Presentation Transcript

1. Florida Government Finance Officers Association Nature Coast Chapter Citrus Hills Golf & Country Club April 16, 2014

   The Devil’s in the Details(GASB 67 & 68)

   Presented By: James J. Rizzo Piotr Krekora Gabriel, Roeder, Smith & Company Jim.Rizzo@gabrielroeder.com Piotr.Krekora@gabrielroeder.com
2. Who is this Guy? “The budget should be balanced, the treasury should be refilled, the public debt should be reduced and the arrogance of public officials should be controlled.” “If you see a snake, just kill it - don't appoint a committee on snakes.” “The devil is in the details.”
3. Get Ready for GASB 67 and 68 !!! No more procrastinating ! Think ahead ! Get your tools in place ! He who hesitates is __________ !
4. Lions and tigers and bears! Oh my! Throw away everything you knew about Pension Accounting! Nothing is the same.
5. Accountants in GASB-land! “It would seem so nice if something would make sense for a change.” “Speak English! I don’t know the meaning of half those long words, and I don’t believe you do either!” “There is a place like no other place on earth. A land of wonder, mystery and danger! Some say to survive it you have to be as mad as a hatter, which luckily I am.”
6. Agenda Effective Dates Scope High-level View Timing and Linkage Puzzles Pension Expense Deferred Outflows and Inflows of Resources GASB Note Disclosures Nudges Cost-sharing Employers We will not be able to cover everything. No surprise there! But we’ll leave some Q&A time.
7. Effective Dates GASB Statement No. 67 is effective for fiscal years beginning after June 15, 2013 (mostly for 2014 year-ends) GASB Statement No. 68 is effective for fiscal years beginning after June 15, 2014 (mostly for 2015 year-ends) Myth: Plans’ financial statements (FS) implement for their 2014 year-end Employers’ financial statements (FS) implementfor their 2015 year end
8. Effective Dates – This May Surprise You If plan issues a stand-alone GAAP-basis financial statement (FS): GASB 67 will be implemented in the plan’s 2014 FS But if an employer’s GAAP-basis 2014 FS presents the plan as a fiduciary fund, then include any GASB 67 disclosures “essential to a fair presentation”, along with its GASB 27 compliance If plan does not issue a stand-alone GAAP-basis FS: And if an employer’sGAAP-basis 2014 FS presents the plan as a fiduciary fund, then include all GASB 67 disclosures along with its GASB 27 compliance Paragraph 5, Footnote 9 and 11 of GASB 67, Q&A 2 of GASB 67 IG, and GASB 14
9. Scope Counties, Cities, School Districts, Tax Districts, etc. Employees in FRS, in one or more single employer plans, in both In Special Funding Situations (contributions for pension benefits of non-employees) Component Units Some issue their own GAAP-basis FS. Some might not. If they do and if they have employees participating in pension plans, their FS will need to include GASB 68 recognition and disclosures. County Constitutional Offices Do not, generally, issue GAAP-basis FS; i.e., no long-term liabilities, etc.
10. Scope Defined benefit pension plans Massive changes from GASB 27 Defined contribution plans Very little change from GASB 27 Cost-sharing plans FRS Other plans that cover a couple separate employers Single employer plans Local plans for police, fire and general employees OPEB Not yet - scheduled for FYE 2018
11. High-level View The Net Pension Liability (NPL) is the new, different, much larger and volatile balance sheet liability – it is the entire Unfunded Actuarial Accrued Liability NPL = Total Pension Liability (TPL)minus Plan’s Fiduciary Net Position (PFNP) (aka fair value of plan assets) TPL is calculated using only one actuarial cost method, to achieve better comparability
12. High-level View Total Pension Liability (TPL) = Actuarial Accrued Liability (AAL) determined under the traditional Entry Age normal (EA) actuarial cost method Not the so-called Ultimate EA cost method Not the Frozen Entry Age or Frozen Initial Liability cost method Not the Aggregate cost method Not the Projected Unit Credit cost method
13. High-level View Pension Expense (PE) is “based on” the change in the NPL from one year to the next There are many reasons for the NPL changing from one year to the next There are many different components of the change in NPL from one year to the next; and different components are treated differently
14. High-level View NPL = TPL minus PFNP The total change in NPL is separated into: Changes in the TPL from one year to the next and Changes in the PFNP from one year to the next
15. High-level View Liabilities: Net Pension Liability (NPL), Short-term payables for legally or contractually required contributions, and Long-term liabilities for pension-related debt Deferred outflows of resources (appears below assets): Unrecognized portions of expense charges Deferred inflows of resources (appears below liabilities): Unrecognized portions of expense credits
16. Timing and Linkage Puzzles Dates to consider: Valuation Date Measurement Date Reporting Date Periods to consider: Valuation Year Measurement Period Reporting Period Reporting entities to consider: Plan’s FS reporting Employer’s(s’) FS reporting
17. Timing and Linkage Puzzles Three Dates and three Periods for at least two Reporting entitiesall need to be linked together in a manner that: Cooperates with (or dictates) the needs and deadlines of the plan’s FS preparers and auditors Cooperates with (or dictates) the needs and deadlines of the employer’s FSpreparers and auditors Coordinates with (or dictates) the needs and deadlines of the actuaries If not yet worked out for each plan, it may need to be one of the first things to get settled with actuaries, preparers and auditors for efficient project management.
