104th State Association of County Auditors Conference
Implementation of the New Public Pension Accounting
GASB 67/68 Panel
Panel Members (in order of presentation):David Clements, CalPERSMary Beth Redding, Bartel AssociatesDavid Bullock, MGORichard A. Green, MGO
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Status of Implementation of GASB Standards 68
David Clement,CalPERS Senior Pension Actuary
Agenda
• GASB 68 – What CalPERS is Planning to Do• New Smoothing Methods • New Actuarial Assumptions
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GASB 68 – What CalPERS is Planning to Do
New GASB Standards• GASB Statement No. 67
- Applies to plans (CalPERS)- Replaces GASB Statements No. 25
• GASB Statement No. 68- Applies to employers- Replaces GASB Statements No. 27
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Effective Dates• GASB 67
- Fiscal Year beginning after June 15, 2013 for Plans (CalPERS)
- June 30, 2014 CAFR• GASB 68
- Fiscal Year beginning after June 15, 2014 for Employers- June 30, 2015 CAFR for most employers
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Terminology Equivalents (Basics)Pension Terminology GASB Terminology
Present Value of Benefits (PVB) N/A
Normal Cost (NC) Service Cost
Accrued Liability (AL) Total Pension Liability
Market Value of Assets (MVA) Plan Fiduciary Net Position
Unfunded Accrued Liability Net Pension Liability
Gains / Losses Deferred Inflows/Outflows of Resources
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Will CalPERS Provide GASB 68 Information?• CalPERS INTENDS on providing the information• Updating systems to produce valuation reports and allow
Employers to request valuation reports• Requesting a GASB 68 report will be similar to requesting an
amendment valuation through my|CalPERS• The Draft Report is similar to the Illustrations in Statement 68• CalPERS cannot use trust fund money
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Fee for GASB Valuation• Will have to charge employers asking for the information• CalPERS Board gave approval to proceed and charge
employer- GASB valuations will be done on request- Not mandatory- Fees expected to be known in fall of 2014- Likely to be different by “pooled” vs “non-pooled”
• More details to follow
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Potential GASB Implementation Issues• Need actuarial computer system re-write• Ability to hire staff• Timing of plan specific asset information• Need to be ready by spring of 2015
- Most employers will need the information for June 30, 2015 CAFR
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Potential GASB Implementation Issues (Cont.)• For first few years, CalPERS may not be able to provide all
necessary information• Example
- Cross-over calculation to determine discount rate• Employers will have to rely on outside actuarial firm if
information provided by CalPERS is deemed not sufficient by their auditors
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Important Date Terminology• Valuation Date
- Cannot be greater than 30 months + 1 day• Measurement Date
- Must be within Employer’s 12 month fiscal year end- Valuation can be rolled forward with appropriate methods
• Reporting Date- Employer’s fiscal year end
• Asset information will be on a June 30 basis
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GASB 68 Measurement Timing Example
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GASB 68 Reporting Option # 1
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6/30/13 6/30/15 6/30/16
Valuation Date Measurement Date
Reporting Date
6/30/14
CalPERS CAFR Employer CAFR
2013 2014
2014 2015
Funding Valuations
Asset Reconciliation
July 31, 2014 - complete 2014 Funding Valuations
2015Accounting Valuations
GASB 68 Reporting Options• Option 1
- Valuation date = June 30, 2013- Measurement Date = June 30, 2014- Reporting Date = June 30, 2015
• Pros- Consistent with the Plan’s reporting- Will be able to provide at an earlier date
• Cons- The 2014 valuation would likely be available
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GASB 68 Reporting Option # 2
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6/30/13 6/30/15 6/30/16
Reporting Date
6/30/14
CalPERS CAFR Employer CAFR
2014
2014 2015
Funding Valuations
Asset Reconciliation
July 31, 2014 - complete 2014 Funding Valuations
2015Accounting Valuations
Valuation and Measurement
Date
GASB 68 Reporting Options• Option 2
