pension accounting and passdown schedules Sheralin Klinthong, Associate Director, Chancellor’s Office

YEAR-END GAAP TRAINING APRIL 2017 YEAR-END GAAP TRAINING APRIL 2017 Learning Objectives Understand net pension liability and its importance Define the three steps in determining total pension liability Identify the factors contributing to the changes in net pension liability Assess which factors are included in pension expense immediately and which factors are deferred Assess usefulness of information in passdown schedule

Defined Benefit Pension Plan Structure YEAR-END GAAP TRAINING APRIL 2017 YEAR-END GAAP TRAINING APRIL 2017 Defined Benefit Pension Plan Structure Defined Benefit Pension Plan (CalPERS) State of California California State University Chancellor’s Office 23 Campuses Other State Agencies (counties, school districts, etc.) Other Employers

Illustration: Pension Cash Flow YEAR-END GAAP TRAINING APRIL 2017 YEAR-END GAAP TRAINING APRIL 2017 Illustration: Pension Cash Flow Employer (CSU) Contribution Pension Fund (Investments + Earnings) Benefits Pension Recipients (employees)

YEAR-END GAAP TRAINING APRIL 2017 YEAR-END GAAP TRAINING Polling Question: How would you describe your understanding about the pension accounting? Full understanding Limited understanding Not deemed necessary

What is Net Pension Liability? YEAR-END GAAP TRAINING APRIL 2017 YEAR-END GAAP TRAINING APRIL 2017 What is Net Pension Liability?

What is Net Pension Liability? YEAR-END GAAP TRAINING APRIL 2017 YEAR-END GAAP TRAINING APRIL 2017 What is Net Pension Liability?

What is Net Pension Liability? YEAR-END GAAP TRAINING APRIL 2017 YEAR-END GAAP TRAINING APRIL 2017 What is Net Pension Liability?

What is Net Pension Liability? YEAR-END GAAP TRAINING APRIL 2017 YEAR-END GAAP TRAINING APRIL 2017 What is Net Pension Liability?

Measurement of Pension Expense YEAR-END GAAP TRAINING APRIL 2017 YEAR-END GAAP TRAINING APRIL 2017 Measurement of Pension Expense A variety of factors contribute to the changes in net pension liability Most of the factors are included in pension expense immediately Certain factors will be deferred and included in pension expense over multiple periods

Measurement of Pension Expense (cont.) YEAR-END GAAP TRAINING APRIL 2017 YEAR-END GAAP TRAINING APRIL 2017 Measurement of Pension Expense (cont.) Pension Expense Amortization: Experience Gain/Loss & Change in Assumptions CY Employee Service Costs Interest expense on total pension liability

Measurement of Pension Expense (cont.) YEAR-END GAAP TRAINING APRIL 2017 YEAR-END GAAP TRAINING APRIL 2017 Measurement of Pension Expense (cont.) Pension Expense Amortization: Difference between assumed vs. actual earnings Employee Contribution Assumed Interest Earnings

Pension Passdown Schedules YEAR-END GAAP TRAINING APRIL 2017 YEAR-END GAAP TRAINING APRIL 2017 Pension Passdown Schedules Annual passdown schedule includes the following: Rollforward Schedule Fluctuation Analysis Pension Journal Entries Reversal of prior year balances Set-up the current year balances Reclassification of current year retirement contribution to deferred outflows of resources Allocation by Campus – by pensionable compensation Allocation by CSU Fund – by retirement contribution

YEAR-END GAAP TRAINING APRIL 2017 YEAR-END GAAP TRAINING APRIL 2017

Pension Related Fluctuation Analysis YEAR-END GAAP TRAINING APRIL 2017 YEAR-END GAAP TRAINING APRIL 2017 Pension Related Fluctuation Analysis Factors that can result to significant fluctuations: Employee Service Costs Investment Earnings Changes in Assumptions Change in Proportionate Share (pensionable compensation) *Fluctuation analysis by campus has been incorporated in the passdown schedule.

YEAR-END GAAP TRAINING APRIL 2017 YEAR-END GAAP TRAINING Polling Question: Do you find the rollforward and fluctuation analysis useful? Yes No

Disclosure Requirements YEAR-END GAAP TRAINING APRIL 2017 YEAR-END GAAP TRAINING APRIL 2017 Disclosure Requirements Financial Statements Net Pension Liability Deferred Outflows and Inflows of Resources Benefits (i.e. Pension) Expense Notes to Financial Statements Provides a more comprehensive and easier to understand picture of the pension liability and expense. Supplementary Schedules - Contains pension data for each of the most recent 10 years

YEAR-END GAAP TRAINING APRIL 2017 YEAR-END GAAP TRAINING APRIL 2017 Resources GAAP Manual Chapter 4.3.10 Net Pension Liability Link: CSU GAAP Accounting Manual GASB 68 Pension Passdown Schedules Link: PBC SharePoint Passdown Schedules SFSR GAAP Team Email: SFSR_GAAP@calstate.edu

YEAR-END GAAP TRAINING APRIL 2017 YEAR-END GAAP TRAINING Questions and Answers