1. Presented by: Chris Pembrook, CPA, MBA, CGAP, Cr.FA Frank Crawford, CPA www.crawfordcpas.com chris@crawfordcpas.com frank@crawfordcpas.com @fcrawfordcpa (Twitter) 1

2.  Entities with differing year-ends (timely reporting) ◦ Plan information as of 6/30 ◦ Entity with year end of 9/30 or 12/31  Employer Contributions – “Picked-up”  Employer specific deferrals ◦ Change in proportion ◦ Contributions during measurement period. ◦ Contributions subsequent to the measurement date.  Intra-entity allocations  Non-employer Contributions  Net Position (Restricted vs Unrestricted) impact  Covered-Payroll  Actuarial Reports – Review  Governmental Fund Reporting  Case Study – Cost –Sharing 2

3.  Employer fiscal year-end ◦ 6/30, 9/30, 12/31  Measurement date (of NPL) ◦ As of date no earlier than end of prior fiscal year ◦ Both components (TPL/plan net position) as of the same date  Actuarial valuation date (of TPL) ◦ If not measurement date, as of date no more than 30 months (+1 day) prior to FYE ◦ Actuarial valuations at least every 2 years (more frequent valuations encouraged) 3

4.  The State cost-sharing plan has issued its allocation of pension amount schedules as of 6/30/2016. The City’s year-end is as of 9/30. ◦ For reporting purposes would the following be allowable for the City to use to recognize their share of pension amounts for year-ending 9/30/2016?  Plan’s Schedules as of 6/30/2015?  Plan’s Schedules as of 6/30/2016?  Plan’s Schedules rolled forward to 9/30/2016? 4

5.  Net effect of change in proportion ◦ Primarily impacts Cost-sharing but may also affect the allocation amongst a reporting entity ◦ Deferred outflow/inflow of resources with expense in current & future periods, systematic/rational method, closed period equal to average of expected remaining service lives (actives & retirees)  Contributions during the measurement period (Statement 68 par 55) ◦ Difference between:  Employer’s proportionate share of all employer contributions included in collective plan net position  Contributions recognized by the employer in the measurement period  Deferred outflow/inflow of resources with expense in current & future periods, systematic/rational method, closed period equal to average of expected remaining service lives (actives & retirees)  Employer contributions subsequent to measurement date ◦ Deferred outflow of resources in current period ◦ Reduction of collective NPL in next period (part of comparison of actual contributions to share of collective contributions) 5

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9.  GASB statement 68 silent on specific requirements for allocation  Considerations for guidance on allocation: ◦ NCGA Statement 1.  Bonds, notes, and other long-term liabilities (for example, for capital leases, judgments, and similar commitments) directly related to and expected to be paid from proprietary funds, should be included in the accounts of such funds.  These are specific fund liabilities, even though the full faith and credit of the governmental unit may be pledged as further assurance that the liabilities will be paid.  Also no guidance on method of allocation (covered-employee payroll, contributions, etc…) ◦ GASB 68 Implementation Guidance 9

10.  Q—A single-employer defined benefit pension plan is used to provide pensions to the employees of a state government and several governments that are component units of the state. In their stand-alone financial reports, should each of the component units report as a single employer?  A—No. Paragraph 18 of Statement 68 requires that component units apply the cost-sharing employer requirements of Statement 68 for their own stand-alone financial reports. Therefore, each government would report its proportionate share of the collective net pension liability1 and would follow the requirements of paragraphs 48−82 of Statement 68 (for cost-sharing employers that do not have a special funding situation) or paragraphs 92−96 of that Statement (for cost-sharing employers that have a special funding situation). Only in the financial report of the reporting entity (that is, the financial report that includes both the state and its component units) would note disclosures and RSI be presented in conformity with the requirements of paragraphs 37−47 of Statement 68 for a single employer. 10

11.  Q—What guidance does Statement 68 provide regarding recognizing a portion of the net pension liability in fund financial statements if a portion of the net pension liability of a single or agent employer will be paid from an enterprise, internal service, or fiduciary fund?  A—Except for blended component units, which are discussed in Questions 34 and 35, Statement 68 does not establish specific requirements for allocation of the net pension liability or other pension- related measures to individual funds. However, for proprietary and fiduciary funds, consideration should be given to National Council on Governmental Accounting (NCGA) Statement 1, Governmental Accounting and Financial Reporting Principles, paragraph 42, as amended, which requires that long-term liabilities that are “directly related to and expected to be paid from” those funds be reported in the statement of net position or statement of fiduciary net position, respectively. 11

