Tuesday, May 19, 2015

GASB Exposure Draft for Accounting and Financial Reporting of Pension Plans Not Administered Through Trusts and Amendments to GASB Statements 67 and 68

                The Government Accounting Standards Board has released an exposure draft with regards to the accounting and financial reporting of pension plans. The purpose of the proposals would be to create a frame work for the presentation of defined benefit and defined contribution pension plans that will improve the comparability of information reported by both employer and non-employer contribution plans.[i]

                The purpose of this exposure draft is to establish a standard for employees whose pensions are not covered by GASB Statement 68 Accounting and Financial Reporting for Pensions. Additionally the exposure draft is designed to improve the reporting of state and local defined pension plans that are not covered by GASB Statement 67 Financial Reporting for Pension Plans.[ii]

                The Statement in this exposure draft establishes standards for defined benefit and defined contribution plans of state and local governments for the benefit of employees where the administration of the pension plans are not through trusts or equivalent instruments. The pensions must also meet the following criteria:
a.       Contributions to the plans and subsequent earnings must be irrevocable.
b.      Plan assets are administered by the benefit terms.
c.       Pension plan assets are legally protected from the creditors of the plan members and the employers of the plan members.[iii]

The types of pensions covered by the statement in this exposure draft includes:
a.       Retirement income;
b.      Other post-employment benefits provided by a pension plan that are not retirement income.

“Other Post-Employment Benefits” (OPEB) should be used to report post-employment benefits that are separately provided from pension plans and healthcare benefits other than retirement income.

“Defined Contribution Plans” are defined as:
a.       Having one account per employee;
b.      The contributions required to be made by an employee’s employer or non-employer entity are defined for the period that the employee is actively working;
c.       State that the pensions will be funded only by contributions, earning on those contributions less administrative costs. [iv]

“Defined Benefit Pension Plans” include the following:
a.       “Insured plans” are plans that pay pensions known as insured benefits. These plans are established when pension payments are made to an insurance company and the company contracts to pay a pension to the employees in conformity with the plan terms of the pension plan.
b.      “Single employer defined benefit pension plan” is a plan other than an insured plan. For the purpose of this definition the primary government and its units are considered a single employer.
c.       “Multiple employer defined pension plan” is a plan other than an insured plan. This plan manages the pensions of employees of multiple employers.[v]
“Special funding situation” is where a non-employer makes contributions to the pensions plans of employees of another. This does include situations where non-employer provides the employer with resources for making contributions to pension plans.[vi]

                Employers that are not in a “special funding situation” use the economic resource measurement focus and the accrual basis of accounting. The liability recognized should be the “total pension liability” measured using “actuarial present value of projected benefit plans.” The liabilities from different pension plans provided by employers may be displayed in the aggregate in the financial statements.[vii]

                Actuarial valuations for total pension liability should be measured (1) from the measurement date or (2) 30 months and 1 day earlier than the most recent fiscal year end of the employer using actuarial update procedures.

                “Projected benefit payments” include benefits of active and inactive employees. Included in the “projected benefit payments” are automatic cost of living adjustments (COLAs) and automatic benefit changes after employment.[viii]

                Benefits received by employees and former employees provided by an “allocated insurance contract” are not included in the projected benefit payments if the following conditions are met:
a.       There was an irrevocable transfer to the insurer to provide the benefit payments;
b.      All payments to the insurer for the contract have already been made;
c.       There is remote chance any payments will need to be made to cover the benefits other than by the insurer.[ix]

The “discount rate” used should be that of a municipal bond with an AA/Aa rating or better. The Bond should be a tax-exempt, general obligation, 20 year bond.[x]

“Pension expense” should be used in the current period to report total pension liability changes except in the following circumstances:
a.       Pension expense should be used to recognize: (1) when economic and demographic factors differentiate in the expected and actual result when measuring total pension liability. (2) Assumptions change with regards to future economic or demographic factors.
b.      Pension expense should not recognize payments made by the employer for benefits as they come due.
c.       Revenue should be recognized when benefits come due for amounts not in a special funding situation paid by a non-employer.[xi]

Pension expense should be used to recognize administrative expenses.

