GASB 67 & 68 Disclosures Implementing and Auditing GASB’s New Pension Standards

URS TIMELINE GASB 67 (Plan’s Accounting) Statement Adoption Fiscal Year Beginning After June 15, 2013 GASB 68 (Employer’s Financial Accounting) Statement Adoption Fiscal Year Beginning After June 15,

URS The new accounting changes will not alter the underlying fundamentals; $1,000 owed to a retired employee in ten years under the current standards will remain $1,000 owed in ten years under the new standards. The new accounting changes will not change how the actuary calculates contribution rates (amount employers are required to contribute). The new accounting changes will not change the amount you will need to budget for contributions to send to the Retirement System. 3

URS GASB 67 Major Changes to Pension Plans Financial Reporting 4

URS Statement of Fiduciary Net Assets now “Statement of Fiduciary Net Position” Statement of Changes in Fiduciary Net Assts now “Statement of Changes in Fiduciary Net Position” Net assets held in trust for pension benefits now “Net position restricted for pensions” 5

URS Additional footnote disclosures: Additional actuarial note disclosures Target asset class and long term expected rate of return Sensitivity of the Pension Liability to discount rate 6

URS Target asset class and long term expected rate of return Utah Retirement Systems Real Return Long-term Arithmetic expected real Asset Class Target Basis rate of return Debt securities 20% 0.80% 0.16% Equity securities 40% 7.06% 2.82% Real estate 13% 5.10% 0.66% Private equity 9% 11.30% 1.02% Alternative investments 18% 3.15% 0.57% Cash 0% 0.00% 0.00% Total 100% 5.23% Inflation 2.75% Expected arithmetic nominal return 7.98% *The total URS Defined Benefit long-term expected rate of return is 7.50%. It is comprised of a 2.75% inflation rate, 0.35% for administrative and investment expenses, and a real long-term expected rate of return of 5.10%. 7

Sensitivity of the Net Pension Liability to Changes in the Discount Rate Information for the plan year ending December 31, % Current 1.00% Decrease Discount Rate Increase Utah Retirement System (6.5%) (7.50%) (8.50%) Total $7,851,845,798 $ 4,075,492,785 $927,757,521 URS 8

Changes to Required Supplemental Information: “Schedule Changes in the Employers’ Net Pension Liability” “Schedule of the Employers’ Net Pension Liability” “Schedule of Employer Contributions” “Schedule of Money-Weighted Investment Return” 9

URS All Plans must use the Entry Age Normal actuarial cost method for financial reporting. Unfunded Actuarial Accrued Liability (now Net Pension Liability) now calculated using market value of assets instead of the actuarial value of assets. Actuary needs to calculate to see if Plan needs to use a “Blended” earnings assumption. New “Money Weighted” rate of return calculation. 10

URS GASB 68 Changes to Employers Financial Reporting for Pensions 11

Disconnect between pension accounting measurements and pension funding measurements. Employers will record a liability for their proportionate share of the cost-sharing plan’s collective net pension liability (NPL) as a liability on their balance sheets, rather than less prominently in the notes of the financial statements. URS 12

URS GASB determined that the Pension Plan is responsible for the benefits to the extent it has assets to pay benefits. Employer is responsible for portion of benefits not funded because the employer incurred a “Pension Obligation” as a result of the exchange of employee services for compensation. 13

URS New standard: Employers will show proportionate share NPL Total Pension Liability $29,171,564,000 Assets at market ,096,072,000 NPL $ 4,075,493,000 Proportionate Share % XYZ City NPL $187,399,080 14

URS Employers Net Position All Retirement Systems (4) Plan Fiduciary (1) ( 2 ) ( 3 ) Net Position as Total Plan Employers a Percentage Pension Fiduciary Net Pension of the Total Date Liability Net Position Liability / (Asset) Pension Liability 12/31/10 $ 25,535,499 19,756,106 5,779, % 12/31/11 26,564,932 19,952,853 6,612, /31/12 27,724,395 22,150,599 5,573, /31/13 29,171,564 25,096,072 4,075,

URS Old Standard: Employers only needed to report Annual Required Contribution (ARC) New Standard: Employers will now recognize their proportionate share of an actuarially calculated pension expense, which will no longer equal the statutorily required contribution, and it may be very volatile from year to year. 16

URS The new employer pension expense will contain the following main components: Normal cost (annual cost of current service), plus Interest on total pension liability, plus Changes in plan benefits, plus Amortization of experience gains/losses, changes in assumptions, less Expected return on plan assets. 17

