GASB’S REVISED PENSION STANDARDS: What Arizona’s Governmental Employers Need for 2015 DONNA MILLER, ARIZONA OFFICE OF THE AUDITOR GENERAL NANCY BENNETT, ARIZONA STATE RETIREMENT SYSTEM LESLIE CLARK, ARIZONA PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM AUGUST 6, 2015

Pension reporting revisions Pension Plans—GASB Statement 67 Financial statements unchanged Note disclosures and RSI changes Employers—GASB Statements 68 & 71 Pension amounts reported in F/S’s More robust note disclosures and RSI changes

Arizona’s government pension plans Defined benefit pension plans: Arizona State Retirement System (ASRS) Public Safety Personnel Retirement System (PSPRS) Correction Officer’s Retirement Plan (CORP) Elected Officials Retirement Plan (EORP)

Defined benefit plan types

Cost-sharing Proportionate share of total liability Rational basis like contributions Fiduciary net position pooled and shared for benefits/expenses Agent multiple- employer Each employer has separate account Distinct liability Distinct fiduciary net position

Arizona plans – at June 30, 2014 EmployersMembers (approximate) ASRSCost-sharing multiple-employer690544,780 PSPRSAgent multiple-employer25532,170 CORP*Agent multiple-employer2720,300 EORPCost-sharing multiple-employer392,045 *Within CORP, there is a cost-sharing plan for the Administrative Office of the Courts, CORP-AOC. This will be discussed further as time permits.

GASB’s most popular revision GASB Statement 68: Requires employer governments to report net pension liabilities (NPL) ….or net pension assets

NPL calculation Total pension liability (TPL) minus Plan assets (fiduciary net position)

What is the total pension liability? Simple definition: Estimated total pension benefit obligations at present value

Calculating TPL Total pension liability (TPL)—calculation: 1.Project benefits (need census data) 2.Discount benefits to present value 3.Attribute present value to member’s expected years of service

What is the NPL? Estimated total unfunded pension benefit obligations at present value. TPL – plan assets = NPL (could be NPA) Why should employers report this liability?

Revisions—Pension expense Before GASB 68: Employer contributions equaled pension expense In all funds and activities No pension liability

June 30, 2015 Employer Report Date Pension measurement date—no earlier than employer’s prior fiscal year (12 months before) FY 2014FY /30/2014 Measurement 6/30/2015 Report June 30, 2014 Pension amounts

What employer pension amounts are reported? ___________________________ Net pension liability/asset (NPL) Pension expense Deferred inflows of resources Deferred outflows of resources

Which funds and activities are effected? ____________________________ Governmental activities—government- wide statements Business-type activities—government-wide statements Proprietary fund statements: enterprise and internal service

Which line items are effected? Government-wide statements: ___________________________ Noncurrent liabilities Deferred inflows/outflows of resources Expense activities like general government or public safety

Governmental funds What about the General and other governmental funds? NO CHANGE—Employer contributions paid during the year remain expenditures New reconciling items between governmental funds and governmental activities

Allocation to proprietary funds GASB 68 silent 68 Implementation guide, Q 36 NCGA Statement 1, para. 42: requires reporting long-term liabilities that are “directly related to and expected to be paid from” those funds

Statement of net position Would a portion of NPL be due in a year? Employer may decide to include net pension liability line item under noncurrent liabilities.

Deferred inflows/outflows Differences in expected and actual (past) experience—economic or demographic factors Changes of assumptions—future economic or demographic factors or other inputs Note: These cannot be netted. Amortized over closed period equal to the remaining service lives of active/inactive employees.

Deferred inflows/outflows Differences in projected/actual investment earnings Can be netted Amortized over a closed 5-year period Employer contributions after measurement date reported as: ____________________________ Are these amortized? Why or why not? Deferred outflows of resources related to pensions

Deferred inflows/outflows Cost-sharing plans only: Changes in proportion and differences between employer contributions and proportionate share of contributions Note: Cannot be netted. Amortized over closed period equal to the remaining service lives of active/inactive employees.

Statement of activities How will employers allocate pension expense to functions/programs? State and Counties: Universities/Colleges R/E Statement of changes:

Reconciliation: balance sheet to statement of net position Choose one depending on NPL or NPA

Reconciliation: governmental funds R/E statement of changes to statement of activities

Note disclosures Plan descriptions, terms, assumptions, changes Employer’s % of NPL Deferred inflows/outflows balances Discount rate sensitivity to NPL +/- 1%

Required supplementary information 10-year schedules: Components of NPL Contributions and related ratios Transition—can present only those years available

Auditor General Provided Information All plan types DRAFT reporting guideline (notes and RSI) Counties Community college districts School districts Sample journal entries (cost-sharing plan) Available at

ASRS – Allocation schedule – J/E Example For F/S note disclosure

ASRS – Allocation schedule – J/E Example Estimated for example

Prior Period Adjustment Note Governmental Activities Beginning net position as previously reported at June, 30, 2014 $XXX,XXX,XXX Prior period adjustment—implementation of GASB 68: Net pension liability (measurement date 2013) Deferred outflows—employer contributions subsequent to the 2013 measurement date Total prior period adjustment Net position as restated, July 1, 2014 $ XX,XXX,XXX ($9,808,861) 555,723 ($9,253,138)

Prior Period Adjustment J/E DebitCredit Net position, prior year July 1, 2014 Deferred outflow of resources related to pensions—contributions subsequent to the 2013 measurement date Net pension liability $9,253, ,723 $9,808,861