12.  Employer’s proportionate share of the collective net pension liability should be recognized to the extent the liability is normally expected to be liquidated with expendable available financial resources.  Pension expenditures should be recognized equal to the total of ◦ (a) amounts paid by the employer to the pension plan and ◦ (b) the change between the beginning and ending balances of amounts normally expected to be liquidated with expendable available financial resources.  Net pension liabilities are normally expected to be liquidated with expendable available financial resources to the extent that benefit payments have matured—that is, benefit payments are due and payable and the pension plan’s fiduciary net position is not sufficient for payment of those benefits. 12

13.  Q—If, at the measurement date, the pension plan’s fiduciary net position is sufficient to make benefit payments that are due and payable, should any portion of a cost-sharing employer’s proportionate share of the collective net pension liability be recognized in financial statements prepared using the current financial resources measurement focus and modified accrual basis of accounting?  A—No. In circumstances in which the pension plan’s fiduciary net position is sufficient to make benefit payments that are due and payable, no portion of the employer’s proportionate share of the collective net pension liability should be recognized in financial statements prepared using the current financial resources measurement focus and modified accrual basis of accounting. 13

14.  Q—If, at the measurement date, the pension plan’s fiduciary net position is not sufficient to make benefit payments that are due and payable, should any portion of a cost-sharing employer’s proportionate share of the collective net pension liability be recognized in financial statements prepared using the current financial resources measurement focus and modified accrual basis of accounting?  A—Yes. In circumstances in which the pension plan’s fiduciary net position is not sufficient to make benefit payments that are due and payable, the employer should recognize an amount equal to its proportionate share of the amount of benefits due and payable that exceeds the pension plan’s fiduciary net position as its proportionate share of the collective net pension liability in financial statements prepared using the current financial resources measurement focus and modified accrual basis of accounting. 14

15.  Special Funding Situation  Employer recognizes additional expense and revenue = non-employer contributing entity’s proportionate share of collective expense (portion related to the employer)  Not special funding ◦ Employer recognizes revenue equal to the change in NPL from contributions from non-employer contributing entities  GASB 73 amends 68 in regards to contributions to a plan for separately financed liabilities.  What do we recognized in governmental funds? 15

16.  Net pension liability should be presented as part of unrestricted net position ◦ Negative effects on unrestricted net position should be described in management’s discussion and analysis  Net pension asset presented as restricted asset and restricted net position  GASB Statement No. 63 par. 10. ◦ The restricted component of net position consists of restricted assets reduced by liabilities and deferred inflows of resources related to those assets. 16

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18.  Scope – Pension plans administered through trusts that meet the criteria in paragraph 3 of statement 67  Address issues raised during the implementation of Statement 67 & 68 (also amends Statement 73) ◦ Presentation of payroll-related measures in RSI ◦ Selection of assumptions ◦ Classification of employer-paid member contributions 18

19.  Single-employer & cost-sharing plans, Statement 67 & employers providing pension plans through Statement 68; defined covered employee payroll as: ◦ payroll of employees provided with pensions through the pension plan.  New definition of covered payroll: ◦ portion of compensation paid to active employees on which contributions to a pension plan are based.  Issues created during implementation for both plans and employers due to definition introduced in 67 & 68 19

20.  A deviation, as the term is used in Actuarial Standards of Practice issued by the Actuarial Standards Board, from the guidance in an Actuarial Standard of Practice should not be considered to be in conformity with the requirements of Statement 67, Statement 68, or Statement 73 20

21.  GASBS 67, Footnote 2—In some circumstances, contributions are made by the employer to satisfy plan member contribution requirements. If the contribution amounts are recognized by the employer as salary expense, those contributions should be classified as plan member contributions for purposes of this Statement. Otherwise, those contributions should be classified as employer contributions. (same description in 68 & 73 considered employer contributions)  Pension Expense Definition – Using footnote 2 would result in a change in pension expense.  Consideration for Cost-sharing plans in determination of allocation of NPL, Deferred Outflows/Inflows, & Pension Expense. 21

22.  Standard changes: ◦ Applying GASB 67: employer paid member contributions would be classified as member contributions. ◦ Applying GASB 68: employer paid employee contributions would be classified as employee contributions.  For pension expense employee contributions reduce the amount of expense recognized by the employer ◦ If employer “picks up” employee contributions, employer should disclose information about the arrangement. 22

23.  2016 Key information: ◦ Remaining Service Life of Active & Inactive: 5.64 years ◦ Non-employer contributions (not special funding):  $22,861,107 ◦ Employer 1 contributions during FY’15: $150,000 ◦ Employer 1 contributions during FY’16: $160,000 ◦ Both entities contributions between Governmental & Business-Type is 50%, and also:  Governmental Activates contributions are 50% Governmental, 25% Street, 25% Public Safety  BT-Activities – 50% water & sewer 23

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