Utah Retirement Systems Schedules of Required Supplementary Information Schedule of Changes in Employers’ Net Pension Liability December 31,2013 $ in Thousands Total pension liability Service Cost $ 599,734,660 Interest 2,056,480,387 Benefit Changes 23,718,000 Difference between actual and expected experience (276,488,786) Assumption Changes 0 Benefit Payments (1,242,153,934) Refunds (4,948,749) Net Change in Total Pension Liability 1,156,341,578 Total Pension Liability - Beginning 28,015,222,761 Total Pension Liability - Ending (a) $ 29,171,564,339 Plan Fiduciary Net Position Contributions – Member 40,167,527 Contributions - Employer 889,485,826 Court Fees and Fire Insurance Tax 12,782,786 Net Investment Income 3,260,546,791 Benefit Payments (1,242,153,934) Refunds (4,948,749) Administrative Expense (10,400,941) Net Change in Plan Fiduciary Net Position 2,945,479,307 Plan Fiduciary Net Position - Beginning 22,150,592,247 Plan Fiduciary Net Position - Ending (b) $ 25,096,071,554 Net Pension Liability - Ending (a) - (b) $ 4,075,492,785 Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 86.0% Covered Employee Payroll $ 4,669,558,417 Net Pension Liability as a Percentage of Covered Employee Payroll 87.3% 18

URS Calculation of Pension Expense Pension Expense - Service Cost $ 599,734, Interest Cost 2,056,480, Benefit Changes 23,718, Member Contributions (40,167,524) - - Projected Investment Earnings (1,649,869,422) - - Admin Expenses 10,400, Other Deferred Outflow/(Inflow) due - to Liabilities (67,170,319) - - Deferred Outflow/(Inflow) due - to Assets (322,135,474) Total Pension Expense $ 610,991,246 XYZ City Pension Expense $31,391,493 19

Reconciliation Total Pension Expense 610,991,246 Employer contributions (902,268,612) Deferred Inflows (liability) (212,566,605) Deferred Inflows (assumption changes) - Deferred Outflows (liability) 3,248,138 Deferred Inflows (investment income) (1,288,541,896) Total Change in NPL (1,789,137,730) 29,171,564, ,096,071,554 = 4,075,492,785 (NPL End of Period) 28,015,222,761-22,150,592,247 = 5,864,630,514 (NPL Beginning of Period) 4,075,492,785 – 5,864,630,515 = (1,789,137,730) (Change in NPL) URS 20

Participating Employer Contributions Proportionate Share Total - System $ 4,075,492, % Employer , % ,849, % , % , % 005 1,213, % , % , % , % ,439, % , % Employer Schedules Included in the URS CAFR (Cost Sharing Multiple Employer Only) 21

Employer Schedules Included in the URS CAFR ( Cost Sharing Multiple Employer Only) Schedule of Pension Amounts by Employer $ in Thousands. Deferred Outflows of Resources Deferred Inflows of Resources. Pension Expense Net Amortization of Deferred Amounts from Nett Changes in Changes in Changes in Difference Proportion Net Difference Proportion Proportion Between and Differences Between and Differences and Differences Projected Between Projected Between Between Difference and Actual Employer Difference and Actual Employer Proportionate Employer Between Investment Contributions Total Between Investment Contributions Total Share of Contributions Total Expected Earnings on and Proportionate Deferred Expected Earnings a on and Projected Deferred Plan and Projected Employer Net Pension and Actual Pension Plan Changes of Share of Outflows of and Actual Pension Plan Changes of Share of Inflows of Pension Share of Pension Entity. Liability Experience Investments Assumptions Contributions Resources Experience Investments Assumptions Contributions.Resources Expense Contributions Expense Total $4,076,452 3, , ,522 1,242, ,450, , , , ,604 57, ,207 33, , , , , , , , , , , , , ,

XYZ City Statement of Net Position June, 30 Prior Year Pension Prior Year First Year Pension First Year Before Entry Entry After Entry Before Entry Entry After Entry. ASSETS Cash 87,000 87,000 87,000 87,000 Investments 5,550,000 5,550,000 5,550,000 5,550,000 Capital assets 1,000,000 1,000,000 1,000,000 1,000,000 Net pension asset Total Assets 6,637,000 6,637,000 6,637,000 6,637,000. Differed outflows of recourses Difference between actual and expected liability experience NA 0 NA 3,248 3,248 City's contributions subsequent to the measurement NA 0 NA 0. Total deferred outflows of resources ,248 3,248. LIABILITIES Accounts payable 20,000 20,000 20,000 20,000 Other liabilities 5,000 5,000 5,000 5,000 Net pension liabilities 5,864,622 5,864,622 5,864,622 (1,789,133) 4,075,489. Total Liabilities 25,000 5,864,622 5,889,622 5,889,622 (1,789,133) 4,100,489. Deferred inflows of recourses Difference between actual and expected liability experience NA 0 0 NA 212, ,567 Difference between actual and expected investments NA 0 0 NA 1,288,542 1,288,542. Total deferred inflows of resources ,501,109 1,501,109. NET POSITION Net investment in capital assets 1,000, ,000,000 1,000, ,000,000 Unrestricted 5,612,000 (5,864,622) (252,622) (252,622) 291,273 38,651. Total net position 6,612,000 (5,864,622) 747, , ,273 1,038,

