Pat Robertson Executive Director September 2014

1. Pat Robertson Executive Director September 2014 GASB Pension Standards Update

2. A Look at PERS of MS • Mississippi’s only state-sponsored retirement system • Governmental defined benefit plan qualified under Section 401(a) of the Internal Revenue Code • Established by state Legislature in 1952 to provide benefits to eligible Mississippi public employees working for state agencies, universities, community colleges, and public schools, as well as counties, cities, and other participating political subdivisions.

3. A Look at PERS of MS • Plans Include: • Public Employees’ Retirement System • Mississippi Highway Safety Patrol Retirement System • Municipal Retirement Systems – 19 Systems • Supplemental Legislative Retirement • Mississippi Government Employees’ Deferred Compensation Plan & Trust • Current Statistics – June 30, 2014: • 886 employers • 291,073 members • 97,044 retirees • $25.3 billion in assets • Annual Payroll • $2.03 billion

4. GASB Accounting Standards • GASB Statement No. 67, Financial Reporting for Pension Plans, amends Statement 25 • Effective for fiscal years beginning after June 15, 2013 • GASB Statement No. 68, Accounting and Financial Reporting for Pensions, amends Statement 27 for employers • Effective for fiscal years beginning after June 15, 2014 • GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date, clarifies Statement 68 • Apply simultaneously with Statement 68 • Statements and Implementation Guides available at www.gasb.org

5. Key Concepts • Pensions are part of the exchange between employees and employers • Promised benefits are part of the total compensation package for employees • The employer is obligated to provide benefits as a result of the employment exchange • The cost should be recognized in the current service period • The plan is responsible for assets • The employer is responsible for benefit promises beyond those covered by assets

6. GASB’s Defined Benefit Plan Categories • Single-employer DB plan • Provides pensions to employees of one employer • Agent multiple-employer DB pension plan • Provides pensions to employees of more than one plan • Assets are pooled but separate accounts are maintained • Employer’s share of assets legally available for its own employees • Cost-sharing multiple-employer DB pension plan • Provides pensions to employees of more than one employer • Employers pool obligations • Assets used for benefits of any employee

7. Total Pension Liability • Determined using Entry Age normal cost method • Use single discount rate if contributions and assets not sufficient to pay projected benefits • Long-term expected rate – Use to extent projected plan fiduciary net assets are sufficient to pay future benefits • Municipal bond index rate – Use for portion of future benefits not covered by projected fiduciary net assets • If both rates used, combine to form a blended single discount rate

8. Plan Fiduciary Net Position • Assets held by the plan including contributions and investment assets • FNP is the responsibility of the plan administrator

9. Net Pension Liability TPL – FNP = NPL

10. Pension Expense • Recognition of changes to NPL applicable to the current reporting period: • Service cost – Increases PE • Interest on the TPL – Increases PE • Projected investment earnings – Decreases PE • Member contributions – Decreases PE • Administrative costs – Increases PE • Changes in benefit terms affecting TPL – Increases or decreases PE • Current portion of deferred outflows/inflows of resources – Increases or decreases PE

11. Deferred Outflows/Inflows of Resources • Recognized over average expected remaining service lives of actives and inactives: • Actual versus expected demographic factors – actuarial experience • Changes in assumptions • For cost-sharing employers: • Actual versus proportionate share of contributions – Not necessary when actual contributions are used as the basis for proportional share • Change in employer proportion from one measurement period to the next • Recognized over a closed 5-year period • Actual versus projected investment earnings • Layers must be tracked

12. Example: Schedule of Plan Pension Amounts by Employer

13. Transition Planning • Collective amounts to be provided by the plan • Total pension liability • Fiduciary net position • Net pension liability • Pension expense • Deferred outflows/inflows of resources • Employer’s proportionate share • Basis for determination • Method of communicating with employers

14. GASB Proportionate Share Cost-Sharing System Example

15. Example Schedule of Collective Pension Amounts

16. Example Cost-Sharing Pension Plan Schedule of Pension Amounts for an Employer As of June 30, 2015 Pension Deferred Outflows of Resources - Current Year Deferred Inflows of Resources - Current Year Expense - CY Changes in Changes in Net Difference Proportion Net Difference Proportion Between and Differences Between and Differences Difference Projected Between Total Difference Projected Between Total Between and Actual ER Contributions Deferred Between and Actual ER Contributions Deferred Net Expected Investment Changes and Proportionate Outflows Expected Investment Changes and Proportionate Inflows Pension and Actual Earnings on of Share of ER of and Actual Earnings on of Share of ER of Pension Employer Liability Experience Investments Assumptions Contributions Resources Experience Investments Assumptions Contributions Resources Expense Total Plan $124,325,432 $1,206,453 $4,315,618 $3,860,253 - $9,382,324 $978,435 - - - $978,435 $5,243,245 City of Clayborne 40,909,408 324,143 1,136,045 1,037,150 - 2,497,338 262,881 - - - 262,881 1,194,448 Employer Developed Schedules

