report on government accounting standards advisory council
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Government Accounting Standards Government Accounting Standards Advisory Council (GASAC)Advisory Council (GASAC)
A Report to the National Association of State Retirement Administrators
Betty Ann KaneExecutive Director, District of Columbia Retirement Board
NASRA Representative to GASAC
Anchorage, Alaska
August 6, 2005
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Presentation OutlinePresentation Outline
GASB OverviewGASAC OverviewGASB Initiatives Affecting Public Employee
Benefits and Pensions FundsPost Employment Benefits ProjectPotential ImpactOther Projects to Pay Attention to
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GASB OverviewGASB Overview
Governmental Accounting Standards Board
– Non-profit organization established in 1984 under the Financial Accounting Foundation.
– 7 member board appointed by the Foundation and selected from individuals knowledgeable about governmental accounting.
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GASB MissionGASB Mission
To “…establish and improve standards of state and local governmental accounting and financial reporting that will:
– Result in useful information for users of financial reports, – Guide and educate the public, including issuers, auditors and
users of those financial reports.”– “Government administrators also are users of financial
reports…”
To set Generally Accepted Accounting Principles (GAAP)
– Governments that do not follow GASB standards will have this noted in the auditor’s opinion that is included with their annual financial reports.
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Governmental Accounting Standards Governmental Accounting Standards Advisory Council (GASAC) MissionAdvisory Council (GASAC) Mission
Serve in an advisory role to GASB in its process of establishing and improving standards of financial accounting for state and local government entities,
Assure that the views of its members are consistently and effectively communicated to GASB on a timely basis,
Help to develop the GASB's annual budget, Aid the Financial Accounting Foundation in raising
funds for the Board.
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GASAC MembershipGASAC Membership
Appointed by the GASB Trustees.Knowledgeable about the problems and
impact of accounting and reporting by state and local government entities.
25 plus members broadly representative of preparers, attesters, and users of financial information.
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GASAC MembershipGASAC Membership
Nominations invited from American Accounting Association; American Institute of Certified Public Accountants; Association of Government Accountants; Association of School Business Officials; Council of State Governments; Financial Accounting Foundation; Government Finance Officers Association; Healthcare Financial Management Association;
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GASAC MembershipGASAC MembershipAnd from: International City/County
Management Association; National Association of College and University Business Officers; National Association of Counties; National Association of State Auditors, Comptrollers and Treasurers; National Conference of State Legislatures; National Governors' Association; National League of Cities; United States Conference of Mayors; and the United States General Accounting Office.
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Role of GASACRole of GASACProvide individual comments to the
GASB. Be alert to publicly expressed views and
concerns regarding existing governmental accounting and reporting standards including problems of implementation and the effect of subsequent events and circumstances.
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Role of GASACRole of GASACAssist in assuring that the GASB's views and
the reasoning underlying those views are being adequately communicated to the public and that the views of GASAC members are being communicated effectively and in a timely manner to the GASB and to other members of GASAC.
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Prior GASB Initiatives Affecting Prior GASB Initiatives Affecting Public Employee BenefitsPublic Employee Benefits
GASB 25 Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Pension Plans
GASB 27 Accounting for Pensions by State and Local Governmental Employers
GASB 28 Accounting and Financial Reporting for Securities Lending Transactions
GASB 31 Accounting and Financial Reporting for Certain Investments and for External Investment Pools
GASB 32 Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans
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Recent GASB Initiatives Affecting Recent GASB Initiatives Affecting Public Pension BenefitsPublic Pension Benefits
GASB 40 Deposit and Investment Risk Disclosures- goes into effect in 2005 for larger governments.
Amendment to GASB Statement No. 3, requires disclosure by asset type of (1) the interest rate risk on investments in debt instruments, (2) the credit risk on investments in debt instruments, and (3) foreign currency risk
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Recent GASB Projects cont.Recent GASB Projects cont.
GASB 43 Financial Reporting for Post Employment Benefit Plans Other Than Pension Plans- implementation begins for fiscal years beginning January 2006
GASB 45 Accounting and Financial Reporting by Employers for Post Employment Benefits Other Than Pension Plans- implementation January 2006
GASB 47 Accounting for Termination Benefits- issued June 2005
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Current GASB Projects of Interest to Current GASB Projects of Interest to Public Pension PlansPublic Pension Plans
Hedge and derivatives accounting- discussion memo and invitation to comment early 2006, issuance 4th quarter 2007
Research project on Fiduciary Responsibility Economic Conditions Reporting project- does present financial
reporting meet the information needs of persons who are making comprehensive assessments of the financial health of governmental entities- outreach and research
Fund Balance Reporting– how to better report and account for distinctions between restricted, reserved, designated, other kinds of funds
Real Estate valuation for endowment funds- historical cost or fair market value as for pension funds?
