The Nuts and Bolts of GASB 68 Implementation

1. The Nuts and Bolts of GASB 68 Implementation Dave DeJonge Assistant Executive Director, PERA

2. Agenda • GASB 68—Key Concepts • GASB 71 • Audit Issues • Fire Relief Associations

3. GASB 68 Replaces GASB Statements 27 & 50 Effective for fiscal years beginning after June 15, 2014 Early implementation is discouraged!

4. Why are the Standards Changing? • GASB 27 issued in 1994 • GASB 34—Government-Wide Financial Statements using Accrual Accounting • Concepts Statement No. 4—Defined “Liability” • Survey of Financial Statement Users • Transparency, Accountability, Comparability

5. Fundamental New Approach by GASB • Pension expenses tied to when the services are rendered, not when paid • Pension costs no longer tied to funding • Employers are primarily responsible forthe unfunded pension obligation • Employers need to book their proportional share of PERA’s unfunded liability as a liability on their government-wide financials

6. Total Pension Liability (TPL) • Calculated annually by PERA’s actuary, similar to actuarial accrued liability • Defined in GASB 67 as the portion of the actuarial present value of projected benefit payments that is attributed to past periods of service but reflects • Anticipated benefit increases • Projected salary growth • Projected future service • No anticipation for future members • Likely uses a lower discount rate

7. Pension Plan’s Fiduciary Net Position • Pension plan’s net assets at fair value (GASB 63) • Calculated annually by PERA’s accounting staff • Determined using the same valuation methods used by the pension plan for purposes of preparing its statement of fiduciary net position

8. Net Pension Liability (NPL) • Equal to PERA’s Total Pension Liability (TPL) minus PERA’s Fiduciary Net Position (similar to unfunded actuarial accrued liability) • Measured as of June 30 annually • Proportionate share of the NPL is reported on the employer’s Statement of Net Position • Similar to Unfunded OPEBObligation (GASB 45) TPL - FNP = NPL

9. Proportionate Share • The NPL will be allocated to all of PERA’s employers and included as a liability on the government-wide financial statements • Allocation methodology should be representative of future contribution effort of the employer • GASB allows allocation to be based on past contributions • GASB does not specify who calculates the proportionate share

10. Proportionate Share • AICPA White Paper recommends having the pension plan calculate proportionate share • PERA’s allocation method will be based on employer’s contributions paid to PERA in relationship to all employer contributions received.

11. Proportionate Share

12. Proportionate Share Some contributions will be excluded from the allocation because they do not reflect future contribution effort.

13. Proportionate Share

14. Proportionate Share

15. Proprietary/Fiduciary Funds • Should the NPL be allocated to other statements prepared on an accrual basis? • No allocation requirements in GASB 68 • NCGA Statement 1, paragraph 42--long-term liabilities should be reported in statement of net position (fiduciary net position) if: • Amount is material • Liability is directly related to the fund • Liability is expected to be paid from the fund

16. Measurement datemeasurement period

17. Measurement Date • Date at which PERA’s liabilities and assets are valued to determine the Net Pension Liability (NPL) • June 30 annually • Employers choose appropriate Measurement Date for reporting purposes • Measurement date must be no earlier than the end of the employer’s prior fiscal year, consistently applied from period to period

18. Measurement Period • Period of time from one measurement date to the next, during which pension costs are calculated • PERA’s fiscal year (July 1 – June 30) June 30, 2017 June 30, 2016 June 30, 2015 June 30, 2014

19. Scenario 1 Reporting Date = December 31, 2015 Measurement Date = ?? Measurement Date Measurement Date Employer’s Fiscal Year End (Reporting Date) Employer’s Prior Fiscal Year End June 30, 2015 December 31, 2014 December 31, 2015 June 30, 2014

20. Scenario 1 Reporting Date = December 31, 2015 Measurement Date = June 30, 2015 Measurement Period Measurement Date Measurement Date Employer’s Fiscal Year End (Reporting Date) Employer’s Prior Fiscal Year End June 30, 2015 December 31, 2014 December 31, 2015 June 30, 2014