- Valuation date = June 30, 2014- Measurement Date = June 30, 2014- Reporting Date = June 30, 2015
• Pros- Uses most recent valuation
• Cons- Maybe inconsistent with the Plan’s reporting- May not be available to meet your agency’s CAFR deadline
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GASB 68 Reporting Option # 3
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6/30/13 6/30/15 6/30/166/30/14
CalPERS CAFR
Employer CAFR
2014
2015
Funding Valuations
Asset Reconciliation
July 31, 2014 - complete 2014 Funding Valuations
2015Accounting Valuations
Measurement and Reporting
Date
Valuation Date
GASB 68 Reporting Options• Option 3
- Valuation date = June 30, 2014- Measurement Date = June 30, 2015- Reporting Date = June 30, 2015
• Pros- Uses most recent valuation- Would match CalPERS June 30, 2015 CAFR
• Cons- May not be available to meet your agency’s CAFR deadline- Asset information may not be available
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New Smoothing Methods
Previous Smoothing Policies• Originally adopted by Board in April 2005• Asset Smoothing Policy
- 15 year rolling smoothing period- Actuarial Value of Asset (AVA) corridor
• 80%-120% of Market Value of Assets (MVA)• Amortization Policy
- 30 year rolling amortization of gains and losses• Minimum contribution rate
- 30 year amortization of surplus
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New Method Adopted by the Board in April 2013• 5 year direct rate smoothing
- 5 year ramp up/down- 30 year amortization of gains and losses
• 5 year direct rate smoothing also applies to assumption changes- 20 year amortization with 5 year ramp up/down- Automatic smoothing of assumption changes
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Impact of New Methods• No impact on normal cost• Will impact employer contribution rates for the first time in
2015-2016• Higher contributions short term but lower contributions long
term (25 + years) with savings over the long term• Better funded status long term• Impact specific to each plan is included in the June 30, 2012
valuation report• See Circular Letter 200-019-13 for more details
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New Smoothing MethodsCumulative Projected Increase in Employer Projected Fiscal Year
2014-15 Rate Projected Fiscal Year 2014-15 Rate
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Fiscal Year AVR of 4 AVR of 6 AVR of 8 AVR of 10 AVR of 15
2015 – 2016 1.1% 1.7% 2.2% 2.8% 4.2%
2016 – 2017 2.2% 3.4% 4.4% 5.6% 8.4%
2017 – 2018 3.3% 5.1% 6.6% 8.4% 12.6%
2018 – 2019 4.4% 6.8% 8.8% 11.2% 16.8%
2019 – 2020 5.5% 8.5% 11.0% 14.0% 21.0%
New Actuarial Assumptions
New Actuarial Assumptions• Adopted by Board in March 2014• Based on most recent experience study 2014 report
- Using data from 1997-2011• Findings
- Members continue to live longer• Includes future mortality improvements
- Higher rates of service retirement for certain groups- Higher salary increases for members with longer service
• See Circular Letter 200-013-14 for more details
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Estimated Impact of New Actuarial Assumptionsbeginning in fiscal year 2016-17
Miscellaneous
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CategoryTotal Estimated Change
in Total Normal Cost(% of payroll)
Total Estimated Ultimate Change in Employer
Rate in 2016-17
(% of payroll)
Total Estimated Ultimate Change in Employer
Rate in 2020-21(% of payroll)
3% at 60 0.6% to 0.7% 1.2% to 1.9% 4.0% to 6.7%
2.7% at 55 0.4% to 0.7% 0.9% to 1.9% 3.1% to 6.5%
2.5% at 55 0.2% to 0.4% 0.6% to 1.3% 2.4% to 4.8%
2% at 55 0.2% to 0.3% 0.4% to 1.3% 1.3% to 5.1%
2% at 60 0.3% to 0.4% 0.4% to 1.0% 1.0% to 3.1%
Estimated Impact of New Actuarial Assumptionsbeginning in fiscal year 2016-17
Safety
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CategoryTotal Estimated Change
in Total Normal Cost(% of payroll)
Total Estimated Ultimate Change in Employer
Rate in 2016-17
(% of payroll)
Total Estimated Ultimate Change in Employer
Rate in 2020-21(% of payroll)
CPO 1.6% to 2.1% 2.6% to 3.5% 7.1% to 8.7%
Fire 0.0% to 0.5% 1.2% to 1.9% 6.3% to 7.2%
Police 1.1% to 1.7% 1.9% to 3.3% 5.3% to 9.3%
April 23, 2014
Mary Beth Redding
www.bartel-associates.com [email protected]
GASB 68 Implementation IssuesGASB 45 Update
PEMHCA Implied Subsidy
30SACA 4/23/2014
GASB 68
Implementation Issues
31SACA 4/23/2014
GASB 68What Is It?