International Public Sector Accounting Standards- potential conflicts with GASB 27, 43, 45
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GASB OPEB Project ImpactGASB OPEB Project Impact Establishes the financial reporting framework for measuring and
reporting OPEB benefits sponsored by governmental entities.
Sets the context for future discussions of the design and sustainability of retiree health care offered by state and local governments.
Final statements for OPEB plans issued in April, 2004. Final statements for OPEB employers issued June 2004.
Implementation Guide being issued August 2005- 250 questions and answers
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OPEB Project Cont. OPEB Project Cont.
Will go into effect for fiscal years beginning after December 2006.
The basic result of the new standards is that the assets and liabilities of retiree health plans will have to begin to be accounted for in a manner similar to pension fund assets and liabilities.
In addition, funds will have to separate out and recognize the “implicit subsidy” for the higher cost of retiree health in plans where active and retiree benefits are priced the same.
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Other Postemployment BenefitsOther Postemployment Benefits
When promised in the form of a defined benefit, OPEB includes:
– Postemployment health care benefits:Medical, dental, vision, hearing, and other health-related
benefits whether provided separately or through the pension plan.
– Other benefits:Life insurance, disability, long-term care, etc., when provided
separately from a defined benefit pension plan.
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Other Postemployment BenefitsOther Postemployment Benefits
OPEB does not include:
– Termination offers or benefits that are not, in substance, compensation for services (severance pay and early retirement incentives).
– Unused sick-leave credits that are converted to an individual account at retirement to provide OPEB (GASB No. 16 applies to such arrangements).
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GASB’s ConcernGASB’s Concern
GASB sees OPEB benefits as similar to pension benefits:
Costs should be recognized when service is rendered.
If not, financial statements fail to reflect the accrued benefit obligation and extent to which funds have accumulated to meet the obligation.
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Concerns Raised in Comments by Public Concerns Raised in Comments by Public Employee OrganizationsEmployee Organizations
Retiree Health care could be jeopardized
Increased payroll costs
Bond Ratings may be adversely affected
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Suggestions made bySuggestions made by Public Employee Organizations Public Employee Organizations
Postpone implementation until impact studied further
Revise to better reflect the nature of retiree health benefits.
Grandfather current retirees or near retirees.
Set initial period to 40 Years.Allow employers in process of establishing
trusts to use projected long term yields
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GASB’s General FrameworkGASB’s General Framework
Establish uniform standards for OPEB, consistent with pension standards and actuarial standards of practice.
GASB’s primary change would be to require measurement of long-term OPEB costs through an actuarial valuation for plans with 100 or more total members.
For plans with less than 100 total members, an alternative “simplified” method can be used to determine the long-term costs.
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Potential ImpactPotential Impact
OPEB is likely to have an impact on retiree health care plan design, sponsorship and funding:
– Likely that increasing retiree health care costs will cause employers to reevaluate plan design.
– Likely that the advantages of holding assets in trust will cause employers to establish trusts for retiree health care plan assets.
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Potential Impact Potential Impact (Continued)(Continued)
OPEB will definitely have an impact on employer financial statements:
Effect on financial statements happens gradually. Net obligation is $0 in the first year.
Most employers will be in a similar boat.But, all other things being equal, an employer
with fewer or less generous OPEB plans will look better in the bond market.
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Termination BenefitsTermination Benefits Statement 47 issued June 2005
Covers both voluntary and involuntary benefits that encourage or require employees to terminate employment, such as early retirement incentives, enhanced retirement formulas, enhanced or continued healthcare, and severance pay.
Reflect comments from public employers and statement users Applies to obligations for large scale age related termination
benefits such as early retirement incentive programs, large scale reductions in force
Does not apply to ordinary terminations, “day to day severance pay” etc.
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Termination BenefitsTermination Benefits
If these termination benefits are provided through an existing defined benefit OPEB plan, the provisions of the proposed Statement would be required to be implemented simultaneously with the requirements of Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions
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AcknowledgementsAcknowledgements
Brian Murphy, Gabriel Roeder Smith