XYZ City Statement of Changes in Net Position June, 30 Prior Year Pension Prior Year First Year Pension First Year Before Entry Entry After Enrty Before Entry Entry After Entry Expense Pension Expense NA NA NA 902,264 (291,273) 610,991 24

Journal Entries DR CR. Fund Balance / Net Position 5,864,622 Net Pension Liability 5,864,622 BALANCESHEET Net Pension Liability DR CR. Net Pension Liability Beginning 5,864,622 Deferred outflows liability experience 3,248 Deferred inflows liability experience 212,567 Deferred inflows investment experience 1,288,542 Pension expense adj entry 291,273 Total 1,792,381 5,867,870 Ending Net Pension Liability 4,075,489 Deferred outflows liability experience DR CR 3,248 Ending Deferred outflows experience 3,248 Deferred inflows liability experience DR CR. 212,567 Ending Deferred inflows liability experience 212,567 Deferred inflows investment experience DR CR. 1,288,542 Deferred inflows investment experience 1,288,542 INCOME STATEMENT Pension expense Retirement contributions DR CR. Contributions sent to PERS 902,264 Adjusting entry 291,273 Total Pension Expense 610,991 25

URS GASB 68 Expanded employer footnote disclosures will include: Basic information about the pension plans. Classes of employees covered. Information regarding pension liabilities, pension expense and deferred outflows and inflows of resources related to pensions. Significant assumptions including salary increase, inflation, discount rate, mortality, and experience studies. Target asset allocations and projected rate of return by asset class. Sensitivity of the net pension liability to the discount rate. 26

GASB 68 Sample Employer Pension Footnote XYZ City Notes to the Financial Statements for the Year Ended December 31, 2013 Summary of Significant Accounting Policies Pensions. For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Utah Retirement Systems Pension Plan (URS) and additions to/deductions from URS’s fiduciary net position have been determined on the same basis as they are reported by URS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. Note X General Information about the Pension Plan Plan description. Eligible plan participants are provided with pensions through the Utah Retirement Systems Public Employees Noncontributory (Noncontributory) Retirement System, the Public Employees (Contributory) Retirement System and the Tier 2 Public Employees Contributory Retirement System. The Noncontributory and Contributory Public Employees Retirement System and Tier 2 Public Employees Retirement Systems are a cost-sharing multiple- employer defined benefit pension plan administered by the Utah Retirement Systems. The Tier 2 Public Employees Contributory Retirement System became effective July 1, All eligible employees beginning on or after July 1, 2011, who have no previous service credit with any of the Utah Retirement Systems, are members of the Tier 2 Retirement System. Title 49 of the Utah Code grants the authority to establish and amend the benefit terms to the URS Board of Trustees (URS Board). URS issues a publicly available financial report that can be obtained by writing Utah Retirement Systems, 540 E. 200 S, Salt Lake City, Utah or visiting the website: 27

GASB 68 Sample Employer Pension Footnote Benefits provided. URS provides retirement, disability, and death benefits. Retirement benefits are as follows: Summary of Benefits by System Tier 2 Contributory Noncontributory Contributory Public Employees Final Average Salary Highest 3 years Highest 3 years Highest 5 years Years of 30 years any age 30 years any age 35 years any age service required 25 years any age* 20 years age 60* 20 years any age and/or age 20 years age 60* 10 years age 62* 10 years age 62 eligible for 10 years age 62* 4 years age 65 4 years age 65 benefit 4 years age % per year to June 1975 Benefit percent per 2.0% per year 2.00% per year 1.5% per year year of service all years July 1975 to present all years 28

