GASB’S REVISED PENSION STANDARDS: What Arizona’s Governmental Employers Need for 2015DONNA MILLER, ARIZONA OFFICE OF THE AUDITOR GENERALNANCY BENNETT, ARIZONA STATE RETIREMENT SYSTEMLESLIE CLARK, ARIZONA PUBLIC SAFETY PERSONNEL RETIREMENT SYSTEM

AUGUST 6, 2015

Pension reporting revisions• Pension Plans—GASB Statement 67

• Financial statements unchanged• Note disclosures and RSI changes

• Employers—GASB Statements 68 & 71 • Pension amounts reported in F/S’s• More robust note disclosures and RSI changes

Arizona’s government pension plansDefined benefit pension plans:• Arizona State Retirement System (ASRS)• Public Safety Personnel Retirement System (PSPRS)• Correction Officer’s Retirement Plan (CORP)• Elected Officials Retirement Plan (EORP)

Defined benefit plan types

Defined benefit plan types

Cost-sharing

• Proportionate share of total liability

• Rational basis like contributions

• Fiduciary net position pooled and shared for benefits/expenses

Agent multiple-employer

• Each employer has separate account

• Distinct liability• Distinct fiduciary net

position

Arizona plans – at June 30, 2014

Employers Members(approximate)

ASRS Cost-sharing multiple-employer 690 544,780PSPRS Agent multiple-employer 255 32,170CORP* Agent multiple-employer 27 20,300EORP Cost-sharing multiple-employer 39 2,045

*Within CORP, there is a cost-sharing plan for the Administrative Office of the Courts, CORP-AOC. This will be discussed further as time permits.

GASB’s most popular revisionGASB Statement 68:Requires employer governments to report net pension liabilities (NPL) ….or net pension assets

NPL calculation

Total pension liability (TPL) minus

Plan assets (fiduciary net position)

What is the total pension liability?

Simple definition:

Estimated total pension benefit obligations at present value

Calculating TPL

Total pension liability (TPL)—calculation:

1. Project benefits (need census data)2. Discount benefits to present value3. Attribute present value to member’s

expected years of service

What is the NPL?

Estimated total unfunded pension benefit obligations at present value.

TPL – plan assets = NPL (could be NPA)

Why should employers report this liability?

Revisions—Pension expenseBefore GASB 68:

• Employer contributions equaled pension expense

• In all funds and activities• No pension liability

June 30, 2015Employer

Report Date

Pension measurement date—no earlier than employer’s prior fiscal year (12 months before)FY 2014 FY 2015

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12

6/30/2014Measurement

6/30/2015Report

June 30, 2014 Pension amounts

What employer pension amounts are reported?• ___________________________• ___________________________• ___________________________• ___________________________

Net pension liability/asset (NPL)

Pension expense

Deferred inflows of resources

Deferred outflows of resources

Which funds and activities are effected?

• ____________________________

• ____________________________

• ____________________________

Governmental activities—government-wide statementsBusiness-type activities—government-wide statementsProprietary fund statements: enterprise and internal service

Which line items are effected?Government-wide statements:

• ___________________________• ___________________________

• ___________________________

Noncurrent liabilities

Deferred inflows/outflows of resources

Expense activities like general government or public safety

Governmental fundsWhat about the General and other governmental funds?

• NO CHANGE—Employer contributions paid during the year remain expenditures

• New reconciling items between governmental funds and governmental activities

Allocation to proprietary funds• GASB 68 silent• 68 Implementation guide, Q 36• NCGA Statement 1, para. 42:

requires reporting long-term liabilities that are “directly related to and expected to be paid from” those funds

Statement of net positionWould a portion of NPL be due in a year?

Employer may decide to include

net pension liability line item

under noncurrent liabilities.

Deferred inflows/outflows• Differences in expected and actual (past) experience

—economic or demographic factors

• Changes of assumptions—future economic or demographic factors or other inputs

Note: These cannot be netted. Amortized over closed period equal to the remaining service lives of active/inactive employees.

Deferred inflows/outflows• Differences in projected/actual investment

earnings• Can be netted• Amortized over a closed 5-year period

• Employer contributions after measurement date reported as: ____________________________• Are these amortized? Why or why not?

