1. GASB Technical Update Mark Thomas KPMG LLP Year-End GAAP Training April 18, 2014

2. GASB Standards on Pensions GASB Statement No. 67, Financial Reporting for Pension Plans, Effective 6/30/14 [PLAN] GASB Statement No. 68, Accounting and Financial Reporting for Pensions, Effective 6/30/15 [EMPLOYER] GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date (amendment of GASB Statement No. 68), Effective 6/30/15 April 2014Year-End GAAP Training2

3. Other GASB Statements: Statement No. 69 Government Combinations and Disposals of Government Operations Statement No. 70 Accounting and Financial Reporting for Nonexchange Financial Guarantees April 2014Year-End GAAP Training3

4. GASB Statement No. 67 Replaces the requirements of Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans and No. 50, Pension Disclosures April 2014Year-End GAAP Training4

5. Statement No. 67 (continued) Defined Benefit Pension Plans – are pensions for which the income or other benefits that the plan member will receive at or after separation from employment are defined by the benefit terms. April 2014Year-End GAAP Training5

6. Statement No. 67 (continued) Defined Contribution Pension Plans – are pensions having terms that: Provide that the pensions a plan member will receive will depend only on the contributions to the plan member’s account, and actual earnings on investments of those contributions. April 2014Year-End GAAP Training6

7. Statement No. 67 (continued) Defined Benefit Pension Plans – a.Single-employer – pensions are provided to the employees of one employer b.Agent multiple-employer –plan assets are pooled for investment purposes but separate accounts are maintained for each individual employer c.Cost-sharing multiple-employer – pension assets and obligations are pooled April 2014Year-End GAAP Training7

8. Statement No. 67 (continued) A defined benefit pension plan should present the following, prepared on the accrual basis of accounting: a.A statement of fiduciary net position b.A statement of changes in fiduciary net position April 2014Year-End GAAP Training8

9. Summary of Plan Provisions Recognition, measurement and presentation of financial statement amounts generally similar to current guidance with exception of receivables for contributions. Receivables for contributions recognized only for contributions due pursuant to legal requirements April 2014Year-End GAAP Training9

10. Summary of Plan Provisions (continued) Note disclosures: Similar to nature of disclosures for employers with the addition of information on investment policies and actual rates of return on plan assets April 2014Year-End GAAP Training10

11. GASB Statement No. 68 Replaces the requirements of Statement No. 27, Accounting for Pensions by State and Local Government Employers and No. 50, Pension Disclosures Moving from a funding approach to an earned approach April 2014Year-End GAAP Training11

12. Statement No. 68 (continued) Addresses accounting and financial reporting for pensions that are provided to the employees of state and local governmental employers Employers should report in their financial statements a net unfunded pension liability Pension liability determined as of a date no earlier than the end of the employer’s prior fiscal year (i.e., measurement date) April 2014Year-End GAAP Training12

13. Pension Liability Employers participating in single-employer or agent multiple-employer plans recognize 100 percent of the pension liability for each plan Employers participating in cost-sharing multiple- employer plans recognize their proportionate share of the collective liability for the plan as a whole. April 2014Year-End GAAP Training13

14. Net Pension Liability Net Pension Liability = Total pension liability less fiduciary net position (assets) Total pension liability is the actuarial present value of projected benefit payments attributed to past employee service. Required actuarial valuations at least every two years (strict actuarial parameters) April 2014Year-End GAAP Training14

15. Deferred Outflows/Inflows of Resources Changes in resulting in deferred inflows/outflows of resources: Effects of actuarial differences and changes in assumptions related to economic or demographic factors Differences between actual and projected earnings on plan investments Employer contributions made directly by the employer subsequent to the measurement date April 2014Year-End GAAP Training15

16. Recognition of Deferred Outflows/Inflows Amortization due to changes in total pension liability should be over the average of the expected service lives of all employees Amortization due to differences between projected and actual earnings on investments over five years beginning with the year in which the difference occurred Results in the creation of “layers”, which are amortized over closed period April 2014Year-End GAAP Training16

17. Participation in Cost-Sharing Multiple- Employer Plans An employer should recognize its proportionate share of the collective net pension liability, pension expense, and deferred inflows/outflows of a cost-sharing plan Cost-sharing Multiple-Employer plans – those in which the pension obligations to the employees of more than one employer are pooled (plan assets can be used to pay the benefit of the employees of any employer) April 2014Year-End GAAP Training17

18. Participation in Cost-Sharing Multiple- Employer Plans (continued) Basis for proportion should be consistent with manner in which required contributions are determined April 2014Year-End GAAP Training18 As a practical matter, it is anticipated the calculation of proportion will be performed based on either required contributions or covered payroll

19. Participation in Cost-Sharing Multiple- Employer Plans Proportionate share concept results in two types of potential changes in pension liability: effect of a change in the employer’s proportion of the plan’s collective net pension liability - recognized as deferred inflow/outflow in the period of change difference during the measurement period between actual plan contributions and the amount of the employer’s proportionate share of collective contributions April 2014Year-End GAAP Training19

20. Relevant Employer Note Disclosures Balances of deferred pension outflows/inflows of resources as of employer’s fiscal year-end Schedule for each of subsequent five years amount of deferred pension outflows/inflows that will be recognized in pension expense April 2014Year-End GAAP Training20

21. Relevant Employer Note Disclosures The employers’ proportionate share ($ and %) of the net pension liability Basis on which its proportion was determined Changes in proportion since prior measurement date April 2014Year-End GAAP Training21