GASB 68 Sample Employer Pension Footnote Contributions. As a condition of participation in the Systems, employers and/or employees are required to contribute certain percentages of salary and wages as authorized by statute and specified by the URS Board. Contribution rates are as follows: Utah Retirement Systems Paid by Employer Employer Employer Contribution Paid for Employee Rates. January 1 - June 2013 Contributory System: Local governmental Division Tier1 1.00% 5.00% 14.27% Local Governmental Division Tier2 N/A N/A 15.06% Noncontributory System: Local Governmental Division Tier1 N/A N/A 18.76% July 1 - December 2013 Contributory System: Local Governmental Division Tier1 1.00% 5.00% 15.97% Local Governmental Division Tier2 N/A N/A 6.75% Noncontributory System: Local Governmental Division Tier1 N/A N/A 20.46% 29

The required contributions and amounts paid into the plan for the 2013 fiscal year and the two previous years are as follows: Year Employer paid Salary subject Ended Employee paid or employee Employer to retirement 12/31 contributions contributions contributions contributions Noncontributory System: Local Governmental Division: $40,849,861 $199,657, Defined Contribution System : 401(k) Plan 2013 $2,860,557 $3,363, ,831,948 3,178, ,761,013 2,999,488 GASB 68 Sample Employer Pension Footnote 30

GASB 68 Sample Employer Pension Footnote Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions At December 31, 2013, XYZ City reported a net pension liability of $187,399,808 Net Pension Liability Tier 1 Contributory Retirement System $ - Tier 1 Noncontributory Retirement System 185,423,058 Tier 2 Public Employees Contributory 1,976,022. Total Net Pension liability $ 187,399,080 The net pension liability was measured as of December 31, 2013, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of January 1, The XYZ City’s proportion of the net pension liability was based on a projection of the XYZ City’s long-term share of contributions to the pension plan relative to the projected contributions of all participating Local Governments. At December 31, 2013, the XYZ City’s proportion was % of the Noncontributory Retirement System For the year ended December 31, 2013, the XYZ City recognized pension expense of $37,405,

GASB 68 Sample Employer Pension Footnote At December 31, 2013, the XYZ City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Deferred Outflows of Inflows of Resources Resources Differences between expected and actual experience $ - $ 11,409,467 Changes in assumptions - - Net difference between projected and actual earnings on pension plan investments - 36,147,154 Changes in proportion and differences between City's contributions and proportionate share of contributions - - City's contributions subsequent to the measurement date 3,870, Total $ 3,870,388 $ 47,556,621 32

GASB 68 Sample Employer Pension Footnote The $3,870,388 reported as deferred outflows of resources related to pensions resulting from XYZ City contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended December 31, Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Deferred Outflows (Inflows) of Resources Year Ended December 31, 2014 $ (11,410,299) 2015 (11,410,299) 2016 (11,410,299) 2017 (11,410,299) Thereafter (1,915,423) 33

GASB 68 Sample Employer Pension Footnote Actuarial assumptions. The total pension liability in the December 31, 2013, actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Inflation: 2.75 percent Salary increases: 3.75 percent, average, including inflation Investment rate of return: 7.50 percent, net of pension plan investment expense, including inflation Active member mortality rates are a function of the member’s gender, occupation, and age and are developed based upon plan experience. Retiree mortality for male retirees is based upon 100% of the RP-2000 Combined for Healthy Males with white collar adjustments, projected with a scale of from AA from Mortality for female is 120% of rates in Gabriel Roeder & Smith table based upon female teacher experience, projected with Scale of AA for The actuarial assumptions used in the January 1, 2013, valuation were based on the results of an actuarial experience study for the five year period of January 1, 2005 – December 31,

GASB 68 Sample Employer Pension Footnote The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table: Utah Retirement Systems Real Return Long-term Arithmetic expected real Asset Class Target Basis rate of return Debt securities 20% 0.80% 0.16% Equity securities 40% 7.06% 2.82% Real estate 13% 5.10% 0.66% Private equity 9% 11.30% 1.02% Alternative investments 18% 3.15% 0.57% Cash 0% 0.00% 0.00% Total 100% 5.23% Inflation 2.75% Expected arithmetic nominal return 7.98% *The total URS Defined Benefit long-term expected rate of return is 7.50%. It is comprised of a 2.75% inflation rate, 0.35% for administrative and investment expenses, and a real long-term expected rate of return of 5.10%. 35

GASB 68 Sample Employer Pension Footnote The 7.50% assumed investment rate of return is comprised of an inflation rate of 2.75%, a real return of 5.10%, for a gross return of 7.85%. This is offset by 0.35% for investment and administrative expenses. Discount rate. The discount rate used to measure the total pension liability was 7.50 percent. The projection of cash flows used to determine the discount rate assumed that employee contributions will be made at the current contribution rate and that contributions from Local Government XYZ City's will be made at contractually required rates, actuarially determined. Based on those assumptions, the pension plan's fiduciary net position was projected to be available to make all projected future benefit payments of current active and inactive employees. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. 36