Everyone will recognize pension unfunded liability (asset) regardless of contributions
Net Pension Liability drives Pension Expense
Systems and plan sponsors will determine contribution and funding policy
32SACA 4/23/2014
Total Pension Liability Measure of present value of benefits deemed earned to
date (“past service”) aka Actuarial Accrued Liability
Must use Entry Age actuarial (“funding”) method May require minor changes to comply with GASB 68 May require change if DROP
33SACA 4/23/2014
Total Pension Liability Must include value of: Automatic postemployment benefit changes Projected ad hoc post employment benefit changes COLAs Supplemental Retirees Benefit Reserve benefits
34SACA 4/23/2014
Total Pension Liability Discount rate – single equivalent rate based on long
term rate of return of plan investments To the extent: Projected plan assets expected to be available to pay benefits Plan assets expected to be invested using long term strategy
Net of investment expenses Consider most recent 5-year contribution history Consider establishing a written contribution policy Demonstration of discount rate calculation (“crossover”)
may need to be provided to auditors
35SACA 4/23/2014
Fiduciary Net Position Fiduciary Net Position (“Assets”) Market Value Reserves included Administrative expenses treated separately
Adjust for contributions between Measurement Date and FYE as Deferred Inflow/Outflow
Contributions paid to Trust after FYE don’t count unless Legally Enforceable
36SACA 4/23/2014
Net Pension Liability: Cost-Sharing Plans
How to determine proportionate share? Should be consistent with employer contributions Encourage use of projected long-term contribution effort Different methods => different proportions Different group demographics influence results
Disclosures not in AICPA white paper examples: Schedule showing year-by-year projected recognition of
deferred outflows and inflows of resources Change in net pension liability with discount rate
37SACA 4/23/2014
Net Pension Liability Allocation to employer Funds Need to determine method Simple (i.e., % of payroll) More accurate usually more difficult Need “reality check” on allocation results
38SACA 4/23/2014
Transition Options for transition Deferred inflows and outflows of revenue Must reconstruct ALL or None Expect no agencies will start with beginning balances,
except for contributions after the Measurement Date
39SACA 4/23/2014
Pension Expense Service cost At end of year
Net employer portion
Interest cost
Expected return on assets
Plan administrative expense
Recognition of deferred outflows and inflows
40SACA 4/23/2014
Pension Expense Deferred Outflow & Inflow Recognition—Expensed portion of: Current year differences between expected and actual experience
Previous differences between expected and actual experience
Current year assumption changes
Previous assumption changes
Current year difference between actual & projected investment earnings
Previous difference between actual & projected investment earnings
Current year changes in proportion and differences between employer contributions and proportionate share of contributions
Previous changes in proportion and differences between employer contributions and proportionate share of contributions
41SACA 3/25/2014
GASB 67 Plan reported as a fiduciary fund No separate GASB 25/67 financial statements issued All GASB 67 disclosures required for FY beginning after
6/15/2013
42SACA 4/23/2014
GASB 68
Discuss with your actuary now: Valuation timing Asset timing, including allocations Contribution policy for discount rate Consider need for beginning of year numbers Information required, including allocations Fees for Employer accounting generally not payable from a
