GASB 68 Overview. Vasquez & Company LLP 7/23/15

Transcription

1 GASB 68 Overview 1

2 GASB 27 What Was It? Employer Accounting for Pensions Recognize net pension obligation (NPO) if plan sponsor (employer) did not contribute Annual Required Contribution (ARC) Generally $0 Pension Expense based on ARC/Contribution 2

3 Funding -- GASB 68 Translation Actuarial Valuation Terms Funding (CalPERS) GASB 68Accounting Present Value of Benefits (PVB or PVPB) Normal Cost (NC) Actuarial Accrued Liability (AAL) Market Value of Assets (MVA) Unfunded Actuarial Accrued Liability (UAAL) Amortization bases Amortization payments 3 N/A Service Cost (SC) Total Pension Liability (TPL) Plan Fiduciary Net Position Net Pension Liability Deferred Inflows/Outflows of Resources Recognition of deferred inflows/outflows of resources

4 GASB 68 Major issues: Unfunded liability on balance sheet For some may exceed fund balance No change to required cash contributions Contributions expense Significant additional disclosure Significant additional audit effort 4

5 Single employer GASB 68 Plans 37 Act Systems (?), Charter Cities, Special Districts Supplemental plans Agent multiple employer CalPERS non-risk pool Cost-sharing multiple employer Plan assets pay pensions of any employer CalPERS risk pools, 37 Act Systems (?), other 5

6 Total Pension Liability Measure of benefits deemed earned to date ( past service ) aka Actuarial Accrued Liability (AAL) Discount rate single equivalent rate based on long term rate of return of plan investments Use Aa Municipal Bond rate if projected assets less than benefit payments CalPERS assets are projected to cover benefit payments under their new contribution methodology 6

7 Measurement Date Date when you measure assets (And total pension liability) Within 12 months of employer fiscal year end CalPERS will use measurement date of 6/30/14 (1-year lag) No adjustment between measurement date and FYE OK to roll forward pension liability, not assets, from a valuation date within 30 months of employer FYE to measurement date 7

8 Total Pension Liability - Timing CalPERS Valuation Date CalPERS Measurement Date FYE 12/31/12 6/30/13 6/30/14 6/30/15 Measurement date Valuation Date adjust (roll forward) to Measurement date Valuation Date 8

9 Fiduciary Net Position (Assets) At Measurement Date Fair market value, no smoothing Adjust for contributions between measurement date and FYE as deferred outflow of resources (GASB 71) Contributions paid to Trust after FYE don t count unless legally enforceable 9

10 Recognize Net Pension Liability/Asset Total pension liability less fiduciary net position Equivalent to unfunded actuarial liability (UAAL) Don t recognize deferred inflows and outflows of resources related to pensions Unrecognized portions of gains & losses and assumption changes occurring after implementation 10

11 Pension Expense Changes in net pension liability between FYEs Include a portion of deferred inflows and outflows of resources related to pensions ( amortization ) Actuarial (demographic) & investment gains & losses Assumption changes Plan changes are recognized immediately 11

12 GASB 68 CalPERS Reports 12

13 GASB 68 Balance Equation Fiscal Year: 6/30/14 14/15 Expense 6/30/15 Net pension liability 26,158,931 21,796,642 Deferred outflows Deferred inflows 0 4,282,198 Contributions after measurement date (1,823,737) TBD Net pension effect 24,335,194 26,078,840 Change in pension effect 1,743,646 Pension expense 1,743,646 13

14 Page 7 Pension Expense 14 Deferred Inflow

15 Page A-5 and A-6 Total investment income=9,381,042 (page 11) Projected investment income = 4,028,295 (page B-2) Difference = 5,352,747 gain = deferred inflow of resources 15

16 Page 9 and 10 16

17 Page B-2 Note: pension expense components are not separately disclosed 17

18 Cost Sharing Multiple-Employer Pensions For example, CalPERS risk pools Plan or risk pool s collective net pension liability calculated same as for single and agent employers Agency reports & recognizes proportionate share of Plan s or Risk Pool s net pension liability CalPERS will determine proportion No special treatment for Side Funds 18

