NO. 266-A MAY 2007

Governmental

Accounting Standards Series

Statement No. 50 of the Governmental Accounting

Standards Board

Pension Disclosures

an amendment of GASB Statements No. 25 and No. 27

Governmental Accounting Standards Board of the Financial Accounting Foundation

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rates, contact:

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Please ask for our Product Code No. GS50.

The GASB website can be accessed at www.gasb.org.

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Summary

This Statement more closely aligns the financial reporting requirements for

pensions with those for other postemployment benefits (OPEB) and, in doing so,

enhances information disclosed in notes to financial statements or presented as required

supplementary information (RSI) by pension plans and by employers that provide

pension benefits. The reporting changes required by this Statement amend applicable note

disclosure and RSI requirements of Statements No. 25, Financial Reporting for Defined

Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, and No. 27,

Accounting for Pensions by State and Local Governmental Employers, to conform with

requirements of Statements No. 43, Financial Reporting for Postemployment Benefit

Plans Other Than Pension Plans, and No. 45, Accounting and Financial Reporting by

Employers for Postemployment Benefits Other Than Pensions.

Summary of Standards

This Statement amends Statements 25 and 27 to require defined benefit pension

plans and sole and agent employers present the following information related to note

disclosures or RSI:

Notes to financial statements should disclose the funded status of the plan as of the

most recent actuarial valuation date. Defined benefit pension plans also should

disclose actuarial methods and significant assumptions used in the most recent

actuarial valuation in notes to financial statements instead of in notes to RSI.

If the aggregate actuarial cost method is used to determine the annual required

contribution of the employer (ARC), notes to financial statements should disclose the

funded status of the plan, and a schedule of funding progress should be presented as

RSI, using the entry age actuarial cost method. Plans and employers also should

disclose that the purpose of doing so is to provide information that serves as a

surrogate for the funded status and funding progress of the plan.

Notes to financial statements should include a reference linking the funded status

disclosure in the notes to financial statements to the required schedule of funding

progress in RSI.

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If applicable, notes to financial statements should disclose legal or contractual

maximum contribution rates. In addition, if relevant, they should disclose that the

maximum contribution rates have not been explicitly taken into consideration in the

projection of pension benefits for financial accounting measurement purposes.

If an actuarial assumption is different for successive years, notes to financial

statements should disclose the initial and ultimate rates.

This Statement amends Statement 25 to require defined benefit pension plans and

defined contribution plans to disclose in the notes to financial statements the methods and

assumptions used to determine the fair value of investments, if the fair value is based on

other than quoted market prices.

This Statement amends Statement 27 to require cost-sharing employers to include,

in the note disclosure of the required contribution rates of the employer(s) in dollars and

the percentage of that amount contributed for the current year and each of the two

preceding years, how the contractually required contribution rate is determined (for

example, by statute or by contract, or on an actuarially determined basis) or that the cost-

sharing plan is financed on a pay-as-you-go basis.

This Statement also amends Statement 27 to require that, if a cost-sharing plan does

not issue a publicly available stand-alone plan financial report prepared in accordance

with the requirements of Statement 25, as amended, and the plan is not included in the

financial report of another entity, each employer in that plan should present as RSI the

schedules of funding progress and employer contributions for the plan (and notes to these

schedules). Each employer also should disclose that the information presented relates to

the cost-sharing plan as a whole, of which the employer is one participating employer,

and should provide information helpful for understanding the scale of the information

presented relative to the employer.

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Effective Date and Transition

This Statement is effective for periods beginning after June 15, 2007, except for

requirements related to the use of the entry age actuarial cost method for the purpose of

reporting a surrogate funded status and funding progress of plans that use the aggregate

actuarial cost method, which are effective for periods for which the financial statements

and RSI contain information resulting from actuarial valuations as of June 15, 2007, or

later. Early implementation is encouraged. In the initial year of implementation, defined

benefit pension plans and sole and agent employers that use the aggregate actuarial cost

method to determine the ARC are required to present elements of information in the

schedule of funding progress using the entry age actuarial cost method as of the most

recent actuarial valuation date. In subsequent years, plans and employers should add to

that schedule information as of subsequent actuarial valuation dates until the

requirements of Statements 25 and 27, as amended, with regard to the minimum number

of years or actuarial valuations to be included have been met.

How the Changes in This Statement Will Improve Financial Reporting

Statements 43 and 45, which were developed using Statements 25 and 27 as

models, improved the transparency and decision usefulness of financial reporting as a

result of decisions by the Board to modify, for financial reporting by OPEB plans and

employers, certain requirements related to note disclosures and RSI. This Statement

similarly is intended to improve the transparency and usefulness of financial reporting by

pension plans and employers by amending Statements 25 and 27 to conform with the

applicable note disclosure and RSI modifications adopted in the OPEB Statements.

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Unless otherwise specified, pronouncements of the GASB apply to financial reports of all

state and local governmental entities, including general purpose governments; public

benefit corporations and authorities; public employee retirement systems; and public

utilities, hospitals and other healthcare providers, and colleges and universities.

