair Value Measurement and Application: Statement 72 16

17 Overview What: The Board issued Statement 72 to update the existing standards on fair value Why: Review found opportunities to improve the measurement of resources available, and increase comparability and accountability When: Effective for fiscal years beginning after June 15,

18 Fair Value Definition The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. An exit price Other characteristics of fair value Market-based Unit of account Fair value is not an option 18

19 Valuation Techniques & Inputs Apply valuation technique(s) that best represents fair value in the circumstances market approach, cost approach, and income approach Inputs: - Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities, most reliable - Level 2: quoted prices for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other than quoted prices that are observable - Level 3: unobservable inputs, least reliable Maximize use of relevant observable inputs and minimize use of unobservable inputs 19

20 Investments and Fair Value Investment Defined: A security or other asset that a government holds primarily for the purpose of income or profit and with a present service capacity that is based solely on its ability to generate cash or to be sold to generate cash. 20

21 Fair Value Application Assets that meet the definition of an investment generally should be measured at fair value, including: Alternative investments Equity securities, stock warrants, and stock rights that do not have readily determinable fair values Non-government sponsored commingled investment pools Invested securities lending collateral Intangible assets Land and land rights Real estate Lending assets Natural resource assets If they meet the definition of an investment 21

22 Alternative Investments Alternative investments include: Hedge Funds Private Equity Derivative Instruments New guidance promotes: Increased comparability Greater accountability, and Better measure of available resources 22

23 Investments Excluded from Scope and NOT Reported at Fair Value Money market investments and certain participating interest-earning investment contracts Investments in 2a7-like pools Investments in life insurance Investments in common stock that meet certain criteria Non-participating interest earning investment contracts Unallocated insurance contracts Fair Value 23

24 Disclosures For each class or type of assets and/or liabilities measured at fair value, including recurring and nonrecurring measurements: - The fair value measurement at the end of the reporting period - The level of the fair value hierarchy (Level 1, 2, or 3) - The valuation technique(s) and any changes in technique(s) For nonrecurring fair value measurements: the reason for the measurement 24

25 The GASB Technical Plan Current Technical Agenda Conceptual Framework: Recognition Major Projects: Asset Retirement Obligations Fiduciary Activities Financial Reporting Model Leases Revenue and Expense Recognition Practice Issues: Certain Debt Extinguishments Implementation Guidance OPEB Implementation Guidance Update Omnibus User Guides - Update Pre-Agenda Research Debt Disclosures, Including Direct Borrowing Equity Interest Ownership Issues Going Concern Disclosures Reexamination Note Disclosures Reexamination 25

26 Questions 26