19 GASB 68 Implementation Issues 19

20 GASB 68 - CalPERS CalPERS will provide for a fee: Stand alone $2,400 Each Risk Pool plan/benefit tier $850 Cannot be paid from plan assets (IRS/DOL) Bulk of fees related to accounting not actuarial work Following State and Local Government Expert Panel (SLGEP) of the AICPA Whitepapers Same fee for only 6/30/14 assets + census data GASB 68 actuarial reports, audit reports and census data expected in June (July for risk pools) 20

21 Non 6/30 FYE FYE 6/30/15 9/30/15 A CalPERS Valuation Date CalPERS funding reports completed Measurement Date 6/30/14 (Roll forward) 9/30/15 B 12/31/15 6/30/13 6/30/13 6/30/14 6/30/14 10/31/14 10/31/14 9/30/15 9/30/15 6/30/14 (Roll forward) 6/30/15 (Roll forward) 6/30/15 (Roll forward) FYE 6/30/15 9/30/15 9/30/15 12/31/15 Meet Requirements? OK Fail OK OK 21

22 Supplemental Plans Many employers have other pension plans DC (defined contribution) Contributions go in an account for each participant Account credited with actual investment earnings Participant receives account balance Employer s only obligation is for the contribution DB (defined benefit) plans Everything else 22

23 Supplemental Plans Supplemental funded plans covered by GASB 67/68 Separate independent trust PARS, etc Fiduciary fund maintained by employer If not funded and no trust => GASB 73 Actuary will provide all calculated information Crossover test 23

24 Supplemental Plans - Timing Employer determines timing of valuation & measurement dates Different plans can use different measurement dates May want to follow CalPERS schedule Allows work & audit to be done well in advance Exception if plan reported as Fiduciary Fund GASB 67 could result in 2 different values in the financial statements: 24

25 Supplemental Plans Timing GASB 68 Employer reporting on CalPERS Schedule Financial statement date 6/30/15 Measurement date (Plan assets measured) Example 6/30/14 Actuarial valuation date 6/30/13 *Note disclosure only and only for single employer plans GASB 67 Plan reporting as fiduciary fund * 6/30/15 6/30/15 (required) 6/30/14 25

26 GASB 68 Census Data for Audit Agent Multiple Employer Plans (CalPERS) Employer census testing for active employees only Data tested for 6/30/15 CAFR will be 6/30/13 actuarial valuation data Single Employer Independent/Supplemental Plans Employer census testing required for all plan participants Cost Sharing Plans (CalPERS) No employer census data testing 26

27 GASB 68 Allocations Net pension liability and expense may need to be allocated: Cost-sharing multiple employer plan if more than one participating employer Likely need to allocate to Enterprise Funds Possibly to component units, internal service funds, etc Work with your auditor and actuary to determine best allocation method 27

28 GASB 68 - EPMC Employer paid member contributions (EPMC) Read actuarial valuation report, talk to actuary Usually excluded from valuation report Actuary assumes employees pay full required contribution and no additional cost sharing Generally, employer should categorize EPMC as employee contributions and employer compensation expense If categorized as employer contributions, amounts from actuarial report usually will need to be adjusted. Similar for employee cost sharing, except in reverse 28

29 GASB 68 - More Than One Plan Separate GASB 68 report for each CalPERS funding valuation Employer will likely need/want to consolidate Miscellaneous/Safety? Cost Sharing/Agent (risk pools/non-risk pools) Different required footnotes and RSI Discuss with auditor 29

30 GASB 68 Covered Employee Payroll GASB 68 requires disclosure of total payroll for employees covered by plan Net pension liability as % of covered-employee payroll Contributions as a percentage of covered-employee payroll CalPERS only has records of PERSable payroll How to identify total payroll for covered employees? Discuss with auditor 30

31 GASB 73 Overview 31

32 GASB 73 Unfunded Pension Plans Effective FY Beginning > 6/15/16 Everyone will recognize pension liability Does not affect contributions (or require funding) Discount rate will be Aa municipal bond rate Change in net pension liability => pension expense Additional note disclosures and RSI 32

33 Unfunded Pension Plans Unfunded single employer plans CalPERS Replacement Benefit Fund Benefits > IRS limit ($210,000/yr in 2015) Retirees and non-retirees with large projected benefits Materiality? 33

