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How to Read an Actuarial Report (and Derive Journal Entries)

Preeta Nayak, Department of State Treasurer

March 2, 2017

References

LGERS  December  31,  2014  Valua:on  Report  o  h?ps://www.nctreasurer.com/ret/

Re:rement%20Reports/LGERSActuarialValua:on_December31_2014.pdf  

JE  template  workbook  –  Summary  Exhibit  tab  o  h?ps://www.nctreasurer.com/slg/lfm/

audit_acct/Pages/Pension-­‐Standards-­‐Unit-­‐Tools.aspxGASB  68  

Same  concepts  apply  to  all  cost-­‐sharing  plans  2

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Timeline

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12/31/2014  • Actuarial  valua:on  for  ending  balances  

6/30/2015  • Measurement  date  of  NPL,  ending  balances,  pension  expense,  deferrals  

6/30/2016  •  Repor:ng  date  –  current  year  

6/30/2017  • FY  2016  plan  contribu:ons  (deferred  ou_lows)  recognized  in  NPL  

Abbreviations

Ø DO – deferred outflows of resources Ø DI – deferred inflows of resources Ø FYE – fiscal year end Ø NPL – net pension liability Ø NPA – net pension asset Ø SLGFD – State and Local Government Finance

Division Ø TSERS – Teachers and State Employees

Retirement System Ø LGERS – Local Government Employees

Retirement System 4

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Valuation overview

Why perform valuation? o  Determine contribution rates o  Differences between current and prior valuation o Meet standards of GASB and other regulatory

requirements Results

o  Contribution rates o  Actuarial value of assets and accrued liability o Other

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Tour of Report

Valuation process Demographic and financial data Employer contribution Plan balance sheet Accounting results Projections General actuarial terms, methods, summary of provisions Detailed employer participant information

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Accounting Results - TPL

Total Pension Liability calculation – Table 18 on page 33

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Accounting Results - NPL

NPL calculation – Table 19, page 33 •  RSI

o Proportionate share of NPL o  Funded percentage

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Sensitivity Analysis – Table 20, page 34 •  Notes to financial statements

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JE components Component   Source   Loca/on  in  Audit  Report  

NPL   Valua:on  report  (LGERS  page  33)  

SNP,  RSI  

Deferrals  Experience  Investment  earnings  

Actuaries’  data  tables,  LGERS  page  33  

SNP,  notes  

Pension  expense    

Actuaries’  data  tables   SOA,  notes  

Actual  contribu:ons   Accoun:ng  system,  valua:on  report  (page  33)  

SNP,  notes,  RSI  

Amor:za:on  periods   GASB  Statement  68  and  actuaries’  data  tables  

Propor:onate  share  percentage  

Based  on  projected  payroll  (actuaries)    

Notes,  RSI  

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Pension Expense

Not in valuation report o Two components

§ Actuarially allocated •  Is on data tables

q  Includes amortized deferral amounts § Difference between unit’s contributions and

ORBIT contributions

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Journal Entries

Includes CY amortizations, pension expense, current year NPA/NPL Contributions made subsequent to the measurement date (deferred outflows) Reclass entries

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Deferrals

Data comes from Summary Exhibit tab Four deferrals

o Proportionate share deferrals o Difference between expected and actual

experience o Difference between projected and actual

earnings o Change of assumptions (every 5 years)

Amortized to pension expense

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Deferrals - proportional share

Actually 2 different deferrals

•  Change in proportionate share

•  What unit contributed compared to what its

proportionate share of contributions is

Amortized to pension expense

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Deferrals - expected vs actual experience

•  Demographic and economic data

•  Numbers come from actuarial report

o Table 18, page 33

•  Amortized to pension expense over actuarially

determined amortization period

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Deferrals - Change of assumptions

Future demographic and economic data

Assessed every 5 years – next study used with

December 31, 2015 valuation

Numbers come from actuarial report

o Table 18, page 33

Amortized to pension expense over actuarially

determined amortization period

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Deferrals – actual vs projected investment earnings

How investments performed compared to what was projected

o Overperform – DI – reduce pension expense over time

o Underperform – DO – increase pension expense over time

Included in collective pension expense Amortized to pension expense over 5 years Only deferral that can be netted

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Entries

Purpose     Source  Reverse  beginning  DO  and  record  effect  of  measurement  period  contribu:ons  on  NPL    

ORBIT  

Adjust  ending  deferred  ou_low  and  inflow  balances  to  reflect  CY  change  in  propor:on  

GASB  68,  paragraph  54  

Record  prior  years’  amor:za:on  of  deferrals  Establish  current  year’s  deferrals   Data  tables  Record  current  year’s  amor:za:on  of  deferrals  

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Pension expense

Deferrals get amortized to pension expense annually Amortization of inflows will reduce pension expense – outflows will increase it Two components

o Current year’s share of collective/contribution differences

o Offset to amortization of deferrals

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Pension Expense, Reclass Entries

Purpose   Source  Record  propor:onate  share  of  collec:ve  pension  expense  

Data  tables  (actuarially  determined)  

Reclass  contribu:ons  made  subsequent  to  measurement  date  to  DO  

GASB  68,  paragraph  57  

Deferrals  cleanup  –  reclassify  and  consolidate  to  match  data  tables  

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Year 3 JE template wrap-up

Year 3 JE template is less complicated than year 2 template

All entries should look familiar Will add another layer All units using same set of entries

• No need to choose implementation year • Will not be able to use template if

implementing this year Annual entries

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Questions?

Preeta Nayak at 919-814-4291 or

preeta.nayak@nctreasurer.com

Pension Standards Page -

https://www.nctreasurer.com/slg/lfm/audit_acct/

Pages/Pension-Standards.aspx

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Thank You!

Together we can build and maintain a fiscally strong and prosperous North Carolina.

www.NCTreasurer.com