pension Trust
43SACA 4/23/2014
Anticipated
New OPEB Standard& PEMHCA Implied
Subsidy
44SACA 4/23/2014
New OPEB Accounting Standard
Similar to GASB 67 & 68
Timing Exposure Draft April 2014
Comments May-July 2014
Hearing August 2014
Final June 2015
45SACA 4/23/2014
New OPEB Accounting Standard
Effective Dates
Plans Plan Years Beg. > December 15, 2015
Plan Sponsors with plans administered through Trust
Fiscal Years Beg. > December 15, 2016
Plan Sponsors with plans notadministered through Trust
Fiscal Years Beg. > June 15, 2016
46SACA 4/23/2014
GASB 45 – Implied Subsidy Employer cost for allowing retirees to participate
at active premium rates
Single Coverage Retiree Medical Cost
0
200
400
600
800
1,000
1,200
30 35 40 45 50 55 60 65Age
Mon
thly
Cos
t
PremiumMale CostFemale Cost
47SACA 4/23/2014
GASB 45 – Implied Subsidy ASOP Exposure Draft would require Implied subsidy be valued for all plans, including
“community rated”
Based on medical plan’s (not agency’s) demographics
Proposed final ASOP expected March 2014
Actuaries likely must comply for 6/30/15 vals
Likely to increase costs & liability if in PEMHCA
A preparer perspective
GASB 68
April 23, 2014
David Bullock, CPA, Partner
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Topics.
• Net Pension Liability (NPL) – Measured as the difference between the employer’s total pension liability (TPL) and the plan’s fiduciary net position (PNP) as of the measurement date.
• Pension Expense (PE) – Measured as the change in NPL with certain exceptions.
Immediate recognition:• Service costs (+)• Interest on TPL (+)• Changes in benefits (+or-)• Projected investment returns over the year (-)• Administrative expenses and other changes of the pension plan (+or-)Deferred recognition:• Changes in TPL due to changes in actuarial assumptions and differences in
assumed and actual actuarial experience• Changes in PNP due to difference between projected and actual investment returns
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Timing and Frequency Considerations
The Net Pension Liability (NPL) should be measured as of a date noearlier than the end of the employer’s prior fiscal year, consistentlyapplied from period to period (the measurement date) * Key Decision
Measurement Date.
Measurement Date
(Measurement Period)
Contributions after measurementdate are deferred outflows of resources
EmployerCurrent Fiscal Year
EmployerPrior Fiscal Year
Pension Expense
PlanPrior Fiscal Year
June 30, 2015June 30, 2014
PlanCurrent Fiscal Year
June 30, 2013
* Note: Don’t forget about the restatement of beginning balances
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Financial Statements.
Total Pension Liability
Plan Net Position
Net Pension Liability
Balances at June 30, 2013 56,000,000$ 40,000,000$ 16,000,000$
Changes for the year:Service cost 1,400,000 - 1,400,000 Interest 4,100,000 - 4,100,000 Changes of benefit terms 300,000 - 300,000 Changes of assumptions 100,000 - 100,000
(200,000) - (200,000) Contributions - employer - 2,000,000 (2,000,000) Contributions - employee - 500,000 (500,000) Net investment income - 3,500,000 (3,500,000)
(2,200,000) (2,200,000) - Administrative expenses - (100,000) 100,000 Other changes - 20,000 (20,000)
Net changes 3,500,000 3,720,000 (220,000)
Balances at June 30, 2014 $ 59,500,000 $ 43,720,000 $ 15,780,000
COUNTY OF PENSIONVILLEPension Results, Provided by the Pension PlanFor the Measurement Date of June 30, 2014
Increase (Decrease)
Benefit payments, including refunds of employee contributions
Differences between expected and actual experience
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Financial Statements.
