1. Pat Robertson Executive Director September 2014 GASB Pension Standards Update

2. 2 Mississippi’s only state-sponsored retirement system Governmental defined benefit plan qualified under Section 401(a) of the Internal Revenue Code Established by state Legislature in 1952 to provide benefits to eligible Mississippi public employees working for state agencies, universities, community colleges, and public schools, as well as counties, cities, and other participating political subdivisions. A Look at PERS of MS

3. 3 Plans Include: –Public Employees’ Retirement System –Mississippi Highway Safety Patrol Retirement System –Municipal Retirement Systems – 19 Systems –Supplemental Legislative Retirement –Mississippi Government Employees’ Deferred Compensation Plan & Trust Current Statistics – June 30, 2014: –886 employers –291,073 members –97,044 retirees –$25.3 billion in assets Annual Payroll –$2.03 billion A Look at PERS of MS

4. GASB Statement No. 67, Financial Reporting for Pension Plans, amends Statement 25 –Effective for fiscal years beginning after June 15, 2013 GASB Statement No. 68, Accounting and Financial Reporting for Pensions, amends Statement 27 for employers –Effective for fiscal years beginning after June 15, 2014 GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date, clarifies Statement 68 –Apply simultaneously with Statement 68 Statements and Implementation Guides available at www.gasb.org GASB Accounting Standards 4

5. Pensions are part of the exchange between employees and employers –Promised benefits are part of the total compensation package for employees –The employer is obligated to provide benefits as a result of the employment exchange –The cost should be recognized in the current service period The plan is responsible for assets The employer is responsible for benefit promises beyond those covered by assets Key Concepts 5

6. GASB’s Defined Benefit Plan Categories Single-employer DB plan –Provides pensions to employees of one employer Agent multiple-employer DB pension plan –Provides pensions to employees of more than one plan –Assets are pooled but separate accounts are maintained –Employer’s share of assets legally available for its own employees Cost-sharing multiple-employer DB pension plan –Provides pensions to employees of more than one employer –Employers pool obligations –Assets used for benefits of any employee 6

7. Determined using Entry Age normal cost method Use single discount rate if contributions and assets not sufficient to pay projected benefits –Long-term expected rate – Use to extent projected plan fiduciary net assets are sufficient to pay future benefits –Municipal bond index rate – Use for portion of future benefits not covered by projected fiduciary net assets –If both rates used, combine to form a blended single discount rate Total Pension Liability 7

8. Assets held by the plan including contributions and investment assets FNP is the responsibility of the plan administrator Plan Fiduciary Net Position 8

9. TPL – FNP = NPL Net Pension Liability 9

10. Recognition of changes to NPL applicable to the current reporting period: –Service cost – Increases PE –Interest on the TPL – Increases PE –Projected investment earnings – Decreases PE –Member contributions – Decreases PE –Administrative costs – Increases PE –Changes in benefit terms affecting TPL – Increases or decreases PE –Current portion of deferred outflows/inflows of resources – Increases or decreases PE Pension Expense 10

11. Recognized over average expected remaining service lives of actives and inactives: –Actual versus expected demographic factors – actuarial experience –Changes in assumptions –For cost-sharing employers: »Actual versus proportionate share of contributions – Not necessary when actual contributions are used as the basis for proportional share »Change in employer proportion from one measurement period to the next Recognized over a closed 5-year period »Actual versus projected investment earnings Layers must be tracked Deferred Outflows/Inflows of Resources 11

12. Example: Schedule of Plan Pension Amounts by Employer 12

13. Collective amounts to be provided by the plan –Total pension liability –Fiduciary net position –Net pension liability –Pension expense –Deferred outflows/inflows of resources Employer’s proportionate share –Basis for determination Method of communicating with employers Transition Planning 13

14. GASB Proportionate Share Cost-Sharing System Example Employer ContributionsProportionate Share City of Clayborne$1,227,329,60032.9051% Cedar Medical Center 446,524,90011.9715% City of Smithville 408,734,20010.9583% Johnson County 376,868,30010.1039% City of Woodville 251,127,0006.7328% State University 234,263,2006.2807% Lincoln County Schools 226,256,2006.0660% Estes Public Schools 208,201,9005.5819% Washington County 199,048,8005.3365% Best Community College 151,557,8004.0633% Total Plan$3,729,911,900 14

15. Example Schedule of Collective Pension Amounts 15

16. Employer Developed Schedules 16

17. Employer Developed Schedules - Deferred Outflows 17

18. Employer Developed Schedules 18

19. Employer Developed Schedules - Deferred Inflows 19

20. Employer Developed Schedules – Pension Expense Fiscal Year Ended: 6/30/2015 Employer:City of Clayborne Current Year Pension Expense Reported at the Plan Level Total PlanEmployer PensionProportionateShare of YearExpenseShareExpense 2015$5,243,24532.9051%$1,725,295 Summary Calculation of Total Employer Pension Expense: Employer Expense From Proportionate Deferred Share ofTotal OutflowsInflowsCurrent YearEmployer YearRecognized Pension Expense 2015 $59,074$1,725,295$1,194,448 20

21. Employer Developed Schedules 21

22. Reporting date – plan’s fiscal year-end Measurement date – date as of which TPL, FNP and NPL are determined Actuarial valuation date – date as of which TPL is determined and date of the actuarial valuation –Should be performed at least biennially Timing and Frequency of Measurements 22

23. If valuation date is before the reporting date, TPL is rolled forward to the reporting date –Valuation can be no older than 30 months and 1 day from the employer’s fiscal year-end –Update procedures are used to roll forward to the measurement date –Use professional judgment to determine extent of procedures Timing and Frequency of Measurements 23