GASB 68 Sample Employer Pension Footnote Sensitivity of the XYZ City's proportionate share of the net pension liability to changes in the discount rate. The following presents the XYZ City's proportionate share of the net pension liability calculated using the discount rate of 7.50 percent, as well as what the XYZ City's proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (6.50 percent) or minus 1 percentage-point higher (8.50 percent) than the current rate: 1% Discount 1% Decrease Rate Increase (6.50%) (7.50%) (8.50%) XYZ's proportionate share of the net pension liability $429,891,697 $269,900,959 $136,135,712 Pension plan fiduciary net position. Detailed information about the pension plan's fiduciary net position is available in the separately issued URS financial report Payables to the pension plan [If the XYZ City reported payables to the defined benefit pension plan, it should disclose information required by paragraph 122 of GASB 68.] 37

URS GASB 68 Sample Employer Required Supplemental Information 38

URS Require Supplementary Information (RSI) Two or three separate schedules are going to be required 1. Schedule of The Net Pension Liability (for ten years) 2. Schedule of Employer Contributions (for ten years) 3. Schedule of changes in Net Pension Liability (for single employer and agent plans only) 39

GASB 68 Sample Employer RSI Schedule of Required Supplementary Information Schedule of XYZ City Proportionate Share of the Net Pension Liability Utah Retirement Systems Dec. 31, 2013 Local Govt. Last 10 Fiscal Years Noncontributory XYZ City proportion of the net pension liability % XYZ City's proportionate share of the net pension liability (asset) $ 187,399,080 XYZ City's covered employee payroll 195,300,230 XYZ City's proportionate share of the net pension liability (asset) as a percentage of its covered-employee payroll 94% Plan fiduciary net position as a percentage of the total pension liability 86.0% * Amounts presented for each fiscal year were determined as of 12/31. A full 10-year schedule will be displayed as it becomes available. 40

GASB 68 Sample Employer RSI Schedule of Required Supplementary Information Schedule of XYZ City Contributions Utah Retirement Systems Dec. 31, 2013 Last 10 Fiscal Years* Tier 1 Noncontributory Contractually required contribution $ 37,398,375 Contribution in relation to the contractually required contribution (37,398,375). Contribution deficiency (excess) -. Covered employee payroll $ 195,300,230 Contributions as a percentage of covered-employee payroll 19.15% * Amounts Presented for each fiscal year were determined as of 12/31/2013 Additional years will be presented as they become available 41

Utah Retirement System Schedules of Required Supplementary Information (for Single Employer and Agent Plans Only ) Schedule of Changes in the Employers' Net Pension Liability Total pension liability Service Cost $ 4,537,089 Interest 12,923,941 Benefit Changes - Difference between actual and expected experience (1,621,956) Assumption Changes - Benefit Payments (9,135,000) Refunds - Net Change in Total Pension Liability 6,704,605 Total Pension Liability - Beginning 175,934,986 Total Pension Liability - Ending (a) $ 182,639,051 Plan Fiduciary Net Position Contributions - Employer $ 4,232,000 Contributions - Member - Court Fees 1,666,000 Net Investment Income 17,151,000 Benefit Payments (9,135,000) Refunds - Administrative Expense (66,000) Net transfers with affiliated systems 710,000 Other - Net Change in Plan Fiduciary Net Position 12,892,000 Plan Fiduciary Net Position - Beginning 123,235,000 Plan Fiduciary Net Position - Ending (b) $ 136,127,000 Net Pension Liability - Ending (a) - (b) 46,512,051 Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 76.2% Covered Employee Payroll $864,838,383 Net Pension Liability as a Percentage of Covered Employee Payroll 116.8% 42

GASB 68 Sample Employer RSI Notes to Required Supplementary Information for the Year Ended December 31, 2013 Changes of assumptions. If there were any changes to actuarial assumptions, they would be reported in this area. 43

URS RECOMENDATIONS It’s recommended you start (if you haven't already) working with your actuary and auditor to make sure everyone knows what needs to be done and by when. It’s recommended that you review the reporting changes with your governing body to ensure they understand the new employer net pension liability number going on their financial statements It’s recommended that you review the reporting changes with your governing body to ensure they understand the new pension expense number vs. the contributions being remitted to PERS (disconnect between reporting and funding). 44

URS Questions? 45

URS