17. Employer Developed Schedules - Deferred Outflows

18. Example Cost-Sharing Pension Plan Schedule of Pension Amounts for an Employer As of June 30, 2015 Pension Deferred Outflows of Resources - Current Year Deferred Inflows of Resources - Current Year Expense - CY Changes in Changes in Net Difference Proportion Net Difference Proportion Between and Differences Between and Differences Difference Projected Between Total Difference Projected Between Total Between and Actual ER Contributions Deferred Between and Actual ER Contributions Deferred Net Expected Investment Changes and Proportionate Outflows Expected Investment Changes and Proportionate Inflows Pension and Actual Earnings on of Share of ER of and Actual Earnings on of Share of ER of Pension Employer Liability Experience Investments Assumptions Contributions Resources Experience Investments Assumptions Contributions Resources Expense Total Plan $124,325,432 $1,206,453 $4,315,618 $3,860,253 - $9,382,324 $978,435 - - - $978,435 $5,243,245 City of Clayborne 40,909,408 324,143 1,136,045 1,037,150 - 2,497,338 262,881 - - - 262,881 1,194,448 Employer Developed Schedules

19. Employer Developed Schedules - Deferred Inflows

20. Fiscal Year Ended: 6/30/2015 Employer: City of Clayborne Current Year Pension Expense Reported at the Plan Level Total Plan Employer Employer Pension Proportionate Share of Year Expense Share Expense 2015 $5,243,245 32.9051% $1,725,295 Summary Calculation of Total Employer Pension Expense: Employer Expense From Expense From Proportionate Deferred Deferred Share of Total Outflows Inflows Current Year Employer Year Recognized Recognized Pension Expense Pension Expense 2015 $59,074 $1,725,295 $1,194,448 <$589,921> Employer Developed Schedules – Pension Expense

21. Example Cost-Sharing Pension Plan Schedule of Pension Amounts for an Employer As of June 30, 2015 Pension Deferred Outflows of Resources - Current Year Deferred Inflows of Resources - Current Year Expense - CY Changes in Changes in Net Difference Proportion Net Difference Proportion Between and Differences Between and Differences Difference Projected Between Total Difference Projected Between Total Between and Actual ER Contributions Deferred Between and Actual ER Contributions Deferred Net Expected Investment Changes and Proportionate Outflows Expected Investment Changes and Proportionate Inflows Pension and Actual Earnings on of Share of ER of and Actual Earnings on of Share of ER of Pension Employer Liability Experience Investments Assumptions Contributions Resources Experience Investments Assumptions Contributions Resources Expense Total Plan $124,325,432 $1,206,453 $4,315,618 $3,860,253 - $9,382,324 $978,435 - - - $978,435 $5,243,245 City of Clayborne 40,909,408 324,143 1,136,045 1,037,150 - 2,497,338 262,881 - - - 262,881 1,194,448 Employer Developed Schedules

22. Timing and Frequency of Measurements • Reporting date – plan’s fiscal year-end • Measurement date – date as of which TPL, FNP and NPL are determined • Actuarial valuation date – date as of which TPL is determined and date of the actuarial valuation • Should be performed at least biennially

23. Timing and Frequency of Measurements • If valuation date is before the reporting date, TPL is rolled forward to the reporting date • Valuation can be no older than 30 months and 1 day from the employer’s fiscal year-end • Update procedures are used to roll forward to the measurement date • Use professional judgment to determine extent of procedures

24. Example of Roll Forward of Total Pension Liability Actuarial valuation date 6/30/2013 Roll forward TPL to 6/30/2014 measurement date: TPL 6/30/2013 $110,000 Plus service cost 5,200 Plus interest 7,900 Minus benefit payments (8,500) TPL 6/30/2014 $114,600 TPL minus the market value of assets at the measurement date (6/30/2014) is the NPL

25. Special Funding Situations • Non-employer is legally responsible for making contributions directly to the plan for employees of another entity and either of the following: • Contributions from the non-employer are not dependent on circumstances or events which are unrelated to pensions • The non-employer is the only entity with a legal obligation to make contributions • Does not include circumstances in which resources are provided to the employer