21. Scenario 2 Reporting Date = June 30, 2015 Measurement Date = June 30, 2015 Measurement Period Employer’s Fiscal Year End (Reporting Date) Employer’s Prior Fiscal Year End Measurement Date Measurement Date Measurement Date June 30, 2013 June 30, 2014 June 30, 2015

22. Annual Timeline • June 30—Fiscal year end (Measurement Date) • August—Census and asset data sent to actuary • November—Actuarial valuations finalized • December 1—PERA prepares GASB schedules • December—Auditor audits schedules • December 31—PERA publishes GASB Schedules

23. Scenario 2 Reporting Date = June 30, 2015 Measurement Date = June 30, 2014 Measurement Period Employer’s Fiscal Year End (Reporting Date) Employer’s Prior Fiscal Year End Measurement Date Measurement Date Measurement Date June 30, 2013 June 30, 2014 June 30, 2015

24. Pension expense & deferred amounts

25. Pension Expense • GASB 27 • Employer contributions made during employer’s fiscal year • Easy to calculate • Easy to audit

26. Pension Expense • GASB 68 • Tied to when pension liability is incurred (services are rendered), not when it is funded • Change in NPL during measurement period +/- deferrals • Calculated by PERA’s actuary • Will likely be volatile from year to year • May be a negative expense (revenue) • Can’t be calculated by employers

27. Pension Expense • Expensed immediately: • Current period service cost (normal cost) • Interest on the beginning total pension liability • Impact of changes in benefit provisions/terms • Projected earnings on plan investments • Other changes in plan fiduciary net position other than employer contributions or benefit payments (e.g., employee contributions, admin costs)

28. Deferred Inflows/Outflows • Differences between expected and actual experience with economic & demographic factors (actuarial gains and losses during the year): • Mortality • Payroll Increases • Retirements • Employee Turnover

29. Deferred Inflows/Outflows • Effect of changes in assumptions about future economic and demographic factors (usually as a result of an experience study): • Discount Rate • Mortality Tables • Future Payroll Increases • Future Inflation Rate • Retirements • Employee Turnover

30. Deferred Inflows/Outflows • Differences between actual and projected earnings on plan investments. • Net effect of a change in the employer’s proportional share.

31. Pension Expense Change in NPL during measurement period +/- deferrals

32. Pension Expense

33. Schedule of Pension Amounts

34. Expenses/Deferrals

35. Expenses/Deferrals

36. Expenses/Deferrals

37. Expenses/Deferrals

38. Deferred Balances

39. Deferred BalancesFootnote Disclosure

40. Scenario 1 Employer contributions paid to PERA between the Measurement Date and Reporting Date are Deferred Outflows of Resources, not expenses. Measurement Period Measurement Date Measurement Date Employer’s Fiscal Year End (Reporting Date) Employer’s Prior Fiscal Year End ER Contrib June 30, 2015 December 31, 2014 December 31, 2015 June 30, 2014

41. Future ExpensesFootnote Disclosure This schedule will indicate when the accumulated deferred amounts are scheduled to be expensed.

42. Other note disclosures and RSI schedules

43. Footnote Disclosures • GASB 68 • Separate disclosures for each plan • Extensive note disclosures, including: • Description of benefits (terms, policies and authority) • Contribution requirements (rates, basis and authority) • Actuarial assumptions and discount rate used to measure total pension liability • Changes in actuarial assumptions • Investment information (asset allocation, rates of return for each asset class)

44. Footnote Disclosures • GASB 68 footnote disclosures (contd.) • Employer’s share and percentage of the NPL • Balances of deferred inflows and outflows • NPL using discount rate of +/- one percentage point • Information required will be provided by PERA

45. Footnote Disclosures

46. Footnote Disclosures

47. Footnote Disclosures

48. Footnote Disclosures

49. Required Supplementary Information (RSI) • GASB 27—None required • GASB 68—2 new 10-year schedules required • Schedule of Proportionate Share of the NPL • Schedule of Employer Contributions • Separate schedule for each plan • Notes to RSI will include significant changes in actuarial assumptions, benefit provisions, etc. that affect the identification of trends in RSI schedules.

50. Schedule of Proportionate Share of the NPL CITY’S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY PERA General Employees Retirement Fund Last 10 Fiscal Years* (Dollar amounts in thousands) 6/30.