Precision Experience Assurance The New Pension Standards GASB Statements 67 and 68 Milestone...

Precision Experience Assurance

The New Pension Standards GASB Statements 67 and 68

Milestone Professional Services, CPE DaySeptember 13, 2013, Kissimmee FL

Mark White CPA, Audit PartnerPurvis Gray & Company, LLP

Tallahassee / Gainesville / Ocala / Sarasota

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No!…. Anything But Pension CPE!No!…. Anything But Pension CPE!


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Two New Statements Issued June 2012

Amends No. 25

Effective FYE 2014

No. 67 Plan

Reporting Amends No. 27

Effective FYE 2015

No. 68EmployerReporting

Precision Experience Assurance4

Final Statements

Issued 2012

Research Project

Agendas 2006/2008

Invitation To Comment

2009

Preliminary Views2010

Exposure Draft 2011

The GASB’s Deliberative Process


The No. 68 Big Picture

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Unfunded Defined Benefit Pension Liability

Will Now Be Booked in BS of Economic Resources FS

Formerly Disclosed In Notes & RSI


Notes and RSI Changes

Change In Pension Liability

Aggregate Employer

Information

Annual Rate of Return on Plan Assets

Highlights of No. 67 – Plan Reporting

Very Few FS Recognition Changes

From No. 25

Clarified That Drop Liability Not

Recorded During Buildup

Applies to Pension Plan FS Issued Separately or

as P/T/F of Local Government


Who is included?

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Applies Equally To;

Local Municipal

Plans

Multi- Employer

Agent Plans (FLC)

Multi- Employer

Cost Sharing Plans (FRS)


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Implementation• Applied Retroactively, Restate Opening Equity and

New Pension Liability at BOY (PPA Like)

• Applied Retroactively, Restate Opening Deferred Inflows if Available, Otherwise Start at Zero

• This is Unlike No. 45 OPEB Implementation Which is Being Re-examined and May Soon Change


Up Until Now• Government-wide employer accounting and actuarial

funding/contributions have been ONE• Old GASB Statement No. 27 (current)

– The employer’s obligation is to fund the plan– The accounting expense (ARC) --

an actuarial funding contribution– The balance sheet liability --

contributionshortfall

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Member

PlanEmployer Funding Obligation

Benefits


Up Until Now

Accountin

g

Funding

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Same


From Now On

• Government-wide employer accounting and funding have been delinked, decoupled, . . . DIVORCED !

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Accountin

g

Funding


From Now On

• Accounting and actuarial funding will be separate

• The GASB has found a completely new, way to define the government-wide expense and liability

• “We do accounting; actuaries do funding.” – Bob Attmore, GASB Chairman

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From Now On• Now the GASB is looking at it this way:• New GASB Statement No. 68

– The employer’s obligation is “ultimately to the members” – The accounting expense -- not determined w.r.t. to any

actuarial funding contribution

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Plan

Member

Employer Benefit Obligation

• The balance sheet liability --an unfunded actuarial accruedliability

Benefits

Funding


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Two Actuarial Reports Now Needed

Actuarial Report For Accounting Actuarial Report

For Funding

Likely Done at the Same Time From Same

EE Demographics


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The New Pension Liability Equation

TPL

• Total Pension Liability, Minus

NPP

• Net Plan Position, Equals

NPL

• Net Pension Liability


Terminology-Definitions

• New (GASB 67/68)– Total Pension Liability (TPL) – the portion of the actuarial present value of

projected benefit payments that is attributable to past periods of employee service in conformity with the requirements of Statement 68.

– Net Plan Position - Fair Value of Plan Assets less plan liabilities - FMV as of the measurement date (no longer smoothed

– Net Pension Liability (NPL) – difference between the TPL and the value of plan assets available to pay pension benefits.

– Projected Benefit Payments – All benefits estimated to be payable through pension plan to current active and inactive employees as a result of their past service and their expected future service.

– Measurement Date - TPL and NPL measured as of the same date not more than 12 months before the reporting date.

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TPL Illustrated

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Discount Rate = LTEROR For Plan Assets

Net Plan Position = No More Asset Smoothing

TPL Calculated Using Entry Age Normal A/C/M Only

Calculating The Net Pension Liability


Pension Expense =

Change in NPL

Change in NPP

Change in TPL

Pension Expense


Change in TPL

Expense Some Parts Immediately

Expense Some Parts Gradually

Deferred In/Outflows

Change in NPP

Expense Some Parts Immediately

Expense Some Parts Gradually

Deferred In/Outflows

Immediate vs. Gradual Recognition


Expense Immediately

Annual Service

Cost

Benefits Paid

Plan Benefit

Changes

Interest on PY NPL

Changes in TPL Expensed Immediately


Changes in TPL Expensed Gradually

Assumption Changes

Actuarial Gains and

Losses

Expense Gradually


RecognizedImmediately

Projected Investment

Earnings

Benefits Paid

Administrative Expenses

Actual Contributions

Changes in NPPGradual Recognition

For Difference In Projected Vs. Actual Investment Earnings


Deferred Inflows and Outflows

Deferred Inflows and

Deferred Outflows

Concept Statement No.