18. PlanReporting Timing and Linkage Timing/Linkage A (No Roll-forward) Downside: Big timing challenges for doing all funding and accounting calculations 9/30/14 9/30/13 Upside: More current TPL calc’d, all at once Timing/Linkage B (With Roll-forward) Downside: Update AAL for actual benefits and significant changes Upside: Obtain a preliminary TPL early Roll-forward
19. Plan Reporting (1st Year Only)To obtain a TPL for BOY Timing/Linkage A (No Roll-forward) AAL0=TPL0 TPL0 (after rolling back) is the TPL for BOYin the RSI Schedule(Q&A 99 GASB 67) Roll-back 9/30/13 9/30/14 Timing/Linkage B (With Roll-forward) TPL0 (before rolling forward) is the TPL for BOYin the RSI Schedule Roll-forward
20. Plan Reporting (2nd Year) RD2 Timing/Linkage A (No Roll-forward) MD2 TPL2 VD2(AAL2=TPL2) 9/30/14 9/30/13 RD2 Timing/Linkage B (With Roll-forward) MD2 TPL2 VD2 AAL2 Roll-forward Roll-forward
21. EmployerCAFR Timing and Linkage Now for the NPL on the Employer’s balance sheet Recall the timing and linkage for the Plan’s FS No Roll-forward (same $) 9/30/14 9/30/15 10/1/13 Employer’s Balance Sheet NPL1 TPL1-PFNP1=NPL1 Employer’s RD1 Timing/Linkage B (With Roll-forward) Roll-forward
22. Employer CAFR Timing and Linkage Now what about the employer’s pension expense? Recall, it’s based on the changebetween two NPLs No Roll-forward (same $) DETERMINES Change in NPL (During Measurement Period) Employer’s Pension Expense (During Reporting Periods) 9/30/15 9/30/14 10/1/13 Timing/Linkage Employer’s RD1 Change in NPL from 9/30/13’s NPL to the9/30/14’s NPL (their MDs) forms the basis for the employer’s CAFR pension expense for ye 9/30/15 RD
23. Pension Expense Recall the change in NPL drives the pension expense Under GASB 27, the pension expense (the ARC and APC) was determined first and drove the balance sheet liability (the NPO) Under GASB 68, the balance sheet liability (NPL) comes first and drives the pension expense (PE) There is much focus on the change in NPL from period to period That change forms the basis for the employer’s pension expense That change in presented in a schedule in the Notes and RSI
24. Pension Expense Immediate recognition in PE of all types of changes in the NPL except: * Other methods are permitted, but straight-line amortization of principal is expected to be the rule rather than the exception; delayed recognition will result in layered amortization bases.
