April 8, 2014

Statement No. 65, Items Previously Recorded as Assets and Liabilities Statement No. 67, Financial Reporting for Pension Plans-an amendment of GASB Statement No. 25 Statement No. 68, Accounting and Financial Reporting for Pensions-an amendment of GASB Statement No. 27 Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date Statement No. 69, Government Combinations and Disposals of Government Operations Statement No. 70, Accounting and Financial Reporting for Nonexchange Financial Guarantees 3

GASB STATEMENT NO. 65 Items Previously Recorded as Assets and Liabilities

Issued March 2012 Effective Date: Periods beginning after December 15, Must be applied retroactively to transactions of previous periods. GASB Statement No. 63 revised governmental financial statements to: Present deferred outflows of resources and deferred inflows of resources Replace the term net assets with net position GASB Statement No. 65 reclassifies certain items currently reported as assets and liabilities to deferred outflows/inflows of resources or to expenses of the current period 5

Prepaid Items 6

Deferred amounts on refunding of debt (assuming that a loss was incurred on the refunding transaction) Currently reported as an adjustment to long-term debt on the statement of net position Losses on sale-leaseback transactions 7

Debt issuance costs The provisions of this statement must be implemented retroactively, so any existing debt issuance costs deferred on the statement of net position will have to be removed and beginning of year net assets adjusted 8

Advance of derived tax revenues (i.e. revenue received before the underlying transaction has occurred) Grant proceeds received prior to meeting eligibility requirements (other than time requirements) Receipt of prepayment 9

Advance of revenue from imposed nonexchange transactions (including property taxes received/recorded as a receivable before the period for which they are levied) Advance from grantor when time requirement not met 10

Deferred amounts on refunding of debt (assuming that a gain was incurred on the refunding transaction) Currently reported as an adjustment to long-term debt on the statement of net position Proceeds from sales of future revenues Unavailable revenue related to application of modified accrual accounting (including property tax payments received after 60 day cutoff) Gain from sale-leaseback transactions 11

The term deferred should only be used in conjunction with deferred outflows and deferred inflows Major fund thresholds under GASB Statement No. 34 have been revised to combine deferred outflows with assets and deferred inflows with liabilities 12

Questions 13

GASB Statement No. 67 addresses how the financial statements for pension plans should look Applies to stand alone pension plan reports and plans presented in pension trust funds Does NOT require underfunded status of the plan to be reported as a liability, but plan funded status is disclosed in the footnotes and required supplementary information Effective for June 30, 2014 fiscal year ends 14

GASB Statement No. 68 addresses how employers account for their participation in a defined benefit pension plan Does require underfunded status of the plan to be reported as a liability on the financial statements Effective for June 30, 2015 fiscal year ends GASB Statement No. 71 provides a correction to a small error that was identified in GASB Statement No. 68 regarding its implementation Implement simultaneously with GASB Statement No

Single Employer Plans: Plans where pensions are provided to the employees of only one employer Agent Multiple-Employer Pension Plans (Agent Plans): Plans where assets are pooled for investment purposes but separate accounts are maintained for each individual employer so that each employer’s share of the pooled assets is legally available to pay the benefits of only its employees 16

Single Employer Plans: Plans where pensions are provided to the employees of only one employer Agent Multiple-Employer Pension Plans (Agent Plans): Plans where assets are pooled for investment purposes but separate accounts are maintained for each individual employer so that each employer’s share of the pooled assets is legally available to pay the benefits of only its employees 17

GASB STATEMENT NO. 67 Financial Reporting for Pension Plans-an amendment of GASB Statement No. 25

Issued June 2012 Effective for periods beginning after June 15, 2013 High level summary: Significantly revises financial reporting requirements for separately issued plan financial statements or for plans included within the financial statements as pension trust funds 19

Statement of Fiduciary Net Position Statement of Changes in Fiduciary Net Position These statements are required for ALL types of plans, including both defined benefit and defined contribution plans 20

Assets + Deferred outflows of resources - Liabilities - Deferred inflows of resources = Fiduciary net position 21

Additions (such as contributions and investment income) - Deductions (such as benefit payments and administrative expense) = Net increase (decrease) in fiduciary net position 22

Plan description Name and number of participating employers Types of benefits provided Classes of plan members covered Composition of plan’s board Plan investments Pension investment policies and how fair value is determined Concentrations of investments exceeding 5% of net position Annual money-weighted return of plan investments 23

Other disclosures Contributions Reserves Allocated insurance contracts 24

Single-employer and cost-sharing plans must disclose the following regarding plan funding and actuarial status: Total pension liability (TPL) Fiduciary net position (FNP) Net pension liability (NPL) 25

FNP as a percentage of TPL Significant actuarial assumptions: Inflation rate Salary changes Ad-hoc post-employment benefit changes, including cost of living adjustments (COLA’s) Inputs into discount rates Information about mortality assumptions Dates of experience studies 26

The following 10-year schedules are required for single-employer and cost sharing plans: Sources of changes in the net pension liability Information about the components of the net pension liability and related ratios, including: Plan’s fiduciary net position as a percentage of the total pension liability Net pension liability as a percentage of covered-employee payroll 27