Total Pension Liability
Plan Net Position
Net Pension Liability Amount
Balances at June 30, 2013 56,000,000$ 40,000,000$ 16,000,000$
Changes for the year:Service cost 1,400,000 - 1,400,000 Service cost 1,400,000$ Interest 4,100,000 - 4,100,000 Interest on the total pension liability 4,100,000 Changes of benefit terms 300,000 - 300,000 Changes of benefit terms 300,000 Changes of assumptions 100,000 - 100,000 Changes of assumptions 10,000
(200,000) - (200,000) Differences between expected and actual experience (20,000)
Contributions - employer - 2,000,000 (2,000,000) Contributions - employee - 500,000 (500,000) Employee contributions (500,000) Net investment income - 3,500,000 (3,500,000) Projected earnings on pension plan investments (2,800,000)
(2,200,000) (2,200,000) - Differences between projected and actual earnings on investments (140,000)
Administrative expenses - (100,000) 100,000 Administrative expenses 100,000 Other changes - 20,000 (20,000) Other changes (20,000)
Net changes 3,500,000 3,720,000 (220,000) Total pension expense 2,430,000$
Balances at June 30, 2014 $ 59,500,000 $ 43,720,000 $ 15,780,000
ReconciliationTotal pension expense..................................................................... 2,430,000$
Deferred outflows/inflows of resources: Changes of assumptions............................................................... 90,000 Differences between expected and actual experience.................... (180,000) Differences between projected and actual earnings on investments. (560,000) Employer contributions.................................................................... (2,000,000)
Net changes in NPL....................................................................... (220,000)$
COUNTY OF PENSIONVILLEPension Results, Provided by the Pension PlanFor the Measurement Date of June 30, 2014
Increase (Decrease)
Benefit payments, including refunds of employee contributions
Differences between expected and actual experience
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Financial Statements.
Total Pension Liability
Plan Net Position
Net Pension Liability Amount
Balances at June 30, 2013 56,000,000$ 40,000,000$ 16,000,000$
Changes for the year:Service cost 1,400,000 - 1,400,000 Service cost 1,400,000$ Interest 4,100,000 - 4,100,000 Interest on the total pension liability 4,100,000 Changes of benefit terms 300,000 - 300,000 Changes of benefit terms 300,000 Changes of assumptions 100,000 - 100,000 Changes of assumptions 10,000
(200,000) - (200,000) Differences between expected and actual experience (20,000)
Contributions - employer - 2,000,000 (2,000,000) Contributions - employee - 500,000 (500,000) Employee contributions (500,000) Net investment income - 3,500,000 (3,500,000) Projected earnings on pension plan investments (2,800,000)
(2,200,000) (2,200,000) - Differences between projected and actual earnings on investments (140,000)
Administrative expenses - (100,000) 100,000 Administrative expenses 100,000 Other changes - 20,000 (20,000) Other changes (20,000)
Net changes 3,500,000 3,720,000 (220,000) Total pension expense 2,430,000$
Balances at June 30, 2014 $ 59,500,000 $ 43,720,000 $ 15,780,000
ReconciliationTotal pension expense..................................................................... 2,430,000$
Deferred outflows/inflows of resources: Changes of assumptions............................................................... 90,000 Differences between expected and actual experience.................... (180,000) Differences between projected and actual earnings on investments. (560,000) Employer contributions.................................................................... (2,000,000)
Net changes in NPL....................................................................... (220,000)$
Benefit payments, including refunds of employee contributions
COUNTY OF PENSIONVILLEPension Results, Provided by the Pension PlanFor the Measurement Date of June 30, 2014
Increase (Decrease)
Differences between expected and actual experience
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Financial Statements.