Deferred outflow of resources should be reported (a) when the employer makes payments to pensions when benefits come due past the measurement date of the total pension liability, but before the reporting period ends; and (b) payments for administrative expenses made by the employer after the measurement date, but before the reporting period ends.[xii]

For total pension liabilities in financial statements that use current financial resources measurement and modified accrual basis accounting, pension expenditures should be the combined amount of (a) employer payments for pensions as they come due and (b) the difference between beginning and ending balances of amounts to be liquidated.[xiii]
Notes to the financial statements should be used to disclose amounts previously discussed if they are not already identifiable in the financial statements. Inputs and assumptions which are significant for pension liability measurement should be disclosed in the notes to the financial statements. [xiv]

A schedule for changes in pension liability should be provided in the notes to the financial statements that includes the following information:
a.       Beginning balance;
b.      The effects of
1.       Service Cost;
2.       Interest;
3.       Benefit term changes;
4.       Variance in expected and actual total pension liability;
5.       Input and assumption changes;
6.       Payments of benefits;
7.       Any significant changes.
c.       Ending Balance;
d.      For Special funding situations:
1.       The total proportionate share of the total pension liability contributed by non-employers.
2.       The total proportionate share of the total pension liability contributed by employers.[xv]
Notes to the financial statements should also include the following information:
a.       Measurement and valuation dates of the pension liabilities as well as any actuarial adjustments.
b.      Special funding situation of the employer if there is one as well as a proportion of total pension liability.
c.       Input and assumption changes which affect the measurement of the pension liability and what the effects are.
d.      The effect on the measurement of total pension liability as a result of changes of the benefit terms.
e.      The amount and effect on the total pension liability as a result of the purchase of allocated insurance contracts.
f.        The nature of changes that had a significant impact on the total pension liability.
g.       The pension expense amount recognized by the employer.
h.      The balance of outflows and inflows of resources of the employer.
i.         A five year schedule of the deferred outflows and inflows that are and are not the result of a special funding situation.
j.        Revenue as a result of non-employer contributions.[xvi]

Required supplementary information:
a.       Changes in total pension liability schedule for a ten year period.
b.      A ten year schedule of the following:
1.       For an employer without a special funding situation:
a.       Total pension liability.
b.      Payroll of covered-employees.
c.       Total pension liability as a percentage of the payroll of covered-employees.
2.       For an employer with a special funding situation:
a.       Total pension liability.
b.      The proportionate share of total pension liability of the contributing non-employer.
c.       The proportionate share of the total pension liability of the employer.
d.      Payroll of covered employees.
e.      The employer’s total proportionate share of the pension liability as a percentage of the payroll of covered employees.
C.            10 year schedule for an actuarially determined contribution presenting the following information:
1. The employer’s actuarial determined contribution.
2. The payroll of covered employees
3. The employer’s actuarial determined contribution as a percentage of the payroll of covered employees.
4. Employer payments for pensions during the year as benefits came due.[xvii]

                For the financial statements of primary governments and their component units that use the same defined benefit pension plan to provide pensions to their employees, economic resources measurement focus and accrual basis of accounting, recognition in financial statements:
1.       When non-employer benefit payments come due which are not in a special funding situation each government should recognize revenue equal to the unit’s proportionate share of the total pension liability change as a result of payments made by that unit during the period.
2.       Revenue and pension expense should be recognized by the government when there is a special funding situation for the non-employer contributor’s share of the government’s collective pension expense.[xviii]

In the notes to the financial statements the following should be reported: the total of pension assets, liabilities, resources, revenues, expenses, inflows and outflows should be reported in the notes to the financial statements is the information in the financial statements does not make such information readily identifiable.