34 GASB 74 Overview 34

35 GASB 74 OPEB Plans Replaces GASB 43 Effective FY Beg. > 6/15/16 Similar to GASB 67 Reporting for OPEB funded plans In the plan s financial statements Stand-alone Fiduciary fund in employer s financial statements Does not affect/require contributions Additional note disclosures and RSI 35

36 GASB 75 Overview 36

37 GASB 75 Employer OPEB Reporting Effective FY Beginning > 6/15/17 Similar to GASB 68 Everyone will recognize OPEB liability Replaces GASB 45 Does not affect contributions (or require funding) Change in net OPEB liability => OPEB expense Additional note disclosures and RSI 37

38 GASB 75 Unfunded and poorly funded plans use AA municipal bond discount rate 38

39 GASB 75 Alternative Measurement Method (AMM) still permitted for small plans Check with your auditor Implied Subsidy required Insured plans Means plans where entire future OPEB obligation is transferred to insurer 39

40 GASB 75 Net OPEB liabilities may be similar in size to pension liabilities Since pre-funding is not common Audit issues may be fewer than with GASB 68 since employers generally control data Some employers may implement early 40

41 CalPERS Upcoming Issues 41

42 CalPERS Upcoming Issues Contribution Policy Changes Risk Pool Changes Assumption Changes 42

43 Contribution Policy Changes Designed to: First pay off UAL and Second smooth rates New Method Uses MVA only so only one funded status/ratio Expect more volatility 43

44 Risk Pool Changes All Risk Pools combined into 2 Risk Pools Risk Pools UAL payment allocated based on liability & assets rather than payroll Some agencies will see significant cost increases Collect payment on UAL as dollar amount Side Fund payoff no longer guaranteed savings! 44

45 Assumption Changes No changes to economic assumptions Anticipate future mortality improvement Other 45

46 Assumption Study 15% increase in retired lifetime for Males / 5% for Females Slide from David Lamoureux, CalPERS Deputy Chief Actuary, CALPELRA presentation 11/

47 Timing Contribution Policy Risk Pool Changes Assumption Changes Valuation First Impact Full Impact 6/30/ / /20 6/30/ / /16 6/30/ / /21 47

48 Combined Changes 48

49 Paying Down CalPERS Unfunded Liability/Rate Stabilization Options Pension Obligation Bonds (POBs) Borrow from General Fund Shorter amortization period One time payments Internal Service Fund Irrevocable Supplemental ( 115) Trust 49

50 POBs Interest arbitrage between expected CalPERS earnings and rate paid on POB No guaranteed savings Including paying off CalPERS Side Fund 50

51 POBs Downside risks noted in GFOA Advisory CalPERS investment earnings below expected means: Both pension and bond payments due Increase in Agency s overall debt Uses up debt capacity May extend repayment period, increasing overall costs 51

52 One Time Payments Council/Board resolution to use a portion (e.g. 50%) of one time money to reduce unfunded liability Council/Board commitment to fund more than required contribution for a period of time CSMFO Webcast Reducing Unfunded Liabilities 5/13/15 Discuss with your CalPERS actuary in advance 52

53 Establish Irrevocable Supplemental ( 115) Trust Could be used for rate stabilization Reduces GASB 68 Net Pension Liability Investments significantly less restricted: Designed for long term returns Likely much higher (5%-7%) investment returns than non-trust 53

54 Establish Irrevocable Supplemental Can only be used to : ( 115) Trust Reimburse for CalPERS contributions Make payments directly to CalPERS Assets can not be used by Council for other purposes PARS & PFM At least 2 Agencies adopted plus 1 implemented 54

55 Resources CCMA White Paper on California GASB 68 Implementation Public Retirement Journal & PERS PAC Alert Bartel Associates GASB 68, PEPRA, Implied Subsidy summaries Anthony T. Oliveira, The Local Challenges of Pension Reform 55

56 56

57 Pension and OPEB News GASB 67, 68, 71, 73, 74, and 75 July 23, 2015 Mary Beth Redding

58 Agenda GASB 68 Overview 1 GASB 68 CalPERS Reports 12 GASB 68 Implementation Issues 19 GASB GASB GASB CalPERS Issues & Rate Stabilization 41 58