Deferred outflows of resources related to pensions

Deferred inflows/outflowsCost-sharing plans only:• Changes in proportion and differences between

employer contributions and proportionate share of contributions

• Note: Cannot be netted. Amortized over closed period equal to the remaining service lives of active/inactive employees.

Statement of activitiesHow will employers allocate pension expense to

functions/programs?

State and Counties:

Universities/Colleges R/E Statement of changes:

Reconciliation: balance sheet to statement of net position

Choose one depending on NPL or NPA

Reconciliation: governmental funds R/E statement of changes to statement of activities

Note disclosures• Plan descriptions, terms,

assumptions, changes• Employer’s % of NPL• Deferred inflows/outflows balances• Discount rate sensitivity to NPL +/-

1%

Required supplementary information

10-year schedules:• Components of NPL• Contributions and related ratios• Transition—can present only those

years available

Auditor General Provided InformationAll plan types

• DRAFT reporting guideline (notes and RSI)• Counties• Community college districts• School districts

• Sample journal entries (cost-sharing plan)• Available at www.azauditor.gov

ASRS – Allocation schedule – J/E Example

For F/S note disclosure

ASRS – Allocation schedule – J/E Example

Estimated for example

Prior Period Adjustment NoteGovernmental

Activities

Beginning net position as previously reported at June, 30, 2014 $XXX,XXX,XXX

Prior period adjustment—implementation of GASB 68:Net pension liability (measurement date 2013)

Deferred outflows—employer contributions subsequent to the 2013 measurement date

Total prior period adjustment

Net position as restated, July 1, 2014 $ XX,XXX,XXX

($9,808,861)

555,723($9,253,138)

Prior Period Adjustment J/E

Debit Credit

Net position, prior year July 1, 2014Deferred outflow of resources related

to pensions—contributions subsequent to the 2013 measurement date

Net pension liability

$9,253,138

555,723

$9,808,861

Current Year Net Pension Liability, Pension Expense, and Deferred Amounts

Debit Credit

REVERSE: Prior-year net pension liabilityREVERSE: Deferred outflows for contributions subsequent to the 2013 measurement date (f/y 2014)

Pension expense

Deferred outflow of resources related to pensions— experience differences

Deferred inflow of resources related to pensions—differences between employer contributions/proportionate shares

Deferred inflow of resources related to pensions—net difference between projected and actual earning on pension plan investments

Noncurrent liability due in more than one year - net pension liability current year

$9,808,861

$555,723 490,876

433,276

161,290

1,490,795

8,525,205

Current Period Contributions

Debit Credit

Deferred outflow of resources related to pensions—contributions subsequent to the 2014 measurement date

Employee-related expenditures (fiscal year 2015)

$596,234

$596,234

Reconciliation of the balance sheet to the statement of net positionFund balances – governmental funds $XX,XXX,XXX

Amounts reported for governmental activities in statement of net position are different because:

Some liabilities, including net pension liability, are not due and payable in the current period and, therefore, are not reported in the funds Net pension liability

Deferred outflows and inflows of resources related to pensions are applicable to future periods and, therefore, are not reported in the funds

Deferred outflows related to pensions (experience difference and subsequent contributions)

Deferred inflows related to pensions

Net position of governmental activities $xx,xxx,xxx

(622,575)

(8,525,205)

1,029,510

(1,652,085)

Reconciliation of the statement of revenues and expenditures to the statement of activitiesNet change in fund balances – total governmental funds $XX,XXX,XXX

Amounts reported for governmental activities in statement of activities are different because:

Governmental funds report pension contributions as expenditures when made. However, in the statement of activities pension expense is the cost of benefits earned, adjusted for member contributions, the recognition of changes in deferred outflows and inflows of resources related to pensions, and investment experience. Contributions

Pension expense

Change in net position of governmental activities $xx,xxx,xxx

105,358$596,234

(490,876)

AICPA guidance• AICPA State and Local Government Audit Guide,

Pension Chapter 13 Best practice recommendations and solutions• Governmental employer participating in cost-sharing

multiple employer plans• Governmental employer participating in agent multiple

employer plans (includes census data)• Cost-sharing multiple employer plan testing of census data

AICPA guidance: Cost-sharing plans• Employer challenges

• Recognizing proportionate share of collective pension amounts

• Obtaining the information to support these amounts.

