1 GASB 68 Accounting and Reporting for Pensions an Amendment of GASB Statement No. 27 Presented by: Kevin S. Wong, CPA Gilbert Associates, Inc. September 19, 2012

2 Background and Overview Background Project initiated in January 2006 Exposure draft issued June 2011 Final standard issued June 2012

3 Background and Overview (Continued) Overview Amends GASB 27 Accounting for Pensions by State and Local Governmental Employers Amends GASB 50 Pension Disclosures

4 Background and Overview (Continued) Implementation date  Fiscal years beginning after June (years ending June 30, 2015, December 31, 2015)  Deferred one year from implementation dates published in exposure draft

5 Big Picture – why? 1.Better transparency about pension costs No more “kicking the can down the road” Changes focus from a “funding” approach to “earnings” approach

6 Big Picture – why? (Continued) 2.Recognition of the entire net pension liability 3.A more comprehensive measure of pension expense 4.Pension Actuaries full employment act

7 Required Calculations a.Net Pension Liability b.Pension expense c.Pension-related deferred outflows of resources and deferred inflows of resources New Accounting Formula! GASB Concepts Statement No. 4, GASB 63, GASB 65 Deferred outflows – positive effect on net position, but not assets Deferred inflows – negative effect on net position, but not liabilities A+DOR-L-DIR=NP

8 What kind of plan is it? Single employer Benefits the employees of only one employer Agent multiple employer Assets are pooled for investment purposes but legally segregated

9 What kind of plan is it? (Continued) Cost-sharing, multiple employer Participating employers pool their pension obligations Plan assets can be used to pay any participating employer’s pension Most JPA staff participate in CalPERS’ 2.0% or 2.7% at 55 Miscellaneous pool

10 What kind of plan is it? (Continued) Calculations of Net Pension Liability, Pension Expense, and Pension-related Deferred Outflows of Resources and Deferred Inflows of Resources i.Single-employer and Agent-employer Plans 100% recognition ii.Cost-sharing multiple employer Plans Recognize their proportionate share

11 What kind of plan is it? (Continued) Presentation will discuss What is required for Single and Agent Multiple Employer Plans What is required for Cost-Sharing, Multiple Employer Plans How to prepare for the change

12 Required Calculations–Net Pension Liability Total Pension Liability – Plan Net Position = Net Pension Liability Determined as of no earlier than sponsoring entity’s prior fiscal year end (“measurement date”) Approach based on a “benefits-earned” rather than a “funding-due” perspective

13 Determining Total Pension Liability (TPL-PNP=NPL) Definition The portion of the actuarial present value of projected benefit payments that is attributed to past periods of employee service (what has been “earned”)

14 Determining Total Pension Liability (TPL-PNP=NPL) (Continued) Projecting future benefit payments i.Timing and frequency 1.Actuarial valuation as of the measurement date, or 2.Update procedures from a prior actuarial valuation a.Valuation no more than 30 months and one day earlier 3.Actuarial valuation at least biennially

15 Determining Total Pension Liability (TPL-PNP=NPL) (Continued) ii.Shall include 1.All benefit terms and automatic changes 2.Effects of projected salary increases 3.Service credits 4.COLAs, etc. (automatic and ad hoc)

16 Determining Total Pension Liability (TPL-PNP=NPL) (Continued) Discounting projected future benefit payments to present value

17 Determining Total Pension Liability (TPL-PNP=NPL) (Continued) Discount rate is the single composite rate of: Long-term expected rate of return on pension plan investments To the extent plan investments are projected to be sufficient to make benefit payments Index rate for a 20-year, tax-exempt general obligation muni bond rated AA/Aa or higher to the extent #1 is insufficient

18 Determining Total Pension Liability (TPL-PNP=NPL) (Continued) Attributing present value of projected benefit payments to past and future periods “Entry age actuarial cost method” should be used

19 Determining Total Pension Liability (TPL-PNP=NPL) (Continued) Recap – Total Pension Liability 1.Project future benefits 2.Discount to present value 3.Attribute present value to past and future periods 4.TPL = liability for benefits earned in past periods

