1. GASB Pension Reporting Update
November 19, 2014
GASB Pension Reporting Update
Office of the State Auditor Local Government Training Conference
Presented by: Dave DeJonge, Assistant Executive Director, PERA John Wicklund, Assistant Executive Director, TRA

2. On the doorstep of implementation
GASB 67: Pension Plan Reporting
PERA and TRA will implement for their CAFRs for the period ending June 30, 2014.
GASB 68: Accounting and Financial Reporting for Pensions
School districts will implement for CAFRs for the period ending June 30, 2015.
Local governments will implement Dec. 31, 2015.

3. PERA/TRA Actuarial Valuation Reports: December 2014
Two reports
Accounting valuation TRA/PERA Annual Financial (GASB 67-68) Report for financial reporting, not funding determinations.
2. Funding Valuation Report Prepared with statutory assumptions and requirements determined by Minnesota Legislature.
Two reports – different assumptions and methodologies.

4. GASB Statement 68 impact on employer units (FY2015)
Government-wide financial statements, not fund-level statements.
PERA/TRA perform actuarial valuation reports every 6/30/xx. Results done 12/1/xx.
PERA/TRA calculate proportionate share assigned to each employer unit (based on employer contributions).
PERA/TRA transmits assets, liabilities, disclosure data, Required Supplementary Information to each employer.
Large unfunded actuarial liabilities exist (now called Net Pension Liability).
Result:
Many employers will experience sticker shock at their share of the net pension liability, higher than net assets reported. (Remember: Liabilities paid over decades.)

5. Major reporting changes: Statement of net position (GASB 68)
Adds net pension liability (NPL) – similar to the unfunded liability PERA and TRA report today (government-wide financial statements).
The difference between beginning NPL and ending NPL is expensed, excluding employer contributions.
Deferred inflows and deferred outflows retained from GASB 63 and 65. Affects timing of expenses. Example: Investment gains or losses smoothed over five years.

6. Notes to the financial statements
Adds more extensive note disclosures, including sensitivity analysis of investment return assumption
Requires employer to track annual balances of deferred outflows of resources and inflows of resources.
Must describe significant assumptions and other inputs used to measure total pension liability.
PERA/TRA to provide suggested footnotes

7. Required supplementary information
Schedule of proportionate share of the Net Pension Liability:
Ten-year schedule presenting:
Employer’s percentage and amount of NPL
Employer’s covered employee payroll
Employer’s NPL as percentage of covered employee payroll
Pension plan’s Fiduciary Net Position (FNP) as a percentage of TPL

8. Required supplementary information
Schedule of the district’s proportionate share of the net pension liability
Teachers Pension Plan
Last 10 fiscal years
(Dollar amounts in thousands)
20x9
20x8
20x7
20x6
District’s proportion of the net pension liability (asset)
0.20%
0.19%
District’s proportionate share of the net pension liability (asset)
$14,910
$11,738
$12,972
$13,495
District’s covered-employee payroll
$11,512
$10,412
$ 9,715
$ 9,553
District’s proportionate share of the net pension liability (asset) as a percentage of its covered-employee payroll
129.52%
112.74%
133.53%
141.26%
Plan fiduciary net position as a percentage of the total pension liability
81.39%
83.20%
80.41%
78.53%
This isn’t the right schedule…

9. Required supplementary information
Schedule of Employer Contributions
Ten-year schedule presenting:
Statutorily required employer contribution
Actual contributions paid by employer
Difference between required contributions and paid contributions
Amount of contributions paid in relation to required contributions as a percentage of the employer’s covered-employee payroll

10. Required supplementary information
Schedule of Employer Contributions

11. Measurement dates for school districts
GASB timeline:
Measurement dates for school districts
Measurement period
Actuarial valuation measurement date
Release of 7/1/14 actuarial valuation results
School districts use 7/1/14 actuarial valuation results
School district CAFRs w/GASB 68 published
Retirement systems transmit results to school districts
July 1, 2013
June 30, 2014
Dec. 1, 2014
June 30, 2015
Late 2015
Key point: There will be a one-year lag in school district reporting of GASB 68 results. Example: School districts, in their FY 2015 reporting, will use FY 2014 actuarial valuation results from PERA and TRA.