• Auditor challenge• Obtaining sufficient, appropriate evidence in order to

opine on financial statements

Plan Provided Information fromCost-sharing Plans

ASRS, EORP, CORP-AOC• Schedule of employer allocations• Schedule of pension amounts by employer• Audit report on schedules by plan’s external auditors• Plan auditors tested all members’ census data during plans’

financial statement audits

AICPA guidance: Agent plans• Employer challenge

• Obtaining the information to support pension amounts because accounting records are maintained by the plan

• Auditor challenge• Obtaining sufficient, appropriate evidence in order to

opine on financial statements

Plan Provided Information fromAgent Plans

PSPRS and CORP• Schedule of changes in fiduciary net position• Audit report on each employer’s FNP statement by plan’s

external audit• Plan actuaries will issue separate actuarial valuation reports

and a certification letter• Report on retired/inactive member census data

AICPA guidance: Agent plans• Separate actuarial valuation report specific to

each employer, and• Plan engages an auditor to issue:

• 1: a service organization controls 1 (SOC 1)Type 2 report on controls over census data, or

• 2: an examination engagement over selected management’s assertions related to census data.

For FY 2015

AICPA guidance: Census data Agent plans• Employer challenge

• Ensuring the census data (obtained from the plan/actuary) for active employees is accurate and complete.

• Auditor challenge•Testing the census data

Agent plan provided information•Census data elements relied on by PSPRS’ actuary:

•Gender•Date of birth•Salary•Years of service•Member contribution balance

ASRSInformation Provided to Employers by ASRS

Schedule of Pension Amounts by Employer* (as of June 30, 2014)• net pension liability• deferred inflows/outflows of resources• pension expense• will include NPL as of July 1, 2013

Schedule of Employer Allocations* (as of June 30, 2013 & 2014)• employer contributions and proportionate share

Schedules to be issued Spring 2015• will be audited by ASRS external auditors

*In accordance with AICPA SLGEP issued whitepaper pension series

ASRSInformation Provided to Employers by ASRS

Prior period adjustment • employers add contributions paid in fiscal year 2013-2014

Note disclosures to come from• Notes to schedules• ASRS June 30, 2014 CAFR • financial statement reporting guidelines from the Auditor General• AICPA recommended schedules

RSI to come from• ASRS June 30, 2014 CAFR – RSI Section• financial statement reporting guidelines from the Auditor General• AICPA recommended schedules

Public Safety Personnel Retirement System

There are four systems in the trust, two Agent Multiple-Employer Plans and two Cost-Sharing Plans•Agent Multiple-Employer Plans

• Public Safety Personnel Retirement System – PSPRS• Correction Officer’s Retirement Plan – CORP

•Cost-Sharing Plans • Correction Officer’s Retirement Plan – Administration of the

Courts– CORP-AOC• Elected Officials’ Retirement Plan - EORP

Public Safety Personnel Retirement System

Agent Multiple-Employer Plans • Census data is available on the Employer Portal

• https://members2.psprs.com/EmployerPayrolls/login.aspx

• Auditors finishing the following reports and when available will be on the Employer Portal • Individual Accounting Actuary Reports• Schedule of Changes in Fiduciary Net Position by Employer• Auditors Report• Crosswalk report – Accounting Actuary report – Schedule of Changes in

Fiduciary Net Position by Employer

Public Safety Personnel Retirement System

•Cost Sharing Plans • Census data is available on the Employer Portal

• https://members2.psprs.com/EmployerPayrolls/login.aspx

• Auditors finishing the following reports and when available will be on the Employer Portal • Schedule of Employer Allocations• Schedule of Pension Amounts by Employer• Schedule of Deferred Inflows/Outflows• Auditors Report• Crosswalk Report

Contact information:Leslie Clark

602-296-2523lclark@psprs.com

Questions or Comments?

Thank you for your attention!

Professional Practice Group email: ppg@azauditor.gov