If contributions to the plan are actuarially determined, a schedule showing: Actuarially determined contribution Actual contributions Related ratios Methods and assumptions used (in a note to the schedule) Annual money-weighted rate of return on the plan 28

Required at least once every 2 years, although more frequent valuations are encouraged If valuation is not as of fiscal year-end, must rollforward most recent valuation to year end Required valuation methodology will be discussed in the slides on GASB 68 29

Questions 30

GASB STATEMENT NO. 68 Accounting and Financial Reporting for Pensions-an amendment of GASB Statement No. 27

Issued June 2012 Effective for periods beginning after June 15, 2014 High level summary: Significantly changes accounting and financial reporting for governments participating in defined benefit pension plans 32

For single employer plans and agent plans, employers will have to record the underfunded status of the plan as a liability on the government-wide financial statements Currently, governments only record a liability when they make less than the actuarially required annual contribution For cost-sharing plans, employers will have to recognize a liability representing their proportionate share of the plan’s underfunded status Currently, governments participating in cost-sharing plans disclose their participation in the footnotes to the financial statements but are not required to record any liabilities 33

Key changes to the calculation of liabilities and expenses associated with defined benefit plans relate to each of the following: Employer liability Employer expense Discount rate Actuarial method Amortization 34

Under current pension standards: Annual required contribution (ARC) Less: Actual Contributions Net pension obligation (NPO) Under GASB Statement No. 68: Total pension liability (TPL) Less: Fiduciary net position (FNP) Net pension liability (NPL) 35

Under current standards, only report a pension liability to the extent the entity is behind on its annual pension contributions In other words, the actuary’s valuation focuses primarily on calculating pension expense Under GASB Statement No. 68, must report a pension liability for the entire underfunded status of the plan In other words, the actuary’s valuation focuses primarily on calculating pension liability 36

Annual service cost Interest on the net pension liability Projected earnings on plan investments The full effect of any changes in benefit terms Amortization of deferred outflows/inflows of resources 37

Under current guidance, discount rate is the estimated long-term investment yield for the plan, with consideration given to the nature and mix of current and expected plan investments Under GASB Statement No. 68, the discount rate must be modified if it is expected that FNP will not be sufficient to pay benefits to active employees and retirees Single blended rate 38

Single rate equivalent to the combined effect of using the following rates: For projected cash flows up to the point the FNP will be sufficient, use the long-term expected rate of return on plan investments For projected cash flows beyond that point, a yield or index rate on tax-exempt 20-year Aa-or higher rated municipal bonds 39

Under current guidance, use the same actuarial method used for funding Six acceptable methods Must be applied within parameters defined by the GASB Under GASB Statement No. 68, there is no tie to the actuarial method used for funding the plan All employers will use the entry age method for accounting and financial reporting purposes (with service cost determined as a percentage of pay) 40

The following circumstances that could affect the net pension liability (NPL) are amortized to expense: Changes in benefit terms Changes in economics and demographic assumptions Differences between economic and demographic assumptions and actual experience (other than investment returns) Differences between expected and actual investment returns 41

Under current guidance, the effect is amortized over a period not to exceed 30 years Under GASB Statement No. 68, the effect is to be amortized over a much shorter period. Different periods, depending on the circumstances 42

Changes in benefit terms Immediate recognition Changes in economic and demographic assumptions Closed period equal to average remaining service period of plan members (for retirees, average remaining service period = 0 years) 43

Differences between economic and demographic assumptions and actual experience (other than investment returns) Closed period equal to average remaining service period of plan members Differences between expected and actual investment returns Closed 5-year period 44

Valuations are as of a measurement date, which can be no more than one year before fiscal year- end Required at least once every 2 years, although more frequent valuations are encouraged In off years, must rollforward valuation to measurement date 45

An employer’s proportionate share in the plan’s liability should be determined in a manner consistent with the way contributions for various employers are determined The plan’s management and actuaries will likely have to calculate each participating employer’s proportionate share of liabilities, expenses, and deferred inflows/outflows and communicate this to the employers Most cost sharing plans are still determining precisely how this will be done 46

Plan description Name of the plan Entity that administers the plan Type of plan (single employer, agent, cost-sharing) Benefit terms Number of employees covered Contribution requirements Availability of separate report Information about the net pension liability (NPL) Actuarial assumptions and other inputs (inflation, salary changes, COLA’s, etc.) Impact on NPL of a +/- 1% change in discount rate Fiduciary net position 47

Beginning balances for: Total pension liability (TPL) Fiduciary net position (FNP) Net pension liability (NPL) Changes during period Ending balances for: Total pension liability (TPL) Fiduciary net position (FNP) Net pension liability (NPL) Other disclosures 48

For cost sharing plans, the employer’s percentage share of NPL Changes in net pension liability (NPL) Funding progress: Total pension liability (TPL) Less: Fiduciary net position (FNP) Equals: Net pension liability (NPL) FNP / TPL = % (single and agent plans only) Covered payroll NPL / Covered payroll = % 49

