Presenters: 

Employing an Effective Communications Strategy in Response to

GASB’s Pension Changes

• Moderator, Rich Harris, Denver Employees Retirement Plan• John Wicklund, Minnesota Teachers Retirement Association• Susan Barbieri, Minnesota Teachers Retirement Association

Click here to add titleone or two linesGASB 67 and 68

Communication Strategies

John Wicklund, Assistant Executive DirectorSusan Barbieri, Communications Officer

May 20, 2014

Presented by:

Many cities, counties and school districts participate in cost-sharing multiple-employer pension plans.

Governmental Accounting Standards Board (GASB) Statement 68

Effective for Comprehensive Annual Financial Reports for fiscal years ending June 30, 2015.

GASB: One year and counting

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Most GASB statements are implemented by employer unit finance offices, along with their external auditors.

The results are communicated to county commissions, city councils and school boards across the county – normally without much fanfare.

GASB Statement 68 promises to be a major exception.

GASB: One year and counting

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Pension reporting today: fairly simple

Most local units of government annually report employer contributions.

Operating expenses

Salary Xxx

Benefits Xxx

Travel Xxx

Supplies Xxx

Depreciation Xxx

Total operating expenses Xx,xxx

No assets (limited exceptions) No liabilities (limited exceptions)

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Pension reporting today: fairly simple

Footnote disclosure (GASB 27)

Description of the cost-sharing multiple-employer plan

Overview of benefits under the plan

Three recent fiscal years of employer contributions

Cross-reference to the plan’s website for further information

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GASB 67-68 accounting changes

New liability on the balance sheet may very well exceed the net assets currently reported by a local unit of government.

Pension expense will no longer consist of employercontributions.

Positive and negative experience at the state retirement system will flow through to the local income statements.

o Example: Poor investment year will be shared among all employers.

Many other footnotes and disclosures on pensions required.

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GASB 67-68 accounting changes

Governmental Accounting Standards Board (GASB) will dramatically alter accounting rules for pension funds and their sponsoring employers (school districts, cities, counties, state) starting in FY 2015.

GASB changes will:

o Make pension costs more prominent on employers’ financial statements – each entity’s share of the PERA and TRA unfunded liability must be shown on face of government-wide financial statements.

o Make pension costs appear larger and volatile –giving the incorrect impression that employers are shouldering an immense debt that they must pay off immediately, when pension funding actually works much like a home mortgage.

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Large school district

Medium school district

Small school district

Old GASBTRA annual contributions

PERA annual contributions

(Annual expense)

$8.9 million

$3.0 million------------------$11.9 million

$2.9 million

$1.2 million-----------------$4.1 million

$475,673

$152,332----------------

$628,005

New GASBEmployer portion of TRA unfunded liability

Employer portion of PERA unfunded liability

Balance sheet liability TOTAL

$226.6 million

$37.8 million--------------------$264.4 million

$74.9 million

$15.1 million------------------$90.0 million

$12.0 million

$1.9 million----------------

$13.9 million

School district’s net assets $166.5 million $60.0 million $14.2 million

GASB changes will force employers to show their portion of the pension system’s unfunded liability on financial statements. Using school districts as an example:

How GASB affects employers

Measurement period

Actuarial valuation

measurement date

Release of 7/1/14

actuarial valuation

results

School districts use

7/1/14 actuarial valuation

results

School district CAFRs

w/GASB 68 published

Retirement systems transmit results to school districts

July 1, 2013 June 30, 2014 Dec. 1, 2014 June 30, 2015 Late 2015

Key point: There will be a one-year lag in school district reporting of GASB 68 results. Example: School districts, in their FY 2015 reporting, will use FY 2014 actuarial valuation results from PERA and TRA.

GASB 67-68 timeline: Measurement dates for school districts

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Website tools + information (ERs)

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Website tools + information (ERs)

Links to source material are updated as we get new info from GASB.

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Who is the audience for GASB info?

Technical – employer units (actuarial valuation results, footnotes). Minnesota School Boards Association, Minnesota School Business Officials, Minnesota Society of CPAs.

Active members, retired member groups. What does this mean for me?