24. Actuarial valuation date 6/30/2013 Roll forward TPL to 6/30/2014 measurement date: TPL 6/30/2013$110,000 Plus service cost 5,200 Plus interest 7,900 Minus benefit payments (8,500) TPL 6/30/2014 $114,600 TPL minus the market value of assets at the measurement date (6/30/2014) is the NPL Example of Roll Forward of Total Pension Liability 24

25. Non-employer is legally responsible for making contributions directly to the plan for employees of another entity and either of the following: –Contributions from the non-employer are not dependent on circumstances or events which are unrelated to pensions –The non-employer is the only entity with a legal obligation to make contributions Does not include circumstances in which resources are provided to the employer Special Funding Situations 25

26. Three Whitepapers were issued by the AICPA related to GASB 67 and 68 cost-sharing and single plans and participating employers –Governmental Employer Participation in Cost-Sharing Multiple-Employer Plans: Issues Related to Information for Employer Reporting –Single-Employer and Cost-Sharing Multiple-Employer Plans: Issues Associated with Testing Census Data in an Audit of Financial Statements –Governmental Employer Participation in Agent Multiple- Employer Plans: Issues Related to Information for Employer Reporting Auditing Considerations 26

27. Risk-based approach by plan auditor to select employers to test Employer auditor may perform procedures under examination engagement in accordance with AT (Attest) section 101 Absence of effective management procedures and controls by plan to verify census data is considered a control deficiency and will impact level of auditor testing Auditing Considerations Cost-Sharing Multiple-Employer Plans Testing of Underlying Census Data 27

28. Three interpretations to AU-C Sections have been issued by the AICPA –AU-C 500: Audit Evidence –AU-C 600: Audits of Group Financial Statements (Including the Work of Component Auditors) –AU-805: Special Considerations-Audits of Single Financial Statements and Specific Elements, Accounts, or Items of a Financial Statement Auditing Considerations Cost-Sharing Multiple-Employer Plans and Participants 28

29. Plan prepares “schedule of plan pension amounts by employer” for which plan auditor engaged to provide opinion –Supplemental schedule of plan pension amounts by employer includes net pension liability, deferred outflows/inflows of resources, and pension expense for each employer –Alternative to include a “schedule of collective pension amounts” for the plan as a whole –Plan auditor needs to consider the appropriateness of the materiality used in the audit of plan financial statements Employer auditor issues opinion on total of each of the four elements in accordance with AU-C 805 Auditing Considerations Cost-Sharing Multiple-Employer Plans AICPA Recommendations 29

30. Two Whitepapers –Governmental Employer Participation in Agent Multiple- Employer Plans: Issues Related to Information for Employer Reporting – Issued –Agent Multiple-Employer Plans: Issues Associated with Testing Census Data in an Audit of Plan Financial Statements »Issues and potential recommendations are more complex »Not yet available –Four Audit Interpretations »Not yet available Auditing Considerations Agent Multiple-Employer Plans 30

31. We are currently working to resolve census data testing challenges –Working with the Mississippi State Audit Department, our independent accounting firm, our actuaries and the state as an employer –Issues of timing and meeting our CAFR release deadline Use of a roll forward from a prior period in financial reporting. Note disclosure for the plan under GASB 67 and the employers under GASB 27 Issues Considered 31

32. Excluding small immaterial pension plans from the plan and employer’s financial reports Inquiries about allocating NPL to departmental financial statements AICPA white paper regarding agent multiple-employer plans Other Issues Considered 32

33. Transition Communications essential to successful implementation MS PERS transition efforts –Employer eUpdate –Mississippi Implementation Work Group –Pension Standards Implementation Work Group –Communications with Users Challenges for employers and public pension plans are many and time is here 33

34. Plan DescriptionPlan Investments Name, type, board, membersInvestment policy authority Classes covered, authorityAllocation requirements, greater than 5% Benefits, contributions, DROPMoney weighted ROR GASB 67 Note Disclosure All Plans 34

35. Significant NPL Components Assumptions Total pension liabilityDiscount rate Fiduciary net positionLT expected ROR overall and by asset class Net pension liabilitySensitivity measures on discount rate + and – 1% GASB 67 Note Disclosure Single and Cost-Sharing Plans 35

36. 10 Yr NPL & ChangeActuarial Required In NPLContributions 10 Yrs Beginning & ending TPL, NPLRequired contributions Effects of underlying partsActual contributions Revenue & expensesDifference, % of total payroll GASB 67 Required Supplementary Information (RSI) 36

37. Plan DescriptionAssumptions Name, type, terms, admin.All NPL assumptions Classes covered, benefits,LT expected ROR overall authorityand by investment class No. participants andSensitivity measure for contributionsdiscount rate + and – 1% GASB 68 Note Disclosure Single and Agent Plans 37

38. Change in NPLOther Information Beginning & ending TPL,Measurement date of NPL, NPLchanges from measurement date to reporting date Interest on TPL, difference in Makeup of deferred outflows/ expected & actualinflows of resources Contributions, benefits5 year expected changes in deferred outflows/inflows GASB 68 Note Disclosure Single and Agent Employers 38

39. 10 Yr. NPL & Change In NPL10 Yr. Schedules of: Beginning & ending TPL,Actuarial contributions, NPL required & actual Interest on TPL, difference in Difference in above expected & actual Contributions, benefitsActual contributions as % of covered payroll GASB 68 RSI Single and Agent Plans 39

40. Questions? 40