26. Auditing Considerations • Three Whitepapers were issued by the AICPA related to GASB 67 and 68 cost-sharing and single plans and participating employers • Governmental Employer Participation in Cost-Sharing Multiple-Employer Plans: Issues Related to Information for Employer Reporting • Single-Employer and Cost-Sharing Multiple-Employer Plans: Issues Associated with Testing Census Data in an Audit of Financial Statements • Governmental Employer Participation in Agent Multiple-Employer Plans: Issues Related to Information for Employer Reporting

27. Auditing Considerations Cost-Sharing Multiple-Employer Plans Testing of Underlying Census Data • Risk-based approach by plan auditor to select employers to test • Employer auditor may perform procedures under examination engagement in accordance with AT (Attest) section 101 • 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

28. Auditing Considerations Cost-Sharing Multiple-Employer Plans and Participants • Three interpretations to AU-C Sections have been issued by the AICPA • AU-C 500: Audit Evidence • AU-C 600: Audits of Group Financial Statements (Including the Work of Component Auditors) • AU-805: Special Considerations-Audits of Single Financial Statements and Specific Elements, Accounts, or Items of a Financial Statement

29. Auditing Considerations Cost-Sharing Multiple-Employer Plans AICPA Recommendations • Plan prepares “schedule of plan pension amounts by employer” for which plan auditor engaged to provide opinion • Supplemental schedule of plan pension amounts by employer includes net pension liability, deferred outflows/inflows of resources, and pension expense for each employer • Alternative to 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 plan financial statements • Employer auditor issues opinion on total of each of the four elements in accordance with AU-C 805

30. Auditing Considerations Agent Multiple-Employer Plans • Two Whitepapers • Governmental Employer Participation in Agent Multiple-Employer Plans: Issues Related to Information for Employer Reporting – Issued • Agent Multiple-Employer Plans: Issues Associated with Testing Census Data in an Audit of Plan Financial Statements • Issues and potential recommendations are more complex • Not yet available • Four Audit Interpretations • Not yet available

31. Issues Considered • We are currently working to resolve census data testing challenges • Working with the Mississippi State Audit Department, our independent accounting firm, our actuaries and the state as an employer • Issues of timing and meeting our CAFR release deadline • Use of a roll forward from a prior period in financial reporting. • Note disclosure for the plan under GASB 67 and the employers under GASB 27

32. Other Issues Considered • Excluding small immaterial pension plans from the plan and employer’s financial reports • Inquiries about allocating NPL to departmental financial statements • AICPA white paper regarding agent multiple-employer plans

33. Transition • Communications essential to successful implementation • MS PERS transition efforts • Employer eUpdate • Mississippi Implementation Work Group • Pension Standards Implementation Work Group • Communications with Users • Challenges for employers and public pension plans are many and time is here

34. GASB 67 Note Disclosure All Plans Plan DescriptionPlan Investments Name, type, board, members Investment policy authority Classes covered, authority Allocation requirements, greater than 5% Benefits, contributions, DROP Money weighted ROR

35. GASB 67 Note Disclosure Single and Cost-Sharing Plans Significant NPL ComponentsAssumptions Total pension liability Discount rate Fiduciary net position LT expected ROR overall and by asset class Net pension liability Sensitivity measures on discount rate + and – 1%

36. GASB 67 Required Supplementary Information (RSI) 10 Yr NPL & Change Actuarial Required In NPL Contributions 10 Yrs Beginning & ending TPL, NPL Required contributions Effects of underlying parts Actual contributions Revenue & expenses Difference, % of total payroll

37. GASB 68 Note Disclosure Single and Agent Plans Plan DescriptionAssumptions Name, type, terms, admin. All NPL assumptions Classes covered, benefits, LT expected ROR overall authority and by investment class No. participants and Sensitivity measure for contributions discount rate + and – 1%

38. GASB 68 Note Disclosure Single and Agent Employers Change in NPLOther Information Beginning & ending TPL, Measurement date of NPL, NPL changes from measurement date to reporting date Interest on TPL, difference in Makeup of deferred outflows/ expected & actual inflows of resources Contributions, benefits 5 year expected changes in deferred outflows/inflows

39. GASB 68 RSI Single and Agent Plans 10 Yr. NPL & Change In NPL10 Yr. Schedules of: Beginning & ending TPL, Actuarial contributions, NPL required & actual Interest on TPL, difference in Difference in above expected & actual Contributions, benefits Actual contributions as % of covered payroll

40. Questions?