Legislative, governing boards. New GASB results will generate questions.

Media, general public. Perhaps our toughest challenge!

Crucial to-do: Remember target audience – provide multiple vehicles and products.

Reaching the audience

Vehicles for communication:

Retirement system websites – could reach all audiences, but probably reaches primarily members and employers.

Retirement system newsletters – active and retired members, employers

Social media – reach depends on Twitter followers and Facebook “likes”; many retirement systems don’t use social media

PowerPoint presentations – retirement system members and employers

Explanatory op-ed pieces in local press – proactive? Reactive?

The conversation begins

Collaboration, communication between pensionsystems and employers well under way.

Videos for the TRA website in production.

Some initial information for general public and media has been developed(Q&A).

The final mile: How do we get high-level information about GASB to employer units and media relations personnel? Why is this important?

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Steady drumbeat from highly-motivated, well-funded advocates of privatization to get rid of defined-benefit (DB) pensions and switch public employees to private 401(k)-type plans.

Policymakers in every state under pressure to change pension systems. Many states (18) now have hybrid DB/DC.

GASB will enable 401(k) lobbyists to use scary rhetoric to drum up panic among lawmakers and public. They will argue points that would make pensions look unhealthy or unsustainable, such as:

o Comparing Minnesota to states whose pension plans are in trouble and hoping media won’t notice differences among states.

o Raising the specter of huge unfunded liabilities under new GASB accounting rules, leading to a wave of alarming headlines.

o Using selective ratings agency info against pension systems.

Pressure to get rid of defined-benefit pensions

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Comments on Minnesota pensions in general obligation bond ratings:

Fitch: “The state’s unfunded pension liability is below average as a percent of personal income, and on a combined basis the burden of net tax-supported debt and adjusted unfunded pension obligations as a percentage of personal income is well below the median for U.S. states rated by Fitch at 5.1 percent. In the 2010 session the state passed pension reform that increased employee contributions and reduced benefits, affecting both current employees and retirees; the reforms survived legal challenge.” (Fitch Ratings, 8/1/2013)

Moody’s: “The state’s aggregate reported pension funding ratio was adequate 82.6 percent as of June 30, 2012. … The overall retirement systems’ adjusted net pension liability was 27 percent of revenues, below the 50-state median of 45.1 percent.” (Moody’s Investors Services, 7/30/2013)

Standard & Poor’s Ratings Services: “Minnesota's pension plans are reasonably well-funded relative to those of other states and there have been significant reform measures implemented in the past couple of years aimed at lowering the liabilities. Court challenges to these reforms have been resolved in favor of the state.” (S&P Ratings Services, 8/2/2013)

What ratings agencies say about us

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GASB communication: The final mile

Members of the media, general public and taxpayer groups attend school board meetings in their communities.

Media and public inquiries about GASB likely to focus on these issues:

o Unfunded liabilities – will they bankrupt the city?o Two sets of books – why?

When asked about GASB, school superintendents and school board members must be well-informed enough to answer these questions and challenge/correct misconceptions to avoid inaccurate, sensational news stories.

When the new GASB disclosures take effect in 2015, the retirement systems will work at the grassroots level to get facts into the hands of school district personnel and school board members who might get questions from the media and public.

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Key messages

GASB 68 divorces funding and accounting and does not reflect the funded status of the plan.

Unfunded pension liabilities exist today and will tomorrow, much like the amortized portion of a mortgage.

Legislators and pension governing boards will still need to develop a funding policy to pay off the liabilities.

Employers’ unfunded pension liabilities may appear very large but will be paid down via annual contributions to the pension funds over many years.

GASB communication: The final mile

What can you do?

Find out what your statewide pension system is communicating about GASB 68.

Make sure GASB 68 is on your employer’s and governing board’s radar.

Give us your ideas for how to explain GASB to school superintendents and school boards.

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Contact us

John Wicklund, 651-296-8051, jwicklund@minnesotatra.org

Susan Barbieri, 651-205-4247, sbarbieri@minnesotatra.org

Employer GASB web page:www.minnesotatra.org/employerinfo/gasb