In the required supplementary information the following should be reported:
1.       A tem year schedule should be presented for each non-special funding situation pension plan that the government. The schedule should present the following:
a.       The collective total pension liability proportion (percentage) of the government.
b.      The collective total pension liability proportionate share (amount) of the government.
c.       The payroll of the government’s covered-employees.
d.      The amount of the government’s collective total pension liability as a percentage of the payroll of the government’s covered employees.
2.       A ten year schedule should be presented for each special funding situation pension plan of the government. The schedule should present the following:
a.       The collective total pension liability proportion (percentage) of the government.
b.      The collective total pension liability proportionate share (amount) of the government.
c.       The collective total pension liability proportionate share of a contributing non-employer that is associated with the government.
d.      (b) and (c) totaled.
e.      The payroll of the government’s covered-employees.
f.        The amount of the government’s collective total pension liability as a percentage of the payroll of the government’s covered employees.[xix]




Statements 67 and 68 Amendments

                GASB Statement 67 and 68 address state and local government employers’ financial accounting and reporting for pensions administered through trusts with the following characteristics:
1.       Irrevocable contributions to the pension plans and irrevocable earnings on those contributions made by government employers and contributing non-employers.
2.       Pensions are provided to plan members by plan assets in conformity with the terms of the benefit plan.
3.       Pension plan assets are legally protected from the creditors of the plan members and the employers of the plan members.[xx]

Under Statement 67 and 68 for payables to defined pension plans when an employer or non-employer contributor joins a pension plan or changes the benefit terms of that employer’s plans an increase in the total pension liability results in a specific contract liability to that employer or non-employer contributor. This liability is differentiated from payables for financing purposes that originated with total pension liability portions from two or more contributors.[xxi]

Additional revenue should be recognized, when there is a special funding situation, for a non-employer contributor’s portion of expense. Additional revenue and pension expense should be recognized when there is a cost-sharing employer with a special funding situation for the non-employer contributor’s portion of expense recognized with regards to a total pension liability change due to a separately financed liability.[xxii]

Revenue should be recognized for a non-employer contributor’s support, when that contributor is not in a special funding situation, during the reporting period when a change in net pension liability of collective net pension liability was contributed by the non-employer contributor.[xxiii]

Implementation Dates

The Governmental Accounting Standards Board believes that this Statement’s requirements should as soon as is practical be implemented. Due to the need for an actuarial valuation to comply with the Statement’s reporting requirements the Governmental Accounting Standards Board believes that the transition period of one or more years is necessary to obtain the actuarial valuations by the employers.[xxiv]

The Governmental Accounting Standards Board requires that in the first fiscal year after this Statement is issues the amendments to Statement 67 and 68 should be applied because this Statement does not require any changes to the actuarial measurements of Statements 67 and 68.[xxv]



References


Proposed Statement of the Governmental Accounting Standards Board - Accounting and Financial Reporting for Pensions and Financial Reporting for Pension Plans that are Not Administered through Trusts That Meet Specified Criteria and Amendments to Certain Provisions of GASB Statements 67 and 68 (May 28, 2014), Governmental Accounting and Standards Board, Retrieved November 14th, 2014 from: http://www.gasb.org/jsp/GASB/Document_C/GASBDocumentPage?cid=1176164132053&acceptedDisclaimer=true

Summary of Statement No 68 – Accounting and Financial Reporting for Pensions an Amendment of GASB Statement No. 27 (June 2012), Governmental Accounting and Standards Board, Retrieved November 17th, 2014 from: http://www.gasb.org/jsp/GASB/Pronouncement_C/GASBSummaryPage&cid=1176160219492