Total Pension Liability
Plan Net Position
Net Pension Liability Amount
Balances at June 30, 2013 56,000,000$ 40,000,000$ 16,000,000$
Changes for the year:Service cost 1,400,000 - 1,400,000 Service cost 1,400,000$ Interest 4,100,000 - 4,100,000 Interest on the total pension liability 4,100,000 Changes of benefit terms 300,000 - 300,000 Changes of benefit terms 300,000 Changes of assumptions 100,000 - 100,000 Changes of assumptions 10,000
(200,000) - (200,000) Differences between expected and actual experience (20,000)
Contributions - employer - 2,000,000 (2,000,000) Contributions - employee - 500,000 (500,000) Employee contributions (500,000) Net investment income - 3,500,000 (3,500,000) Projected earnings on pension plan investments (2,800,000)
(2,200,000) (2,200,000) - Differences between projected and actual earnings on investments (140,000)
Administrative expenses - (100,000) 100,000 Administrative expenses 100,000 Other changes - 20,000 (20,000) Other changes (20,000)
Net changes 3,500,000 3,720,000 (220,000) Total pension expense 2,430,000$
Balances at June 30, 2014 $ 59,500,000 $ 43,720,000 $ 15,780,000
ReconciliationTotal pension expense..................................................................... 2,430,000$
Deferred outflows/inflows of resources: Changes of assumptions............................................................... 90,000 Differences between expected and actual experience.................... (180,000) Differences between projected and actual earnings on investments. (560,000) Employer contributions.................................................................... (2,000,000)
Net changes in NPL....................................................................... (220,000)$
Benefit payments, including refunds of employee contributions
COUNTY OF PENSIONVILLEPension Results, Provided by the Pension PlanFor the Measurement Date of June 30, 2014
Increase (Decrease)
Differences between expected and actual experience
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Financial Statements.
Debit Credit1 Record beginning balances
Net position, beginning of year 14,000,000$ Deferred outflows of resources (employer pension contributions for FYE June 30, 2014) 2,000,000
Net pension liability 16,000,000$ *
2 Recognize timing of employer pension contributionsNet pension liability 2,000,000$ *Deferred outflows of resources 100,000
Employer pension contributions for FYE June 30, 2015 2,100,000$
3 Record the changes in NPL (without employer contributions in JE #2)Pension expense 2,430,000$ Deferred outflows of resources - changes of assumptions 90,000
Deferred inflows of resources - differences between expected and actual experience 180,000$ Deferred inflows of resources - differences between projected and actual earnings on investments 560,000
Net pension liability 1,780,000 *
Reconciliation of Net Pension Liability (NPL)Beginning NPL JE #1 16,000,000$
Changes related to employer pension contributions JE #2 (2,000,000)
Changes related to pension expense and deferred outflows/inflows of resources JE #3 1,780,000
Ending NPL 15,780,000$
COUNTY OF PENSIONVILLEJournal Entries Related to Implementation of GASB68
For the Year Ended June 30, 2015
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Financial Statements.
Employer Contributions made in FYE June 30, 2015 Allocation
Fund Financial Statements
Governmental Activities
Reconciliation
Government-wide Financial
Statements
Employer contributions:General Fund:
General government 250,000$ 11.90% 1,600,000$ 251,429$ 1,851,429$ Public safety 900,000 42.86%Transportation 300,000 14.29%Community development 150,000 7.14%
Water Enterprise Fund 400,000 19.05% 462,857 462,857 Internal Service Fund 100,000 4.76% 115,714 115,714
Totals for FYE June 30, 2015 $ 2,100,000 100.00% $ 2,178,571 $ 251,429 $ 2,430,000
Net Pension LiabilityGovernmental Activities:
Governmental Funds 12,022,857$ 76.19%Internal Service Funds 751,429 4.76%
Total Governmental Activities 12,774,286
Business-Type Activities:Water Enterprise Fund 3,005,714 19.05%
Total Net Pension Liability 15,780,000$
Pension Expense (Expenditures)
COUNTY OF PENSIONVILLEAllocation of Pension Expense and Net Pension Liability
For the Measurement Date of June 30, 2014
Deferredouflows /inflows of resources should be allocated in the same manner.
