GASB 74 & 75 The new GASB OPEB standards & an overview of upcoming pronouncements. Jeff Straus, CPA Principal

Transcription

1 GASB 74 & 75 The new GASB OPEB standards & an overview of upcoming pronouncements Jeff Straus, CPA Principal

2 Session Overview 1. What are Other Post Employment Benefits (OPEB)? 2. Effective Dates 3. Applicable plans 4. Calculation of OPEB liability 5. Employer financial statement impact

3 New OPEB Standards GASB 74 & 75 Other Postemployment Benefits (OPEB) Postemployment healthcare Medical, dental, vision, hearing, etc. Death benefits, life insurance, disability and long-term care Does not include termination benefits i.e. sick pay

4 Effective Dates: Session Overview

5 GASB 74: New OPEB Standards GASB 74 & 75 Applies to the financial statements of OPEB plans (OPEB trust funds) GASB 75: Applies to the financial statements of employers providing other postemployment benefits

6 Types of Plans Defined benefit (DB) Future benefits are defined No individual plan member accounts Significantly impacted by GASB 74/75 Defined contribution (DC) Contributions are defined Consists of individual accounts by plan member Impacted little by GASB 74/75

7 Types of Defined Benefit plans Single-employer Government and its component units are considered to be one employer Agent multiple employer Assets are pooled, but an employer s share may only be used to pay the benefits of its employees Cost-sharing multiple-employer Assets are pooled, and may be used to pay benefits of the employees of any participating employer Example: MPSERS

8 New OPEB Standards GASB 74 & 75 GASB 74/75 guidance for OPEB largely the same as the Pension guidance under GASB 68/71 OPEB, like pension, should be recognized as the obligation is incurred (not as it is funded) Pre-GASB 74/75 recognize costs as they are funded Under GASB 74/75 recognize as rendered/incurred Record a Net OPEB liability at the full-accrual level Changes in the Net OPEB liability are expensed

9 GASB 74 Qualifying Trust Defined benefit or defined contribution plans administered through a qualifying trust or equivalent arrangement are reported in an OPEB trust fund Criteria 1. Contributions from employer to the Plan are irrevocable 2. OPEB plan assets are dedicated to providing OPEB benefits 3. OPEB plan assets are legally protected from creditors

10 GASB 74 If there is NOT a Qualifying Trust? Assets continue to be reported as assets of the employer No Plan Assets so a lower discount rate would be used Recognize full OPEB liability

11 Both GASB 74 & 75: Calculation of OPEB Liability Actuary calculates the OPEB Liability based on: Project future benefits Discount projected benefit to actuarial present value Attribute actuarial present value to specific periods

12 Overview of Financial Statement Impact All Plans Prior period adjustment, need to report the beginning of the year net OPEB liability Employer s contributions subsequent to measurement date Unrestricted net position becomes a bigger negative number Adds pages to the footnotes and Required Supplementary Information section Changes in the auditor s opinion Emphasis of Matter paragraph for new accounting standards adoption Actuary will provide the information for the OPEB, Total OPEB liability, deferred inflows/outflows, and OPEB expense.

13 Financial Statement Impact Cont d Governmental entity will need to provide information to their auditors: Contribution and wage information Ensure census information on employee elections is available Governmental entity should be aware of the net OPEB liability and start communicating to the their board and community as needed

14 Net Pension Liability Recording the Net Pension Liability At the government-wide full accrual statements No impact for the fund level modified accrual financial statements

15 Financial Statement Impact Government-Wide income statement Allocate expense related to change in Net OPEB Liability across all functions Fund-Level statement of activities Expense recognized based on funding (typically actual contributions)

16 Government-wide (full accrual) Statement of Net Position

17 Government-wide (full accrual) Statement of Activities Expenses related to OPEB should be allocated across functions (ex. % of payroll)