[i] Proposed Statement of the Governmental Accounting Standards Board - Accounting and Financial Reporting for Pensions and Financial Reporting for Pension Plans that are Not Administered through Trusts That Meet Specified Criteria and Amendments to Certain Provisions of GASB Statements 67 and 68 (May 28, 2014), Governmental Accounting and Standards Board, P. v, Retrieved November 14th, 2014 from: http://www.gasb.org/jsp/GASB/Document_C/GASBDocumentPage?cid=1176164132053&acceptedDisclaimer=true
[ii] Proposed Statement of the Governmental Accounting Standards Board - Accounting and Financial Reporting for Pensions and Financial Reporting for Pension Plans that are Not Administered through Trusts That Meet Specified Criteria and Amendments to Certain Provisions of GASB Statements 67 and 68 (May 28, 2014), Governmental Accounting and Standards Board, P. 1, Retrieved November 14th, 2014 from: http://www.gasb.org/jsp/GASB/Document_C/GASBDocumentPage?cid=1176164132053&acceptedDisclaimer=true
[iii] Proposed Statement of the Governmental Accounting Standards Board - Accounting and Financial Reporting for Pensions and Financial Reporting for Pension Plans that are Not Administered through Trusts That Meet Specified Criteria and Amendments to Certain Provisions of GASB Statements 67 and 68 (May 28, 2014), Governmental Accounting and Standards Board, P. 2, Retrieved November 14th, 2014 from: http://www.gasb.org/jsp/GASB/Document_C/GASBDocumentPage?cid=1176164132053&acceptedDisclaimer=true
[iv] Proposed Statement of the Governmental Accounting Standards Board - Accounting and Financial Reporting for Pensions and Financial Reporting for Pension Plans that are Not Administered through Trusts That Meet Specified Criteria and Amendments to Certain Provisions of GASB Statements 67 and 68 (May 28, 2014), Governmental Accounting and Standards Board, P. 4, Retrieved November 14th, 2014 from: http://www.gasb.org/jsp/GASB/Document_C/GASBDocumentPage?cid=1176164132053&acceptedDisclaimer=true
[v] Proposed Statement of the Governmental Accounting Standards Board - Accounting and Financial Reporting for Pensions and Financial Reporting for Pension Plans that are Not Administered through Trusts That Meet Specified Criteria and Amendments to Certain Provisions of GASB Statements 67 and 68 (May 28, 2014), Governmental Accounting and Standards Board, P. 5, Retrieved November 14th, 2014 from: http://www.gasb.org/jsp/GASB/Document_C/GASBDocumentPage?cid=1176164132053&acceptedDisclaimer=true p. 5
[vi] Proposed Statement of the Governmental Accounting Standards Board - Accounting and Financial Reporting for Pensions and Financial Reporting for Pension Plans that are Not Administered through Trusts That Meet Specified Criteria and Amendments to Certain Provisions of GASB Statements 67 and 68 (May 28, 2014), Governmental Accounting and Standards Board, P. 6, Retrieved November 14th, 2014 from: http://www.gasb.org/jsp/GASB/Document_C/GASBDocumentPage?cid=1176164132053&acceptedDisclaimer=true
[vii] Proposed Statement of the Governmental Accounting Standards Board - Accounting and Financial Reporting for Pensions and Financial Reporting for Pension Plans that are Not Administered through Trusts That Meet Specified Criteria and Amendments to Certain Provisions of GASB Statements 67 and 68 (May 28, 2014), Governmental Accounting and Standards Board, P. 7, Retrieved November 14th, 2014 from: http://www.gasb.org/jsp/GASB/Document_C/GASBDocumentPage?cid=1176164132053&acceptedDisclaimer=true
[viii] Proposed Statement of the Governmental Accounting Standards Board - Accounting and Financial Reporting for Pensions and Financial Reporting for Pension Plans that are Not Administered through Trusts That Meet Specified Criteria and Amendments to Certain Provisions of GASB Statements 67 and 68 (May 28, 2014), Governmental Accounting and Standards Board, P. 8, Retrieved November 14th, 2014 from:  http://www.gasb.org/jsp/GASB/Document_C/GASBDocumentPage?cid=1176164132053&acceptedDisclaimer=true
