Internal Audit Presentationjoint.csa1.com/docs/2015/Retirement__GASB-68-2015.pdfemployers in the...
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Head ‘em up.
Move ‘em
out….Retirement & GASB 68
Presented by:
Winston Truett, CPA
Alexander Thompson Arnold CPAs
Scott Blassingame, CPA, CPE
Central Service Association
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Today’s Presentation
More than you never wanted to know
about Pension Accounting and Auditing
and never intended to ask but are
forced to listen to again because of the
serious reality of GASB’s new Pension
Standards, and to get CPE.
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GASB Opening Thoughts
• Financial statement recognition and disclosures don’t create pension obligations; instead, they simply make existing obligations more transparent.
• Collectively, the changes in Statements 67, 68, and 71, represent major improvements in public pension reporting, and will make pensions more understandable and comparable.
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Issue #1 – The Main Issue
Net Pension Liability Reported on the
Statement of Net Position (Balance Sheet)
• Net Pension Liability (NPL)
Total pension liability (TPL) minus plan assets at market value (“plan net position”)
TPL uses new “blended” discount rate and “Entry age” cost method
Similar to Unfunded Actuarial Accrued Liability (UAAL) but using market assets, not “smoothed” assets
• NPL must be reported on the employer’s statement of net position
Currently, UAAL is reported in the Required Supplementary Information (RSI)
Currently, only the Net Pension Obligation (NPO) is reported on the balance sheet
Cumulative difference between annual required contribution (ARC) and actual contributions
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Issue #1
• A government participating in a cost-sharing plan would report a liability in its own financial statements that is equivalent to its proportionate share of the net pension liability of all the employers in the cost-sharing plan.
• Approach uses as a basis for allocation, the proportionate share of the total based on the employer’s contribution effort relative to that of all contributors.
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Issue #1: Journal Entry
Your Utility will need to make adjustments
for New Account Numbers in Chart of
Accounts (e.g. Deferred Outflows and
Inflows)
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Issue #1: Allocations
• Must allocate net pension liability,
pension expense, and deferrals to
Enterprise Funds and Departments or
Functions as applicable.
• Recommend using “contributions” as a
allocation measure but GASB does not
specify how to do the allocation so you
can use any logical method (e.g. covered
payroll).
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Issue #2: Auditing Census Data
The auditor must test the accuracy and
completeness of the census data provided
to the actuary.
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Issue #2: Auditing Census Data
Key census data
• Date of birth
• Gender (male or female)
• Date of hire or years of service/service credits
• Date of termination or retirement
• City/County Code
• Department Code
• Marital status
• Spouse date of birth
• Eligible compensation
• Employment status
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Immediate Expense Recognition
Expense recognition will be immediate for:
• Pension benefits earned during the reporting period
(service cost or normal cost)
• Interest cost on the total pension liability
• Changes in benefit terms that affect the total pension
liability
• Long-term expected rate of return on pension plan
investments
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Deferred Expense Recognition
• Expense would be deferred and recognized over a period equal to the average remaining service periods of active and inactive (including retirees) employees for:
o Differences between expected and actual changes in
economic and demographic factors
o Changes in assumptions about economic and
demographic factors
• Differences between actual and projected earnings
on plan investments would be deferred and
recognized as pension expense over a five-year
closed period.
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Cost Sharing Employers
For Tennessee, a good example will be the teachers of the LEAs.
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Defined Contribution Plans
• Carry forward of existing requirements.
• Governments would report an expense equal to the amount they are required to contribute for employee service each year and a liability equal to the difference, if any, between the required contribution and what the government actually contributes.
• Descriptive disclosures about the plan and its terms, and the method by which contributions to the plan are determined.
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Working
Example
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Other
OPEB is coming!!!!!!! The
liabilities will be much larger
than the Pension Liabilities.
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Pension Industry
Update
Scott Blassingame, CPA, CPE
Central Service Association
17
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Tennessee Pension Law Update
Requires TN Public Pension Plans to adopt a formal
funding policy that meets certain minimum actuarial
standards
The policy must be adopted for fiscal years beginning after
June 15, 2015. A copy of the policy is to be submitted to TN
Comptroller within 30 days of adoption.
The amortization period, mortality tables, discount rates,
etc, must meet minimum levels stated in the Act
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The Public Employee Defined Benefit Financial
Security Act of 2014 (Public Chapter 990)
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The Public Employee Defined Benefit Financial
Security Act of 2014 (Public Chapter 990)
Restricts Plans that are funded less than 60% from
making any benefit enhancements
Requires Public employers to pay the Actuarially
Determined Contribution amount annually or face
possible restrictions on receiving sales tax revenue
20
Tennessee Pension Law Update
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Enforceable Right and Cut Back Provisions
• The Act re-affirmed the case law provisions (Blackwell vs Shelby County) that created an enforceable right for TN public employees to pension benefits for all service years (past, present, and future).
• For employees hired on or after May 22, 2014, a political subdivision may freeze, suspend or modify benefits, employee contributions, plan terms and design on a prospective basis.
Tennessee Pension Law Update
The Public Employee Defined Benefit Financial
Security Act of 2014 (Public Chapter 990)
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Pension and Retirement Benefits: HB0249 and SB 0153
Qualified Domestic Relations Order (QDRO)
• Requires counties and cities to recognize a
Qualified Domestic Relations Order that directs the
county or city to allocate a portion of the member's
pension or retirement benefits to the member's
former spouse as part of a marital property
settlement.
• Sent to Governor for approval on May 8, 2015
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Tennessee Pension Law Update
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• When enrolling a participant, if they indicate that
they are married and do not name their spouse
as beneficiary, get the spouses approval in
writing.
• Use caution for Change of Beneficiary and
Election of Benefits forms… red flag if the
original spouse is not listed.
• Get copy of final divorce decree and property
settlement and look for any mention of spouses
rights to retirement benefits
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Solutions & Conclusions
• More work for everyone, but much
better reporting.
• Be preparing for OPEB! Discussion
should begin now.
• Together, we will make it through this
implementation process, and in a few
years this will no longer seem as
difficult or painful.
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Winston Truett, CPA
731.427.8571
Scott Blassingame, CPA, CPE
662.842.5962