April 23, 2014
AICPA Proposed Recommendations
Richard A. Green, CPA, Partner
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Cost-Sharing Multiple-Employer Plans –Current Status of AICPA Proposed
Recommendations
Two White Paperso Government Employer Participation in Cost-Sharing Multiple
Employer Plans: Issues Related to Information for Employer Reporting
o Single Employer and Cost-Sharing Multiple-Employer Plans: Issues Associated with Testing Census Data
Four Auditing Interpretations o Issued in April 2014
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Cost-Sharing Multiple-Employer Plans –AICPA Proposed Recommendations
Include supplemental “schedule of employer allocations” in plan financial statements for which plan auditor is engaged to provide opinion o Use allocations method based on covered payroll or required (actual)
contributions depending on whether there are different classes of benefits and whether allocations expected to be representative of future contributions
o Projected future contributions could be used if necessary
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Example Schedule of Employer Allocations
EXAMPLE OF COST-SHARING PENSION PLANSchedule of Employer Allocations
June 30, 2015
Employer/ 2015Nonemployer Actual Employer
(special funding Employer Allocation situation) Contributions Percentage
State of Example $ 2,143,842 38.9%Employer 1 68,425 4.9%Employer 2 322,142 5.8%Employer 3 483,255 8.8%Employer 4 633,125 11.5%Employer 5 144,288 2.6%Employer 6 95,365 1.7%Employer 7 94,238 1.7%Employer 8 795,365 14.4%Employer 9 267,468 4.9%Employer 10 267,128 4.8%
Total $ 5,514,641 100.0%
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Cost-Sharing Multiple-Employer Plans –AICPA Proposed Recommendations Plan prepare “schedule of plan pension amounts by
employer” for which plan auditor engaged to provide opiniono Supplemental schedule of plan pension amounts by employer
includes net pension liability, deferred outflows of resources, deferred inflows, and pension expense for each employer
An alternative could be to only 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 PERS financial statements
o Employer auditor issues opinion on total of each of the four “elements” in accordance with AU-C 805 Net pension liability, total deferred outflows of resources, total deferred
inflows of resources, and total pension expense
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Example Schedule of Pension Amounts by Employer
Changes in Changes in NetEmployer Employer AmortizationProportion Proportion of Deferred
and Differences and Differences Amounts fromDifferences Differences Between Differences Differences Between Changes inBetween Between Contributions Between Between Contributions Proportionate Proportion and
Employer/ Expected Projected and Proportionate Expected Actual and and Proportionate Share of ProportionateNonemployer and Actual and Actual Share of and Actual Projected Share of Plan Share of
(special funding Net Pension Economic Investment Changes of Pension Economic Investment Changes of Pension Pension Pension situation) Liability Experience Earnings Assumptions Expense Experience Earnings Assumptions Expense Expense Expense
State of Example 38,589,135$ 428,768 2,058,088 1,500,690 782,365 380,371 1,063,285 - 584,365 1,878,717 12,375 Employer 1 4,831,647 53,685 257,688 187,898 96,633 47,625 133,131 - 125,325 235,229 (1,793) Employer 2 5,798,553 64,428 309,256 225,499 115,971 57,156 159,773 - 245,386 282,303 (8,088) Employer 3 8,698,585 96,651 463,925 338,279 173,972 85,742 239,681 - 125,632 423,492 3,021 Employer 4 11,396,244 126,625 607,800 443,188 227,925 112,332 314,012 - 386,325 554,828 (9,900) Employer 5 2,597,183 28,858 138,516 101,002 51,944 25,600 71,563 - 42,358 126,444 599 Employer 6 1,716,569 19,073 91,550 66,756 34,331 16,920 47,298 - 24,325 83,571 625 Employer 7 1,696,283 18,818 90,468 65,967 33,926 16,720 46,739 - 125,325 82,584 (5,712) Employer 8 14,316,562 159,073 763,550 556,756 286,486 141,118 394,478 - 152,005 697,004 8,405 Employer 9 4,814,421 53,494 256,769 187,228 68,325 47,456 132,657 - 87,325 234,391 (1,188) Employer 10 4,808,301 53,426 256,443 186,990 67,528 47,395 132,488 - 41,035 234,093 1,656
Total 99,263,483$ 1,102,899 5,294,053 3,860,253 1,939,406 978,435 2,735,105 - 1,939,406 4,832,656 -
Deferred Outflow of Resources Deferred Inflows of Resources Pension Expense
EXAMPLE COST-SHARING PENSION PLANSchedule of Pension Amounts
June 30, 2015
63
Cost-Sharing Multiple-Employer Plans –Testing Underlying Census Data of Active
