Auxiliary OrganizationsGASB Statement No. 68
Accounting and Financial Reporting for Pensions
Sheralin Klinthong, Associate Director, FS / SFSR
Chancellor’s Office
May 19, 2015
Learning Objectives
At the end of the session, participants should be able to: • Understand the accounting and financial reporting
implications of GASB Statement No. 68.• Understand the components of net pension liability,
pension expense, and deferred outflows/inflows of resources related to pension.
• Know the required note disclosures and supplemental information.
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Overview - GASB Statement No. 68 In June 2012, the Governmental Accounting Standard
Board (GASB) issued Statement No. 68, Accounting and Financial Reporting for Pensions, effective for fiscal year beginning after June 15, 2014.
Implementation of GASB 68 requires employers to recognize a liability as employees earn their pension benefits versus unfunded annual required contribution.
GASB 68 requires the recognition of net pension liability and deferred outflows/inflows of resources in the SNP and pension expense in SRECNP. May 2015 Year-End GAAP Training 3
Scope and Applicability• Scope is limited to defined benefit and defined
contribution pensions provided through trusts that meet following criteria: • Employer/non-employer contributions irrevocable• Plan assets are dedicated to providing pensions• Plan assets are legally protected from creditors
• Excludes all Other Postemployment Benefits (OPEB)• Applies to employers and non-employer contributing
entities legally obligated to contribute to the plan
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Scope and Applicability (cont.)
• A special funding situation arises when a non-employer entity makes contributions directly to the plan and one of the following conditions holds: • Non-employer contributing entity is the only entity
required to contribute to the plan, or• Amount of contributions legally required from the
non-employer contributing entity is not dependent on a factor unrelated to pension.
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Three Pension Plan Types
• Single pension plan that covers the employees of a single employer.
Single Employer
• Single pension plan that covers the employees of multiple employers.
• Plan assets are segregated for each participating employer and cannot legally be used to pay other employer’s pension obligation.
Agent Multiple
Employer
• Single pension plan that covers the employees of multiple employers.
• Plan assets are not legally segregated for each participating employer and can legally be used to pay other employer’s pension obligation.
Cost Sharing Multiple
Employer
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Pension Accounting for Employer
• GASB issued a detailed implementation guide for Statement No. 68 in early 2014. Below is the link to the GASB website for future reference.
http://gasb.org/jsp/GASB/Page/GASBSectionPage&cid=1176163026371
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Pension Accounting for Employer• Calculation of pension expense and net pension liability
is straightforward, particularly if no special funding situation applies.
Single Employer
• Each participating employer will get an individual calculation of specific net pension liability, since individual employer total pension liability and fiduciary net position of plan assets will be available.
Agent Multiple
Employer
• A proportionate share of the net pension liability and total pension expense must be calculated for each participating employer.
Cost Sharing Multiple
Employer
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Measurement – Key Dates
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• Fiscal Year-End • Measurement Date
o No earlier than end of prior fiscal yearo Total pension liability and plan fiduciary net position are
calculated as of this date
• Actuarial Valuation Date (of total pension liability)o If not measurement date, as of date no more than 30 months (+1
day) prior to FYEo At least every 2 years (more frequent valuations encouraged)
Calculating Net Pension Liability
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Total Pension Liability
Pension Plan’s
Fiduciary Net
Position
Net Pension Liability
Calculating Net Pension Liability (cont.)• Equal to or a portion of the actuarial present value of
projected benefit payments that is attributable to past periods of employee service.
Total Pension Liability
(TPL)
• Should be determined using the same valuation methods used by the pension plan for purpose of preparing statement of fiduciary net position.
Pension Plan’s
Fiduciary Net Position
• It is the difference between the two components above.Net Pension
Liability(NPL)
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Change in Net Pension Liability
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• NPL recognized in current reporting period less NPL recognized in prior reporting period
• The change resulting from service cost, interest in TPL, effects of benefit changes, projected earnings on plan investments are recognized as pension expense.
• Exceptions: • Difference between expected and actual experience (TPL)• Changes of assumptions (TPL)• Difference between projected and actual earnings on pension plan
investments • Employer contributions
Changes in NPL – TPL exceptions
• Expense recognized in current and future periods
• Portion not recognized in expense are in deferred outflow/inflow of resources related to pensions
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Changes in NPL – Investment Earnings Exception
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• Expense recognized in current and future periods• Portion not recognized in expense are in deferred
outflow/inflow of resources related to pensions• Report net deferred outflow/inflow of resources
related to pensions
Net Pension Liability – Employer Contribution
• Contributed during the measurement periodo Directly reduce NPL (no expense impact)
• Subsequent to measurement dateo Deferred outflow of resources related to pension o Directly reduce NPL in the next reporting period
(no expense impact)
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Special Consideration: Cost-Sharing Employers
• Determine the proportionate share (%) using a basis and consistently apply from period to period.• Net effect of change in proportion • Difference between:
o Employer’s proportionate share of total employer contributions
o Actual contributions during the measurement period• Employer’s contributions subsequent to measurement
date
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Note Disclosures • Descriptive information of the Pension Plan• Significant assumptions/other inputs used in determining
TPL• Information on pension plan’s fiduciary net position or
reference to the plan report or link to the public website where it is posted
• Relevant dates, i.e. actuarial valuation and measurement dates
• Changes in the assumptions/other inputs and changes in benefit terms
• Changes subsequent to measurement dateMay 2015 Year-End GAAP Training 17
Note Disclosures (cont.)
• Pension expense in current reporting period• Deferred outflows/inflows of resources – by
source, net impact on pension expense in each of the next 5 years, and thereafter in aggregate, and amount that will reduce NPL
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Note Disclosures (cont.)
Cost-sharing employers only:• Employer’s proportionate share, basis and
change in proportion• Employer’s proportionate share (in $) of
collective NPL.• Non-employer contributing entity’s proportionate
share (in % and $), if applicable
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Required Supplementary Information
• 10-year schedules• Employer’s proportion (%), proportionate
share (amount) of collective NPL, covered-employee payroll, proportionate share as % of covered-employee payroll, pension plan’s net position as % of TP
• Notes to RSI with significant changes
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Defined Contribution Pension• Pension expense for amounts defined by benefit terms as
attributable to the reporting period
– Net of forfeited amounts removed from employee accounts• Liability for difference between pension expense and
contributions• Note disclosures
– Descriptive information about plan, benefit terms, contribution rates, amount of expense, amount of forfeitures, amount of liability
• Non-employer contributing entities with legal requirements to contribute directly to pension plan also addressedMay 2015 Year-End GAAP Training 21
Reminders for Successful Implementation
• Determine the pension plan type as early as possible, consult with legal counsel if needed.• Identify individuals that will be focused on the
implementation and gathering information. • Form a timeline for implementation. • Prepare for the increased note disclosures. • Work closely with auditors
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CSU SW GAAP Reporting Requirement• Despite the new accounting and disclosure
requirements, the audited financials are expected to be final by September 18th. • Use the supplemental information template in
Chapter 8 of the GAAP Manual which was updated to include pension related accounts. • No specific footnote disclosures have been added to
the template. Wait for further instructions.
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Knowledge Check Question
Which of the following is a criteria in determining whether a pension plan is within the scope of GASB 68?
a) Employer/non-employer contributions irrevocable
b) Plan assets are dedicated to providing pensions
c) Plan assets are legally protected from creditors
d) All of the above
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