22. Statement No. 71 GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date (amendment of GASB Statement No. 68) Issued November 2013 Effective date: Simultaneously with Statement No. 68 (effective June 30, 2015) April 2014Year-End GAAP Training22

23. Statement No. 71 (continued) Amendment of Statement No. 68: par. 137……It may not be practical for some governments to determine the amounts of all deferred inflows of resources and deferred outflows of resources related to pensions, as applicable, at the beginning of the period when the provisions of this Statement are adopted. In such circumstances, beginning balances for deferred inflows of resources and deferred outflows of resources related to pensions should not be reported.” April 2014Year-End GAAP Training23

24. Statement No. 71 (continued) Amendment to Statement No. 68 (par. 137) Recognize a beginning deferred outflow of resources only for its pension contributions, if any, made subsequent to the measurement date of the beginning net pension liability, but before the start of the government’s fiscal year. No beginning balances for other deferred outflows of resources and deferred inflows of resources related to pensions should be recognized April 2014Year-End GAAP Training24

25. Issues Related to Cost-Sharing Multiple-Employer Plans

26. Cost-Sharing Multiple-Employer Plans (AICPA Proposed Recommendations) IssuesAICPA White Papers Government Employer Participation in Cost-Sharing Multiple Employer Plans: Issues Related to Information for Employer Reporting Information for Employer Reporting Single-Employer and Cost-Sharing Multiple-Employer Plans: Issues Associated with Testing Census Data Substantially finalized Census Data April 2014Year-End GAAP Training26

27. Cost-Sharing Multiple-Employer Plans Issues Audited financial statements of the plan only include disclosure of the collective net pension liability for the plan as a whole. They do NOT include: Deferred outflows/inflows of resources by category Pension expense Each participating employer’s share of collective pension amounts April 2014Year-End GAAP Training27

28. Cost-Sharing Multiple-Employer Plans Issues (continued) Issues over allocations: Standard is silent on who (plan or each individual participating employer) should calculate allocation percentages Audited financial statements of the plan may not include necessary information to calculate allocation percentages April 2014Year-End GAAP Training28

29. Cost-Sharing Multiple-Employer Plans Issues (continued) Standard provides flexibility in approach to determine allocations Standard encourages an allocation method would be extremely difficult to audit as it is based on projected future contributions April 2014Year-End GAAP Training29

30. Cost-Sharing Multiple-Employer Plans Issues (AICPA Proposed Recommendations) (continued) April 2014Year-End GAAP Training30 Plan prepares the following for which plan auditor is engaged to provide opinion: 1.Schedule of employer allocations Use allocation method based on covered payroll or required (actual) contributions depending on whether resulting allocations are expected to be representative of future contributions Projected future contributions could be used if necessary 2.Schedule of pension amounts by employer Includes the following elements: net pension liability, deferred outflows of resources by category, deferred inflows of resources by category and pension expense Alternative: Prepare a “schedule of collective pension amounts” (excluding employer specific deferrals) for the plan as a whole Information for Employer Reporting

31. Cost-Sharing Multiple-Employer Plans Issues (AICPA Proposed Recommendations) (continued) April 2014Year-End GAAP Training31

32. Cost-Sharing Multiple-Employer Plans Issues (AICPA Proposed Recommendations) (continued) April 2014Year-End GAAP Training32

33. Cost-Sharing Multiple-Employer Plans Issues (AICPA Proposed Recommendations) (continued) Plan auditor issues opinion on the employer allocations and on the total of each of the four “elements”: Net pension liability Total deferred outflows of resources Total deferred inflows of resources Total pension expense for the sum of all participating entities Plan auditor needs to consider the appropriateness of the materiality (precision) used in the audit of plan financial statements Information for Employer Reporting (Plan Auditor) April 2014Year-End GAAP Training33

34. Cost-Sharing Multiple-Employer Plans Issues (Employer Responsibilities) Complete and accurate data to plan Appropriateness of information used to record financial statement amounts Whether plan auditor’s report on schedules are adequate and appropriate for employer purposes Amounts in schedules specific to employer Employer amount used in allocation percentage (numerator) Recalculate allocation percentage of employer Recalculate allocation of pension amounts based on allocation percentage of employer Report Evaluate Verify and recalculate April 2014Year-End GAAP Training34

35. Cost-Sharing Multiple-Employer Plans Issues (Employer Auditor Responsibilities) Sufficiency and appropriateness of audit evidence Report Whether plan auditor’s report on schedules are adequate and appropriate for auditor purposes (i.e. evidence) Review plan auditor’s report and any related modifications Evaluate whether the plan auditor has necessary competence and independence Determine whether named as specified user Evaluate Amounts in schedules specific to employer Employer amount used in allocation percentage (numerator) Recalculate allocation percentage of employer Recalculate allocation of pension amounts based on allocation percentage of employer Verify and recalculate Census data submitted to plan Test April 2014Year-End GAAP Training35

36. Cost-Sharing Multiple-Employer Plans Issues (Census Data) Responsibility of the Plan auditor to test census data Employer auditor may perform agreed-upon procedures over census data for purposes of the Plan audit Census data tested should coincide with the data used in the preparation of the actuarial report (measurement date) Testing Underlying Census Data for Active Employees April 2014Year-End GAAP Training36

37. Next Steps Develop a comprehensive implementation plan Meet with SCO to determine approach and timing of CSU allocations Working with KPMG to plan for the testing of Census Data Draft new financial statements and disclosures Monitor progress of implementation Communicate implementation progress to constituent groups/Board April 2014Year-End GAAP Training37

38. Q&A

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