20 Determining Plan Net Position (TPL-PNP=NPL) Measured at the measurement date Same valuation methods used by the Plan

21 Determining Net Pension Liability (TPL-PNP=NPL) Total Pension Liability – Plan Net Position = Net Pension Liability

22 Pension Expense Changes in Net Pension Liability Incremental recognition over closed periods:  Differences between expected and actual Economic or demographic factors Investment earnings  Changes in assumptions

23 Pension-related deferred outflows of resources and deferred inflows of resources Unrecognized items not yet charged to pension expense Contributions from the employer after measurement date but before reporting period

24 Note Disclosures 1.Description of the pension plan Name of the plan, PERS or entity that administers, type of plan Descriptions of benefits and authority under which benefit provisions are established or may be amended

25 Note Disclosures (Continued) Classes and number of employees in the following groups  Inactive employees or beneficiaries currently receiving benefits  Inactive employees entitled to, but not yet receiving, benefits  Active employees Contribution requirements Whether the plan issues a stand-alone financial report and how to obtain it

26 Note Disclosures (Continued) 2.Assumptions used to measure total pension liability Detailed disclosures about the discount rate

27 Note Disclosures (Continued) 3.The pension Plan’s fiduciary net position Can refer to Plan’s report Plan’s basis of accounting 4.Brief description of change in benefit terms and assumptions that affect measurement of the total pension liability since prior measurement date

28 Note Disclosures (Continued) 5.Measurement date, date of the actuarial valuation on which the recognized information is based and whether based on the use of update procedures to roll forward measurements Nature of any significant changes impacting net pension liability after measurement date Amount of pension expense recognized in the period

29 Note Disclosures (Continued) 6.Employer’s policy for determining actual contributions to the plan 7.If not separately disclosed in the financial statements, disclose aggregate: a.Net pension liabilities b.Deferred pension outflows of resources c.Deferred pension inflows of resources d.Pension expense for the period

30 Note Disclosures (Continued) Components of deferred pension inflows and outflows, with up to five elements of applicable categories Schedule of anticipated recognition of pension expense of deferred outflows/inflows for the next five years.

31 Note Disclosures (Continued) Additional disclosures for each Single-Employer or Agent Multiple-Employer Plan Detail of changes in a schedule of changes in net pension liability Broken out by TPL, PNP, and NPL – 12 elements

32 Note Disclosures (Continued) Additional disclosures for Cost-Sharing Multiple- Employer Plans The employer’s proportion (amount and percentage) of the collective net pension liability, the basis on which its proportion was determined, and the change in its proportionate share since the prior measurement date.

33 Note Disclosures (Continued) Additional disclosures for Cost-Sharing Multiple- Employer Plans (Continued) The amounts of the net pension liability, deferred pension outflows and inflows, and pension expense recognized in the financial statements for each cost-sharing plan

34 Required Supplementary Information a.Ten-year schedule of changes in net pension liability (single-employer or agent multiple- employer plan only) b.Ten-year schedule of components of net pension liability and covered payroll c.Ten-year schedule of related contributions

35 Required Supplementary Information (Continued) d.Notes to required schedules i.Information about factors that significantly affect the identification of trends in the amounts reported ii.Significant methods and assumptions used in determining actuarially calculated employer contributions

36 Considerations for Cost-Sharing multiple- employer plans Recognition of proportionate share of collective net pension liability, collective pension expense, collective deferred inflows and outflows of resources related to pensions

37 Considerations for Cost-Sharing multiple- employer plans (Continued) Proportion is calculated based on the employer’s projected long-term contributions effort as compared to the total of all projected contributions of the employers

38 Considerations for Cost-Sharing multiple-employer plans (Continued) Calculation of Collective Net Pension Liability Collective Net Pension Liability = Collective Total Pension Liability – Plan Net Position

39 Considerations for Cost-Sharing multiple- employer plans (Continued) Accounting for a change in proportion Recognized in pension expense over a closed period

40 Effective date and transition Effective for financial statement periods beginning after June 15, 2014 Earlier application is encouraged

41 What Should I Do Now??? Know the overview of changes Familiarize yourself with your plan Enlist the help of CalPERS Begin educating stakeholders (Management, Board, Pool Members)

42 Questions? Can you hear me now?

43 Presented by: Kevin S. Wong, CPA Gilbert Associates, Inc September 19, 2012