[ix] Proposed Statement of the Governmental Accounting Standards Board - Accounting and Financial Reporting for Pensions and Financial Reporting for Pension Plans that are Not Administered through Trusts That Meet Specified Criteria and Amendments to Certain Provisions of GASB Statements 67 and 68 (May 28, 2014), Governmental Accounting and Standards Board, P. 8, Retrieved November 14th, 2014 from: http://www.gasb.org/jsp/GASB/Document_C/GASBDocumentPage?cid=1176164132053&acceptedDisclaimer=true
[x] Proposed Statement of the Governmental Accounting Standards Board - Accounting and Financial Reporting for Pensions and Financial Reporting for Pension Plans that are Not Administered through Trusts That Meet Specified Criteria and Amendments to Certain Provisions of GASB Statements 67 and 68 (May 28, 2014), Governmental Accounting and Standards Board, P. 8, Retrieved November 14th, 2014 from: http://www.gasb.org/jsp/GASB/Document_C/GASBDocumentPage?cid=1176164132053&acceptedDisclaimer=true
[xi] Proposed Statement of the Governmental Accounting Standards Board - Accounting and Financial Reporting for Pensions and Financial Reporting for Pension Plans that are Not Administered through Trusts That Meet Specified Criteria and Amendments to Certain Provisions of GASB Statements 67 and 68 (May 28, 2014), Governmental Accounting and Standards Board, P. 10, Retrieved November 14th, 2014 from: http://www.gasb.org/jsp/GASB/Document_C/GASBDocumentPage?cid=1176164132053&acceptedDisclaimer=true
[xii] Proposed Statement of the Governmental Accounting Standards Board - Accounting and Financial Reporting for Pensions and Financial Reporting for Pension Plans that are Not Administered through Trusts That Meet Specified Criteria and Amendments to Certain Provisions of GASB Statements 67 and 68 (May 28, 2014), Governmental Accounting and Standards Board, P. 10, Retrieved November 14th, 2014 from: http://www.gasb.org/jsp/GASB/Document_C/GASBDocumentPage?cid=1176164132053&acceptedDisclaimer=true
[xiii] Proposed Statement of the Governmental Accounting Standards Board - Accounting and Financial Reporting for Pensions and Financial Reporting for Pension Plans that are Not Administered through Trusts That Meet Specified Criteria and Amendments to Certain Provisions of GASB Statements 67 and 68 (May 28, 2014), Governmental Accounting and Standards Board, P. 10, Retrieved November 14th, 2014 from:  http://www.gasb.org/jsp/GASB/Document_C/GASBDocumentPage?cid=1176164132053&acceptedDisclaimer=true
 [xiv] Proposed Statement of the Governmental Accounting Standards Board - Accounting and Financial Reporting for Pensions and Financial Reporting for Pension Plans that are Not Administered through Trusts That Meet Specified Criteria and Amendments to Certain Provisions of GASB Statements 67 and 68 (May 28, 2014), Governmental Accounting and Standards Board, P. 11, Retrieved November 14th, 2014 from:  http://www.gasb.org/jsp/GASB/Document_C/GASBDocumentPage?cid=1176164132053&acceptedDisclaimer=true
[xv] Proposed Statement of the Governmental Accounting Standards Board - Accounting and Financial Reporting for Pensions and Financial Reporting for Pension Plans that are Not Administered through Trusts That Meet Specified Criteria and Amendments to Certain Provisions of GASB Statements 67 and 68 (May 28, 2014), Governmental Accounting and Standards Board, P. 12, Retrieved November 14th, 2014 from: http://www.gasb.org/jsp/GASB/Document_C/GASBDocumentPage?cid=1176164132053&acceptedDisclaimer=true
[xvi] Proposed Statement of the Governmental Accounting Standards Board - Accounting and Financial Reporting for Pensions and Financial Reporting for Pension Plans that are Not Administered through Trusts That Meet Specified Criteria and Amendments to Certain Provisions of GASB Statements 67 and 68 (May 28, 2014), Governmental Accounting and Standards Board, P. 13, Retrieved November 14th, 2014 from:  http://www.gasb.org/jsp/GASB/Document_C/GASBDocumentPage?cid=1176164132053&acceptedDisclaimer=true