12. GASB 68 implementation guide
Released January
272 Q&A (questions ): Cost-sharing employers.
Appendix 3 (PERA and TRA are multi-employer cost- sharing plans).
Illustration 3a, 3b are helpful.

13. GASB Statement No. 68 (Paragraphs 48-51)
Statement of net position for FY ended June 30, 2015: Cost-sharing employers
Change from old GASB
Total Assets
$x,xxx,xxx
Liabilities
Accounts payable
$xx,xxx
Salaries payable
Total pension liability
$x,xxx,xxx (New)
Total Liabilities
Net Position
Possibly negative
Remember: Pension liability is paid over decades of time and could be very volatile based on conditions of the pension fund at the state level.

14. GASB 71

15. GASB 71
Amends transition provisions found in paragraph 137 of Statement 68
Allows all deferred inflows and outflows related to pensions to start at 0 – except employer contributions.
Employer contributions included in initial measurement period but already expensed (closed to net position) are to be reclassified.
Adjusts deferred outflows and net position.

16. GASB 71: Local government employer
Employer contributions already expensed during initial measurement period are reclassified.
Measurement Period
Employer’s Fiscal Year End
(Reporting Date)
Measurement Date
Employer’s Prior Fiscal Year End
Measurement Date
ER contrib.
June 30, 2014
December 31, 2014
June 30, 2015
December 31, 2015

17. Transition year journal entries
Employer contributions already expensed during initial measurement period are reclassified.
Measurement Period
Measurement Date NPL: $2,500,000
Measurement Date NPL: $2,650,000
Employer’s Fiscal Year End
(Reporting Date)
Employer’s Prior Fiscal Year End
$45,000
June 30, 2014
December 31, 2014
June 30, 2015
December 31, 2015

18. Transition year journal entries
To record beginning net pension liability (6/30/14)
Net position $2,500,000
Net pension liability $2,500,000
2) To record ER contributions expensed in previous year but fall within measurement period
Deferred outflow $ ,000
Net position $ ,000

19. PERA – TRA : For Employer Units
Perform annual actuarial valuations to determine funded status and liabilities.
Require plan actuary to calculate collective amount of items requiring deferred treatment.
Engage external auditor to audit GASB 68-related schedules and actuarial census data.
Communicate results to the school districts and local government units.
Provide RSI and suggested footnotes.

20. Schedule of pension amounts – For Gov’t Wide Financials
COST SHARING PENSION PLAN
Schedule of Pension Amounts by Employer
As of and for the year ended 6/30/2015
Deferred Outflows of Resources
Deferred Inflows of Resources
Employer
Net Pension Liability (NPL)
Differences Between Expected and Actual Experience
(9 year amtz.)
Difference Between Projected and Actual Investment Earnings on Investments
(5 year amtz.)
Changes in Actuarial Assumptions
Differences Between Expected and Actual Experience (9 year amtz.)
Pension Expense
$2,000,000
$8,000
$720
$4,000 $0
$10,000
$1,000,000
$360
$2,000
$5,000
$750,000
$3,000
$270
$1,500
$3,750

21. Pension expense NPL Components immediately recognized in PE: Item
Effect on PE
Service Cost (Normal Cost)
Increase
Interest on the TPL
Projected Investment Earnings
Decrease
Member Contributions
Administrative Costs
Benefit Provision Changes
Increase or Decrease

22. Pension expense Components deferred and recognized later include: Item
Amortization Period
Difference between actual and projected earnings on investments
5 Years
Changes in actuarial assumptions (mortality, disability, salary growth, inflation, payroll growth, etc.)
Closed period equal to the average of the expected remaining service lives of all employees (active, inactive, and retirees)
Difference between actual and assumed actuarial experience
Deferred portions are accumulated as “deferred outflows of resources” or “deferred inflows of resources” and recognized as PE in future years

