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

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.

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.

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

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.

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)

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).

Issue #2: Auditing Census Data

The auditor must test the accuracy and

completeness of the census data provided

to the actuary.

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

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

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.

Cost Sharing Employers

For Tennessee, a good example will be the teachers of the LEAs.

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.

Working

Example

Other

OPEB is coming!!!!!!! The

liabilities will be much larger

than the Pension Liabilities.

Pension Industry

Update

Scott Blassingame, CPA, CPE

Central Service Association

17

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

19

The Public Employee Defined Benefit Financial

Security Act of 2014 (Public Chapter 990)

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

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)

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

22

Tennessee Pension Law Update

• 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

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.

Winston Truett, CPA

731.427.8571

wtruett@atacpa.net

Scott Blassingame, CPA, CPE

662.842.5962

sblassingame@csa1.com