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.
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.
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
[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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