18 Prior Period Restatement footnote NOTE 12 NEW ACCOUNTING STANDARDS For the year ended June 30, 2017, the District implemented the following new pronouncements: GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. Summary: GASB Statement No. 75 requires governments that participate in defined benefit other post-employment benefit (OPEB) plans to report in the statement of net position a net OPEB liability. The net OPEB liability is the difference between the total OPEB liability (the present value of projected benefit payments to employees based on their past service) and the assets (mostly investments reported at fair value) set aside in a trust and restricted to paying benefits to current employees, retirees, and their beneficiaries. The Statement requires cost-sharing employers to record a liability and expense equal to their proportionate share of the collective net OPEB liability and expense for the cost-sharing plan. The Statement also will improve the comparability and consistency of how governments calculate the OPEB liabilities and expense. The restatement of the beginning of the year net position is as follows:

19 Fund Balance (modified accrual) reconciled to Net Position (full accrual)

20 Income Statement Reconciliation

21 Changes in OPEB Liability Changes in total OPEB liability Differences between expected and actual experience with regard to economic and demographic factors Changes in assumptions Changes in OPEB plan fiduciary net position (if administered through a trust): Difference between projected and actual earnings on OPEB plan investments Employer contributions subsequent to the measurement date For OPEB not administered through a qualifying trust, amounts paid by the employer subsequent to the measurement period

22 Changes in OPEB Liability & Deferred Outflows/Inflows Amounts that are NOT recognized in expense are shown as deferred inflows of resources or deferred outflows of resources related to OPEB on the statement of Net Position Deferred outflows and inflows cannot be shown net They must be shown separate on the Statement of Net Position Changes will be amortized over future years

23 Employer Contributions During the measurement period Directly reduce the liability (no pension expense) Subsequent to measurement date: Deferred outflow of resources related to OPEB Directly reduce the liability in the next reporting period (no pension expense)

24 Employer Contributions/Timing Implications Deferred Outflows Plan FYE = September 30 Employer FYE = June 30 Measurement date = September 30, 2017

25 GASB74/75: Final Thoughts and Loose-ends Understand which plan you have Understand financial statement changes Full Accrual: Net Position, Statement of Activities Modified Accrual no impact Footnote and RSI changes these will increase in length!

26 GASB 84 Fiduciary Activities: Effective Date: Reporting period beginning after December 15, 2018 Provides clarity on what is considered a trust and agency account Key determination is control, focus is generally on: whether the government is controlling the assets of the fiduciary activity, and beneficiaries with whom a fiduciary relationship exists If the Governmental Entity has determined that they have control, it will be reported in the financial statements as a special revenue fund. Each instance will need to be analyzed individually, so start now.

27 GASB 84 Fiduciary Activities: FLOWCHARTS FOR EVALUATING AND REPORTING POTENTIAL FIDUCIARY ACTIVITIES The following flowcharts are intended to aid in the application of the provisions of this Statement. The flowcharts are nonauthoritative and do not cover all aspects of this Statement. They should not be used in place of the Statement itself.

28 GASB 84 Fiduciary Activities:

29 GASB 84 Fiduciary Activities:

30 GASB 84 Fiduciary Activities:

31 GASB 84 Fiduciary Activities: ILLUSTRATION This appendix illustrates an example of the fiduciary fund financial statements for a hypothetical government. The statements are illustrative only and should not be considered authoritative. Management s discussion and analysis, other statements that constitute basic financial statements, notes to financial statements, budgetary comparison schedules, and other required contents are not presented; thus, this set of statements does not meet the minimum requirements for basic financial statements and required supplementary information.

32 GASB 84 Fiduciary Activities:

33 GASB 84 Fiduciary Activities:

34 GASB 87 Leases Effective Date: Reporting period beginning after December 15, 2019 Leases over 12 months go on the governmental-wide statement of net position Record a liability for lease obligation Record a right to use asset Will not impact the fund level. Will continue to expense as they are paid

35 Questions? Jeffrey L. Straus Principal