23. Pension expense Item Pension Expense Deferred Outflows
Deferred Inflows
Service Cost
$20,000
Interest on TPL
$10,000
Projected Investment Earnings
$ (8,000)
Member Contributions
$ (1,000)
Admin Expenses $
Change in Benefit Provisions
$ (200)
Change in Assumptions (8 years) $
$ 1,000
$ 300
Diff. Between Assumed and Actual Experience (8 years)
$ (50) $
$ 500
Diff. Between Actual & Projected Investment Earnings (5 Years)
$ (100)
$ 400
Total
$20,850
$ 1,150
$1,200

24. Pension expense Actuary-Determined Impact 8-Year Allocation Current
Deferred
Change in assumption
+1,142 loss
$142
$1,000
(outflow – loss)
+342 gain
($42)
_____
$300
(inflow – gain)
Current year pension expense
$100
Difference in assumed
Actual experience
+171 loss
+571 gain
$21
($71)
$150
$500
($50)
Investment experience
+500 gain
($100)
$400 (inflow – gain)

25. PERA Fire Relief Associations
Office of the State Auditor’s June Pension Division Newsletter
Cities that prepare financial statements in accordance with GAAP need to include the NPL and pension expense of the affiliated relief association
If amounts are material
If the fire department is a city fire department (not an independent non-profit firefighting corporation)
Alternative to costly actuarial valuation—accept liability amounts calculated using State Auditor’s annual Schedule Form if difference is not significant

26. PERA Fire Relief Associations
Most relief associations are overfunded, so NPL will be a Net Pension Asset.
Work with relief associations and cities now!
Cities/Townships whose fire departments have joined PERA’s Statewide Volunteer Firefighter Retirement Plan will be provided with GASB 68 schedules

27. Determination of employer proportionate share
Allocation based on employer contributions for fiscal year.
Time lag – schools will use FY14 results and data for their FY15 CAFR. There will be a six-month time lag for local government units.
PERA/TRA to provide GASB 68 allocations to each employer based on plan totals calculated by actuary.
Allocation policy is in progress.

28. Schedule of Employer Allocations
Proportionate share
Schedule of Employer Allocations
As of June 30, 2014
Unit ID
Employer Name
Contributions
Allocation
AITKIN COUNTY
598,539.73 %
ANOKA COUNTY
6,113,109.91 %
BECKER COUNTY
814,665.35 %
BELTRAMI COUNTY
932,224.26 %
BENTON COUNTY REVENUE
672,278.56 %
BIG STONE COUNTY
186,633.81 %
BLUE EARTH COUNTY
1,333,635.98 %
BROWN COUNTY
683,226.74 %
CARLTON COUNTY
1,020,241.27 %
CARVER COUNTY
2,114,587.95 %
CARVER COUNTY HISTORICAL SOCIETY
9,978.97 %
CASS COUNTY
849,624.34 %
CHIPPEWA COUNTY
353,070.32 %
CHIPPEWA COUNTY SWCD
9,983.35
CHIPPEWA COUNTY HOSPITAL
980,099.65 %
CHISAGO COUNTY
1,013,041.90 %
CLAY COUNTY
1,075,596.37 %
CLAY COUNTY SWCD
17,500.39 % …
375,000,000.00 %

29. Determination of employer proportionate share—PERA and TRA
Allocation based on employer contributions for fiscal year, but not all contributions reflect future contribution effort, so some will be excluded from the allocation.