Paragraph 3 discusses the applicability of this Statement.

v

Statement No. 50 of the Governmental Accounting

Standards Board

Pension Disclosures

an amendment of GASB Statements No. 25 and No. 27

May 2007

Governmental Accounting Standards Board of the Financial Accounting Foundation

401 Merritt 7, PO Box 5116, Norwalk, Connecticut 06856-5116

vi

Copyright © 2007 by Governmental Accounting Standards Board. All rights reserved.

No part of this publication may be reproduced, stored in a retrieval system, or

transmitted, in any form or by any means, electronic, mechanical, photocopying,

recording, or otherwise, without the prior written permission of the Governmental

Accounting Standards Board.

vii

Statement No. 50 of the Governmental Accounting Standards Board

Pension Disclosures

an amendment of GASB Statements No. 25 and No. 27

May 2007

CONTENTS

Paragraph

Numbers

Introduction ....................................................................................................................... 1

Standards of Governmental Accounting and Financial Reporting ............................. 2–10

Scope and Applicability of This Statement .......................................................... 2– 3

Amendments to Statement 25 ............................................................................... 4– 6

Notes to the Financial Statements ................................................................... 4– 5

Required Supplementary Information................................................................... 6

Amendments to Statement 27 ............................................................................... 7–10

Notes to the Financial Statements ................................................................... 7– 8

Required Supplementary Information............................................................. 9–10

Effective Date and Transition ................................................................................... 11–13

Appendix A: Background ........................................................................................ 14–16

Appendix B: Basis for Conclusions ......................................................................... 17–58

Appendix C: Illustrative Note Disclosures and Required Supplementary

Information ................................................................................................................... 59

Appendix D: Codification Instructions .......................................................................... 60

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Statement No. 50 of the Governmental Accounting Standards Board

Pension Disclosures

an amendment of GASB Statements No. 25 and No. 27

May 2007

INTRODUCTION

1. The objective of this Statement is to amend note disclosure and required

supplementary information (RSI) standards of Statements No. 25, Financial Reporting

for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans,

and No. 27, Accounting for Pensions by State and Local Governmental Employers, to

conform with applicable changes adopted in Statements No. 43, Financial Reporting for

Postemployment Benefit Plans Other Than Pension Plans, and No. 45, Accounting and

Financial Reporting by Employers for Postemployment Benefits Other Than Pensions.

This Statement is intended to improve the transparency and decision usefulness of

reported information about pensions by state and local governmental plans and

employers.

STANDARDS OF GOVERNMENTAL ACCOUNTING AND FINANCIAL

REPORTING

Scope and Applicability of This Statement

2. This Statement establishes and modifies requirements related to financial reporting

by pension plans and by employers that provide defined benefit and defined contribution

pensions. It amends Statement 25, paragraphs 27, 32, 36, 37, 40, and 41 and footnote 24,

and it supersedes footnotes 17 and 18 of that Statement. It also amends paragraphs 20–22

and footnotes 10 and 17 of Statement 27.

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3. The provisions in paragraphs 4 and 6 of this Statement apply to defined benefit

pension plans of all state and local governments. The provisions of paragraph 5 of this

Statement apply to defined contribution plans of all state and local governments. The

provisions of paragraphs 7–10 of this Statement apply to all state and local governmental

employers that provide or participate in defined benefit pension plans.

Amendments to Statement 25

Notes to the Financial Statements

4. Defined benefit pension plans should make the following additional disclosures in

notes to the financial statements:

a. In the summary of significant accounting policies, the requirement of Statement 25,

paragraph 32b(2), for disclosure of a brief description of how the fair value of

investments is determined should include the methods and significant assumptions

used to estimate the fair value of investments, if that fair value is based on other

than quoted market prices.

b. In the disclosure of contributions and reserves required by Statement 25,

paragraph 32c, legal or contractual maximum contribution rates should be

disclosed, if applicable.

c. Information about the funded status of the plan as of the most recent valuation date

should be disclosed, including the actuarial valuation date, the actuarial value of

assets, the actuarial accrued liability, the total unfunded actuarial accrued liability,

the actuarial value of assets as a percentage of the actuarial accrued liability (funded

ratio), the annual covered payroll, and the ratio of the unfunded actuarial liability to

annual covered payroll.1 The information should be calculated in accordance with

the parameters set forth in paragraphs 35 and 36 of Statement 25. Plans that use the

aggregate actuarial cost method to calculate the annual required contribution of the

employer(s) (ARC) should prepare funded status information using the entry age

actuarial cost method.

d. Information about actuarial methods and assumptions used in valuations on which

reported information about the ARC and the funded status and funding progress of

pension plans are based should be disclosed, including the following:

(1) Disclosure that the required schedule of funding progress immediately

following the notes to the financial statements presents multiyear trend

1Paragraph 37 of Statement 25 requires plans to disclose the same elements of information for each of the

past six consecutive fiscal years of the plan as RSI (schedule of funding progress).