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GASB 53 Derivatives

GASB 60 SCA

GASB 63 Financial Reporting

GASB 68 – Pensions

GASB 65 – Items

Previously Recognized


Calculation of Pension ExpenseTotal Pension

LiabilityPlan Fiduciary Net Position

Net Pension Liability

(a) (b) (a) – (b)

Balances at 12/31/X8 3,045,893$ 2,283,333$ 762,560$ 289,881$ 30,107$ Changes for the year:

Service cost 101,695 101,695 101,695$ Interest 231,141 231,141 231,141 Changes of benefit terms - - Differences between expected and actual experience (69,638) (69,638) - 63,582 (6,056) Changes of assumptions - - - - - Contributions—employer 109,544 (109,544) Contributions—employees 51,119 (51,119) (51,119) Net investment income 199,273 (199,273) (16,804) - (182,469) Benefit payments, including refunds (126,863) (126,863) - Administrative expense (3,427) 3,427 3,427 Other 8 (8) (8) Expense for beginning deferred amounts (60,320) (3,592) 56,728 Net changes 136,335 229,654 (93,319) (77,124) 59,990

Balances at 12/31/X9 3,182,228$ 2,512,987$ 669,241$ 212,757$ 90,097$ 153,339$

Pension Expense

Deferred Outflows of Resources

Deferred Inflows of Resources


Timing Issues

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Full Actuarial Report

Actuarial Update

Full Actuarial Report

Financial Reporting Actuarial Valuation Required Every Two Years, Can Do an Update

In Between


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Timing Issues

Actuarial Valuation completed within 30 months and 1 day of

RD – 3/31/12

Measurement Date Must Be Within 1

Year of RD - 10/1/14

Reporting Date (RD) FYE 9/30/15


Timing Issues

9/30/15 FS Date

Measurement Date

Actuarial Valuation DateEmployer FYE

Prior FYE

9/30/14MD

9/30/13 Beg Bal.

Date

30 months + 1 day

3/31/12


Timing Issues• Get AV as of 9/30/14 or Roll Forward

of 9/30/13 AV to 9/30/14FYE 9/3015

Municipal Audit

• Get Allocated FRS AV as of 6/30/15 or Roll forward of 6/30/14 AV to 6/30/15

FYE 9/30/15 County Audit

• Get Allocated FRS AV as of 6/30/14FYE 6/30/15 School Bd. Audit

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Contributions Made After MD

9/30/15 FS Date

Measurement Date

Actuarial Valuation DateEmployer FYE

Prior FYE

9/30/14MD

9/30/13 Beg Bal.

Date

30 months + 1 day

3/31/12

Contributions Made - Deferred

Outflow


Note Disclosure• Additional disclosures Depends Upon Plan Type - Generally:

– In the Notes to Financials• Plan description, benefit terms, employee groups• Changes in all components of the NPL• Significant Assumptions – discount rate, mortality, etc.

Numerous other disclosures– In the Required Supplementary Information

10 Year table(s) for: TPL, Plan Net Position, NPL, Net Position as a % of TPL, Covered Payroll (PR), NPL as % of Covered Payroll, Required & Actual Contributions, Covered PR, Contributions as % of PR.• Other disclosures

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High-Level Implications

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More Fuel to Pension Rollback Movement

Net Position May Go Negative

Higher Profile in CAFR

Liability From Notes to BS



More Volatile FS as Pension Liability and Expense Bounce With Market Fluctuations

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Executive Staff and Elected Officials

Press

Employees

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Communication Challenges



Amortization Periods and Methods

Disciplined Process For LTEROR

Actuarial Cost Methods

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Revisit Funding Policies



Local Governments

Rush For Actuarial Services

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Start Talking With Your Actuary and Auditors Now


Wow, That Was Sure A Lot Of Fun!Wow, That Was Sure A Lot Of Fun!


The New Pension Standards GASB Statements 67 and 68

Milestone Professional Services, CPE DaySeptember 13, 2013, Kissimmee FL

Mark White CPA, Audit PartnerPurvis Gray & Company, LLP

Tallahassee, Gainesville, Ocala, Sarasota

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Precision Experience Assurance The New Pension Standards GASB Statements 67 and 68 Milestone...

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