25. Deferred Outflows and Inflows The portion of NPL changes that are notyet recognized in pension expense are set up and added to: A deferred outflows of resources account (DOR) or A deferred inflows of resources account (DIR) DOR/DIR accounts are established (or added to) whenever any one or more of these three types of changes in NPL occur
26. Deferred Outflows and Inflows Each year DOR amounts (if any) will be recycled out and charged to pension expense DIR amounts (if any) will be recycled out and credited to pension expense DOR/DIR-related pension expense charges and credits come from either: The portion of a current year’s NPL change that is recognized in the first year A portion of previous years’ NPL changes that had not yet been fully recognized
27. GASB Note Disclosure Nudges There are disclosure requirements that some consider nudges, but here are my four: Nudge 1: Dates of experience studies for significant assumptions Nudge 2: Price inflation assumption Nudge 3: Long-term expected rate of return assumption And a description of how it was determined, Including significant methods and assumptions used
28. GASB Note Disclosure Nudges Nudge 4: For each major asset class: The asset allocation and the expected real rate of return (before price inflation) net of investment expenses and whether they are arithmetic or geometric expectations. Geometric version is more appropriate for pensions and is approximately 50 bps to 150 bps less than arithmetic
29. GASB Note Disclosure Nudges Nudge 4 Table: Users will check out your LTeROR against your table They’ll multiply the two columns together and get 4.98% They’ll add your price inflation of 2.4% back in and get 7.38% Should be lower for geometric expected means
30. Cost-sharing Employers Employers with employees in FRS pension program Employers that contribute to a pension plan that covers employees of more than one employer FRS’s total collective PE, NPL, DOR and DIR will need to be allocated to each participating employer (and their component units) based on the participating entity’s proportionate share of either: Actual contributions, or Long-term contribution effort (e.g., actuarial present value of future contributions)
31. Cost-sharing Employers Additional entries will need to be made by the employer for contributions made after the measurement date Hopefully, FRS will provide you with a package each year Containing all you need to make all your required entries and note disclosures In time for you to prepare your annual CAFR and audit But don’t hold your breath
32. Cost-sharing Employers Timing may be an issue for counties and any other participating employers with a September 30 year end Here’s why: Consider the 9/30/15 implementation year Per GASB 68, measurement date (assets and liabilities) must be anywhere from 9/30/14 through 9/30/15 FRS currently values assets and liabilities each 6/30 Using a measurement date of 6/30/14 will be too early Using a measurement date of 6/30/15, All their work and package to employers will not likely be completed by 9/30/15 And may not be completed in time for employers to prepare their CAFR and audit by the due date They might consider a second measurement date, but expensive
33. Cost-sharing Employers Audits may be an issue for all participating employers Local auditor education AICPA’s recent White Paper relating to Information for Employer Reporting http://www.aicpa.org/InterestAreas/GovernmentalAuditQuality/Resources/gasbmatters/DownloadableDocuments/AICPASLGEP_CS_ER_Reporting_Whitepaper.pdf AICPA’s recent White Paper relating to Plan Reporting and Testing Census Data http://www.aicpa.org/interestareas/governmentalauditquality/resources/gasbmatters/downloadabledocuments/aicpaslgep_cs_census_data_whitepaper.pdf AICPA will soon release four auditing interpretations
34. Cost-sharing Employers FRS’s auditor may need to express an opinion on a schedule prepared by FRS as of the measurement date showing employer proportionate share allocations of the collective PE, NPL, DOR and DIR Testing the census data of participating employerswill be an issue For the FRS auditor And possibly for the participating employer’s auditor
35. Cost-sharing Employers For more information view KPMG archived webcast on this subject: http://www.kpmginstitutes.com/government-institute/events/critical-issues-in-implementing-gasb-pension-standards.aspx A few weeks ago, the GASB considered and deliberated whether to delay the effective date of GASB 68 due to requests from major preparer and auditor organizations and from others The GASB decided not to delay the effective date.
36. Single Employer Plans These audit issue may come into play on a smaller scale, but problematic nonetheless, for single employer plans for which: One auditor opines on the plan’s standalone financial statement Another auditor opines on the single employer’s financial statement
37. Disclaimers Circular 230 Notice: Pursuant to regulations issued by the IRS, to the extent this presentation concerns tax matters, it is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) marketing or recommending to another party any tax-related matter addressed within. Each taxpayer should seek advice based on the individual’s circumstances from an independent tax advisor. This presentation shall not be construed to provide tax advice, legal advice or investment advice. Readers are cautioned to examine original source materials and to consult with subject matter experts before making decisions related to the subject matter of this presentation. This presentation does not necessarily express the views of conference sponsor, nor Gabriel, Roeder, Smith & Company, and may not even express the views of the speaker.
38. Thank you to David Kausch and Paul Zorn who checked and peer reviewed parts of this presentation. Acknowledgement
39. QuestionsandAnswers ?