Employees Risk-based approach by plan auditor to select employers
to testo Individually important employers (i.e. > 20% of plan) tested annually o Plan auditor performs risk assessment on remaining employers using
tiered approach For example: Employers between 5 and 20% tested to approximate a 5 year
cycle Employers less than 5% tested to approximate a 10 year cycle Many small employers will never be tested (e.g. 400 employers
represent 2% in aggregate plan)
Employer auditor may perform procedures under examination engagement in accordance with AT (Attest) Section 101
64
Cost-Sharing Multiple-Employer Plans –Testing Underlying Census Data of Active
Employees Example risk factors to consider for selecting employers
to test o Size of employer in relation to plano Past errors or control deficiencies of an employero Length of time since procedures last performed for employero Whether there have been significant changes in workforceo Results of internal analysis (analytical procedures) of employer
informationo New or terminating employero Whether employer financial statement are audited have received
unmodified opinions
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
65
Cost-Sharing Multiple-Employer Plans –Employer Responsibilities
Evaluate appropriateness of information used to record financial statement amounts
Report complete and accurate data to plan
Evaluate whether plan auditor’s report on schedules are adequate and appropriate for employer purposes
Verify and recalculate amounts in schedules specific to employer o Employer amount used in allocation percentage (numerator)o Recalculate allocation percentage of employero Recalculate allocation of pension amounts based on allocation
percentage of employer
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Agent Multiple-Employer Plans –Current Status of AICPA Proposed
Recommendations Two White Papers
o Government Employer Participation in Agent Multiple Employer Plans: Issues Related to Information for Employer Reporting
o Agent Multiple-Employer Plans: Issues Associate with Testing Census Data in an Audit of Plan Financial Statements
Issues and potential recommendations are more complex Discussion to continue at the AICPA Audit Task Force (AITF) Expected to be finalized end of April
Four Auditing Interpretations o Status is same as white papers
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Fiduciary Net Position –AICPA Proposed Recommendations
Include supplemental condensed schedule of “changes in fiduciary position” by employer in plan financial statements for which plan auditor is engage to provide opinion
Plan auditor engaged to issue SOC 1 (type 2) report on allocation of inflows (i.e., contributions, investments income, etc.) and outflows (i.e., benefit payments, administrative expenses, etc.) of plan to individual employer accounts
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Total Pension Liability, Deferred Outflows/Inflows, and Pension Expense –
AICPA Proposed Recommendations Plan actuary issues separate actuarial report for each
participating employer which includes net pension liability, deferred outflows/inflows by type and year, pension expense, and discount rate calculation o Employer management and employer auditor rely on actuary as
management specialist for total pension liability for individual employer
Plan auditor engaged to issue SOC 1 (type 2) report on census data controlled by plan (i.e. retired employees)o User controls at the plan level – Plan controls most of the information
needed by the actuary (inactive/retirees)o User controls at the employer level – Employer controls the active
employee information o This alternative continues to be discussed with AITF and likely may
change
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Total Pension Liability, Deferred Outflows/Inflows, and Pension Expense –
AICPA Proposed Recommendations Employer auditor test census date of active employees and
confirms actuarial information (census data) used by actuary
Employer and employer auditor responsible for validating deferred outflows/inflows and pension expense related to individual employero Deferred outflows/inflows resulting from current year can be
recalculated from condensed statement of changes in fiduciary position (by employer) included as supplemental information in plan financial statements
o Rely on actuarial report for deferred outflow/inflows related to actuarial experience
o Plan auditors responsibility for testing census data of active employees continues to be discussed with AITF