Current Year Net Pension Liability, Pension Expense, and Deferred Amounts DebitCredit REVERSE: Prior-year net pension liability REVERSE: Deferred outflows for contributions subsequent to the 2013 measurement date (f/y 2014) Pension expense Deferred outflow of resources related to pensions— experience differences Deferred inflow of resources related to pensions—differences between employer contributions/proportionate shares Deferred inflow of resources related to pensions—net difference between projected and actual earning on pension plan investments Noncurrent liability due in more than one year - net pension liability current year $9,808,861 $555, , , ,290 1,490,795 8,525,205

Current Period Contributions DebitCredit Deferred outflow of resources related to pensions—contributions subsequent to the 2014 measurement date Employee-related expenditures (fiscal year 2015) $596,234

Reconciliation of the balance sheet to the statement of net position Fund balances – governmental funds $XX,XXX,XXX Amounts reported for governmental activities in statement of net position are different because: Some liabilities, including net pension liability, are not due and payable in the current period and, therefore, are not reported in the funds Net pension liability Deferred outflows and inflows of resources related to pensions are applicable to future periods and, therefore, are not reported in the funds Deferred outflows related to pensions (experience difference and subsequent contributions) Deferred inflows related to pensions Net position of governmental activities $xx,xxx,xxx (622,575) (8,525,205) 1,029,510 ( 1,652,085)

Reconciliation of the statement of revenues and expenditures to the statement of activities Net change in fund balances – total governmental funds $XX,XXX,XXX Amounts reported for governmental activities in statement of activities are different because: Governmental funds report pension contributions as expenditures when made. However, in the statement of activities pension expense is the cost of benefits earned, adjusted for member contributions, the recognition of changes in deferred outflows and inflows of resources related to pensions, and investment experience. Contributions Pension expense Change in net position of governmental activities $xx,xxx,xxx 105,358 $596,234 (490,876)

AICPA guidance AICPA State and Local Government Audit Guide, Pension Chapter 13 Best practice recommendations and solutions Governmental employer participating in cost-sharing multiple employer plans Governmental employer participating in agent multiple employer plans (includes census data) Cost-sharing multiple employer plan testing of census data

AICPA guidance: Cost-sharing plans Employer challenges Recognizing proportionate share of collective pension amounts Obtaining the information to support these amounts. Auditor challenge Obtaining sufficient, appropriate evidence in order to opine on financial statements

Plan Provided Information from Cost-sharing Plans ASRS, EORP, CORP-AOC Schedule of employer allocations Schedule of pension amounts by employer Audit report on schedules by plan’s external auditors Plan auditors tested all members’ census data during plans’ financial statement audits

AICPA guidance: Agent plans Employer challenge Obtaining the information to support pension amounts because accounting records are maintained by the plan Auditor challenge Obtaining sufficient, appropriate evidence in order to opine on financial statements

Plan Provided Information from Agent Plans PSPRS and CORP Schedule of changes in fiduciary net position Audit report on each employer’s FNP statement by plan’s external audit Plan actuaries will issue separate actuarial valuation reports and a certification letter Report on retired/inactive member census data

AICPA guidance: Agent plans Separate actuarial valuation report specific to each employer, and Plan engages an auditor to issue: 1: a service organization controls 1 (SOC 1)Type 2 report on controls over census data, or 2: an examination engagement over selected management’s assertions related to census data. For FY 2015

AICPA guidance: Census data Agent plans Employer challenge Ensuring the census data (obtained from the plan/actuary) for active employees is accurate and complete. Auditor challenge Testing the census data

Agent plan provided information Census data elements relied on by PSPRS’ actuary: Gender Date of birth Salary Years of service Member contribution balance

ASRS Information Provided to Employers by ASRS Schedule of Pension Amounts by Employer* (as of June 30, 2014) net pension liability deferred inflows/outflows of resources pension expense will include NPL as of July 1, 2013 Schedule of Employer Allocations* (as of June 30, 2013 & 2014) employer contributions and proportionate share Schedules to be issued Spring 2015 will be audited by ASRS external auditors *In accordance with AICPA SLGEP issued whitepaper pension series

ASRS Information Provided to Employers by ASRS Prior period adjustment employers add contributions paid in fiscal year Note disclosures to come from Notes to schedules ASRS June 30, 2014 CAFR financial statement reporting guidelines from the Auditor General AICPA recommended schedules RSI to come from ASRS June 30, 2014 CAFR – RSI Section financial statement reporting guidelines from the Auditor General AICPA recommended schedules

Public Safety Personnel Retirement System There are four systems in the trust, two Agent Multiple-Employer Plans and two Cost-Sharing Plans Agent Multiple-Employer Plans Public Safety Personnel Retirement System – PSPRS Correction Officer’s Retirement Plan – CORP Cost-Sharing Plans Correction Officer’s Retirement Plan – Administration of the Courts– CORP-AOC Elected Officials’ Retirement Plan - EORP

Public Safety Personnel Retirement System Agent Multiple-Employer Plans Census data is available on the Employer Portal Auditors finishing the following reports and when available will be on the Employer Portal Individual Accounting Actuary Reports Schedule of Changes in Fiduciary Net Position by Employer Auditors Report Crosswalk report – Accounting Actuary report – Schedule of Changes in Fiduciary Net Position by Employer

Public Safety Personnel Retirement System Cost Sharing Plans Census data is available on the Employer Portal Auditors finishing the following reports and when available will be on the Employer Portal Schedule of Employer Allocations Schedule of Pension Amounts by Employer Schedule of Deferred Inflows/Outflows Auditors Report Crosswalk Report Contact information: Leslie Clark

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