Actuarially or statutorily determined contributions Actuarially/statutorily determined annual pension contribution Amount of employer contribution actually made Difference between the two Payroll of covered employees Ratio of actual employer contributions to covered payroll 50

Determine what type of plan you have (single employer, agent or cost-sharing) For single employer and agent plans: Contact your actuary to discuss changes and determine a measurement date Determine what information actuary will require and provide to actuary Determine timetable for delivery of actuary’s report Accumulate other information necessary for pension footnotes and required supplementary information (RSI) 51

For cost sharing plans: Contact management of the plan to determine how they will provide necessary actuarial information to participating employers Determine whether the plan’s auditors will have audited this information. If not, coordinate with your auditors how they will approach pension plan information. Determine timetable for receipt of actuarial information Accumulate other information necessary for pension footnotes and required supplementary information (RSI) 52

Questions 53

GASB STATEMENT NO. 71 Pension Transition for Contributions Made Subsequent to the Measurement Date

Issued November 2013 Comments Due August 26, 2013 High level summary: Requires that, upon the adoption of GASB Statement No. 68, a beginning deferred outflow of resources should be recorded for any contributions made subsequent to the measurement date of the beginning net pension liability 55

GASB Statement No. 68 requires the net pension liability (NPL) to be calculated as of a measurement date no earlier than the end of the entity’s prior fiscal year For example: Client’s fiscal year end: December 31, 2015 Measurement date (the date the actuarial valuation is as of): December 31, 2014 Thus, the NPL presented on the financial statements may essentially be calculated based on information that is a year old 56

Issue: what to do with contributions made to the plan after the measurement date but before the financial statement date In the example on the previous slide, contributions made during calendar year 2015 Solution: GASB Statement No. 68 requires subsequent contributions to be reported as deferred outflows of resources Problem at Transition: GASB Statement No. 68 also says that, if it is not practical to measure all deferred inflows and outflows of resources upon the adoption of the Statement, no beginning balances of deferred outflows and inflows of resources should be reported 57

The Exposure Draft modifies this guidance to require that a beginning balance of deferred outflows of resources be reported for any contributions made to the plan after the measurement date of the beginning net pension liability Aside from this, if it is not practical to measure all deferred inflows and outflows of resources upon the adoption of the Statement, no beginning balances of deferred outflows and inflows of resources should be reported 58

Questions 59

GASB STATEMENT NO. 69 Government Combinations and Disposals of Government Operations

Issued January 2013 Effective for combinations and disposals of government operations occurring in financial reporting periods beginning after December 31, 2013 High level summary: The statement defines government mergers, government acquisitions, transfers of operations and disposals of operations, and specifies the accounting treatment to be used for each of these types of transactions 61

A government combination of legally separate entities in which no significant consideration is exchanged Either: Two governments combine to form a new government, OR One or more legally separate governments or nongovernmental entities cease to exist and their operations are absorbed into, or provided by, one or more continuing governments Assets, liabilities, deferred outflows/inflows are recognized at carrying value on the merger date 62

A government combination in which a government acquires another entity or the operations of another entity, in exchange for significant consideration Assets, liabilities, and deferred outflows/inflows are recognized at acquisition value (market based entry price), EXCEPT: Compensated absences, pensions, OPEB recognized pursuant to relevant GASB standards Investments and derivatives reported at fair value If consideration exceeds net position acquired, difference is recorded as deferred inflow and amortized If consideration is less than net position acquired, values of noncurrent assets are reduced, and any excess is reported as a special item 63

Transfer to another government of an integrated set of activities conducted and managed for providing identifiable services with associated assets and liabilities Assets, liabilities, deferred outflows/inflows are recognized at carrying value on the effective transfer date The net position received or assumed by the transferee government is reported as a special item 64

Disposal of an integrated set of activities conducted and managed for providing identifiable services with associated assets and liabilities Gain or loss on disposal should be recognized as a special item Gain or loss does NOT include normal operating activities up to the disposal date Gain or loss does include: Difference between assets and liabilities transferred and consideration received (if any) Costs directly associated with the proposal 65

Questions 66

GASB STATEMENT NO. 70 Accounting and Financial Reporting for Nonexchange Financial Guarantees

Issued April 2013 Effective for periods beginning after June 15, 2013 High level summary: Clarifies accounting treatment for governments that extend or receive nonexchange financial guarantees 68

Record a liability when qualitative factors and historical data indicate that it is more likely than not that the government will have to make a payment on the guarantee Liability is equal to discounted present value of best estimate of future outflows to be incurred If no best estimate exists but there is a range, the liability should be the discounted present value of the minimum amount in the range 69

Report liability for the obligation until legally released as an obligor If required to repay the guarantor for any payments made under the guarantee, report a liability until legally released as an obligor If released as an obligor, recognize revenue as a result of being released from the obligation 70

For governments extending guarantees: Description of all guarantees outstanding, regardless of likelihood of payment Amount of all guarantees outstanding If payments have actually been made during the period, information on the total liability, payments during the period, cumulative payments made, and amounts expected to be recovered For governments receiving guarantees: Description of the guarantee and the entity providing it Amount of guarantee outstanding and paid during period and cumulatively Amounts required to be repaid to guarantor 71

Questions 72