[xvii] Proposed Statement of the Governmental Accounting Standards Board - Accounting and Financial Reporting for Pensions and Financial Reporting for Pension Plans that are Not Administered through Trusts That Meet Specified Criteria and Amendments to Certain Provisions of GASB Statements 67 and 68 (May 28, 2014), Governmental Accounting and Standards Board, P. 14, Retrieved November 14th, 2014 from:  http://www.gasb.org/jsp/GASB/Document_C/GASBDocumentPage?cid=1176164132053&acceptedDisclaimer=true
[xviii] Proposed Statement of the Governmental Accounting Standards Board - Accounting and Financial Reporting for Pensions and Financial Reporting for Pension Plans that are Not Administered through Trusts That Meet Specified Criteria and Amendments to Certain Provisions of GASB Statements 67 and 68 (May 28, 2014), Governmental Accounting and Standards Board, P. 15 Retrieved November 14th, 2014 from:  http://www.gasb.org/jsp/GASB/Document_C/GASBDocumentPage?cid=1176164132053&acceptedDisclaimer=true
[xix] Proposed Statement of the Governmental Accounting Standards Board - Accounting and Financial Reporting for Pensions and Financial Reporting for Pension Plans that are Not Administered through Trusts That Meet Specified Criteria and Amendments to Certain Provisions of GASB Statements 67 and 68 (May 28, 2014), Governmental Accounting and Standards Board, P. 17, Retrieved November 14th, 2014 from:  http://www.gasb.org/jsp/GASB/Document_C/GASBDocumentPage?cid=1176164132053&acceptedDisclaimer=true
[xx] Summary of Statement No. 68 - Accounting and Financial Reporting for Pensions – An Amendment of GASB Statement No. 27 (June 2012), Governmental Accounting and Standards Board, P. 34, Retrieved November 17th, 2014 from:  http://www.gasb.org/jsp/GASB/Pronouncement_C/GASBSummaryPage&cid=1176160219492
[xxii] Proposed Statement of the Governmental Accounting Standards Board - Accounting and Financial Reporting for Pensions and Financial Reporting for Pension Plans that are Not Administered through Trusts That Meet Specified Criteria and Amendments to Certain Provisions of GASB Statements 67 and 68 (May 28, 2014), Governmental Accounting and Standards Board, P. 34, Retrieved November 14th, 2014 from:  http://www.gasb.org/jsp/GASB/Document_C/GASBDocumentPage?cid=1176164132053&acceptedDisclaimer=true
[xxiii] Proposed Statement of the Governmental Accounting Standards Board - Accounting and Financial Reporting for Pensions and Financial Reporting for Pension Plans that are Not Administered through Trusts That Meet Specified Criteria and Amendments to Certain Provisions of GASB Statements 67 and 68 (May 28, 2014), Governmental Accounting and Standards Board, P. 35, Retrieved November 14th, 2014 from:  http://www.gasb.org/jsp/GASB/Document_C/GASBDocumentPage?cid=1176164132053&acceptedDisclaimer=true  
[xxiv] Proposed Statement of the Governmental Accounting Standards Board - Accounting and Financial Reporting for Pensions and Financial Reporting for Pension Plans that are Not Administered through Trusts That Meet Specified Criteria and Amendments to Certain Provisions of GASB Statements 67 and 68 (May 28, 2014), Governmental Accounting and Standards Board, P. 53, Retrieved November 14th, 2014 from:  http://www.gasb.org/jsp/GASB/Document_C/GASBDocumentPage?cid=1176164132053&acceptedDisclaimer=true
[xxv][xxv] Proposed Statement of the Governmental Accounting Standards Board - Accounting and Financial Reporting for Pensions and Financial Reporting for Pension Plans that are Not Administered through Trusts That Meet Specified Criteria and Amendments to Certain Provisions of GASB Statements 67 and 68 (May 28, 2014), Governmental Accounting and Standards Board, P. 53, Retrieved November 14th, 2014 from:  http://www.gasb.org/jsp/GASB/Document_C/GASBDocumentPage?cid=1176164132053&acceptedDisclaimer=true  

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