30. Determination of employer proportionate share
Schedule of employer allocations (6/30/20X5)
Employer
Actual Employer Contributions
Employer Allocation Percentage
Employer 1
$2,143,842
36.376
Employer 2
268,425
4.554
Employer 3
322,142
5.466
Employer 4
483,255
8.199
Employer 5
633,125
10.742
Employer 6
144,288
2.448
Employer 7
95,365
1.618
Employer 8
94,238
1.599
Employer 9
795,365
13.495
Employer 10
267,468
4.538
Employer 11
403,527
6.847
Employer 12
165,886
2.815
Employer 13
68,454
1.161
Employer 14
6,240
0.106
Employer 15
2,144
0.036
Total
$5,893,764

31. Example A: Net pension liability (employer 2)
Employer proportionate share 4.554%
TRA net pension liability (estimated) $5 billion
Employer 2 initial liability on July 1, $227.7 million

32. Determination of employer proportionate share
Allocation based on employer contributions for fiscal year.
Each employer unit (school district/city) will have a percentage of TRA and/or PERA’s results.
The percentage will be recalculated every year.
TRA has a “special funding situation” impacting the calculation.

33. Special funding situation
GASB 68 requires allocation of TRA net pension liability and other financial results to employer units.
Allocation based on annual employer contributions.
Based on the Minneapolis and Duluth teacher mergers, TRA receives $16 million/year for Minneapolis and $14 million for Duluth.
Question: How do direct state aid payments impact the allocation of TRA results?
GASB 68 paragraph 15 defines a “special funding situation.”
After a conference call with GASB and MMB, TRA will treat the State of Minnesota as an employer unit in the allocation of pension liability and expense.

34. GASB 67-68 Actuarial Valuation Results
Actuary will deliver the collective:
Net Pension Liability
Deferred outflows of resources by category
Deferred inflows of resources by category
Pension expense
Results allocated and shared among 590 employer units
Results allocated and shared among 2,000 employer units
TRA
PERA

35. Audit issues: Actuarial Valuation Results
Actuarial valuation results consists of a plethora of payroll and demographic data on each member
Plan auditor selects which actuarial assumptions and employers and member data should be tested each year.
Plan auditor may engage local government auditors in accordance with AT (Attest) Section 101 to provide opinion on accuracy of census data reported to plan.
Who audits the Employer Proportionate Share calculation?

36. Audit solution
PERA and TRA prepare the “Schedule of Employer Allocations,” for which plan auditor is engaged to provide opinion.
Schedule includes the following elements for each employer:
Net Pension Liability
Deferred outflows of resources by category
Deferred inflows of resources by category
Pension expense
For the GASB 68 allocation schedule – TRA has engaged the Office of the State Auditor to verify the schedules distributed to the employer units.
PERA has engaged an outside auditor to audit the GASB 68-related schedules.

37. Audit issues: Census data
Auditing white paper guidance prescribes auditor must assess risks with member census data.
Example census data includes date of birth, years of service, pay
TRA is currently working with the Office of the State Auditor (OSA) on site visits to sample employer units.
Sample will be a risk-based approach by OSA.
Other risk factors may include:
Past errors or control deficiencies
New employer
Length of time since last audit
Media stories

38. PERA/TRA: Communication of GASB 68 results
Financial statement
Required supplementary information
Notes to the financial statements
Reports anticipated to be released by PERA and TRA (separately) in spring 2015
Attestation letter from the Office of the State Auditor (TRA)
Auditor Certification Letter will be provided along with PERA’s GASB 68 schedules.
Exact mode for communication of report yet to be determined

39. Key messages GASB 68 divorces funding and accounting
(Your GASB 68 pension expense will not match what the employer actually contribute to the plan.)
Unfunded pension liabilities exist today
(GASB 68 changes who reports them)
Unfunded pension liabilities may be very large to the employer
(liabilities represent pension payments due over decades of time)
Governing boards will still need to develop a funding policy to pay off the liabilities
(No different than today)

40. Resources

41. PERA-TRA resources
Visit the “Employer” tab on PERA’s and TRA’s websites.
You’ll find:
Links to GASB publications and AICPA audit guidance.
Toolkit of informational guides/articles/videos.
Frequently asked questions.
News and developments on implementation.
Questions? Dave Dejonge (PERA) or John Wicklund (TRA)