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information about whether the actuarial value of plan assets is increasing or

decreasing over time relative to the actuarial accrued liability for benefits.2

(2) Disclosure that the projection of benefits for financial reporting purposes does

not explicitly incorporate the potential effects of legal or contractual funding

limitations, if applicable.

(3) Identification of the actuarial methods and significant assumptions used to

determine the ARC for the current year and the information required by

paragraph 4c of this Statement. The disclosures should include:

(a) The actuarial cost method.

(b) The method(s) used to determine the actuarial value of assets.

(c) The assumptions with respect to the inflation rate, investment return

(discount rate), projected salary increases, and postretirement benefit

increases. If the economic assumptions contemplate different rates for

successive years (year-based or select and ultimate rates), the rates that

should be disclosed are the initial and ultimate rates.

(d) The amortization method (level dollar or level percentage of projected

payroll) and the amortization period (equivalent single amortization

period, for plans that use multiple periods) for the most recent actuarial

valuation and whether the period is closed or open. Plans that use the

aggregate actuarial cost method should disclose that because the method

does not identify or separately amortize unfunded actuarial accrued

liabilities, information about the plan’s funded status and funding

progress has been prepared using the entry age actuarial cost method for

that purpose and that the information presented is intended to serve as a

surrogate for the funded status and funding progress of the plan.

5. For defined contribution plans, the requirement of Statement 25, paragraph 41b, for

disclosure of a brief description of how the fair value of investments is determined should

include the methods and significant assumptions used to estimate the fair value of

investments, if that fair value is based on other than quoted market prices.

Required Supplementary Information

6. Plans that use the aggregate actuarial cost method should prepare the information

presented in the schedule of funding progress using the entry age actuarial cost method

and should disclose that fact and that the purpose of this disclosure is to provide

information that serves as a surrogate for the funding progress of the plan.

2The required reference to the schedule of funding progress presented as RSI does not represent or imply

incorporation of the schedule of funding progress into notes to the basic financial statements.

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Amendments to Statement 27

Notes to the Financial Statements

7. Employers should include the following additional disclosures about funding policy

in notes to the financial statements for each defined benefit pension plan in which they

participate:

a. Legal or contractual maximum contribution rate(s) of the employer should be

disclosed, if applicable.

b. For cost-sharing employers, the requirement of Statement 27, paragraph 20b(3), for

disclosure of the required contribution rates of the employer(s) in dollars and the

percentage of that amount contributed for the current year and each of the two

preceding years should include a description of how the required contribution rate is

determined (for example, by statute or by contract, or on an actuarially determined

basis) or that the plan is financed on a pay-as-you-go basis.

8. Sole and agent employers should disclose the following additional information for

each plan:

a. Information about the funded status of the plan as of the most recent valuation date

should be disclosed, including the actuarial valuation date, the actuarial value of

assets, the actuarial accrued liability, the total unfunded actuarial liability (or

funding excess), the actuarial value of assets as a percentage of the actuarial

accrued liability (funded ratio), the annual covered payroll, and the ratio of the

unfunded actuarial liability (or funding excess) to annual covered payroll.3

Employers that use the aggregate actuarial cost method should prepare this

information using the entry age actuarial cost method for that purpose only.4

b. Information about actuarial methods and assumptions used in valuations on which

reported information about the ARC, annual pension cost, and the funded status and

funding progress of pension plans is based should be disclosed, including the

following:

(1) Disclosure that the required schedule of funding progress immediately

following the notes to the financial statements presents multiyear trend

3Paragraph 22 of Statement 27 requires sole and agent employers to present as RSI (schedule of funding

progress) the same elements of information for the most recent actuarial valuation and the two preceding

valuations. 4For sole employers that include the plan in the financial reporting entity (as a trust fund), presentation of

information about the plan’s funded status and funding progress as required for the plan by Statement 25,

as amended by this Statement, meets the requirements of this paragraph and paragraph 22, as amended by

this Statement. For agent employers, the requirements of this paragraph and paragraph 22 of Statement 27,

as amended, apply to the employer’s individual plan. The information should be presented even if the

aggregate multiple-employer plan (all employers) is included as a pension trust fund in the employer’s

report and the required funded status and funding progress information is presented for the aggregate plan.

5

information about whether the actuarial value of plan assets is increasing or

decreasing over time relative to the actuarial accrued liability for benefits.5

(2) Disclosure that the projection of benefits for financial reporting purposes does

not explicitly incorporate the potential effects of legal or contractual funding

limitations (as discussed in the disclosure of funding policy in paragraph 7a),

if applicable.6

(3) In the disclosure of actuarial methods and significant assumptions required by

paragraph 21c of Statement 27:

(a) If the assumptions used to determine the ARC for the current year and

the information required by paragraph 8a of this Statement contemplate

different rates for successive years (year-based or select and ultimate

rates), the rates that should be disclosed are the initial and ultimate rates.

(b) If the aggregate actuarial cost method is used, disclose that because the

method does not identify or separately amortize unfunded actuarial

liabilities, information about funded status and funding progress has

been prepared using the entry age actuarial cost method for that purpose

and that the information presented is intended to serve as a surrogate for

the funded status and funding progress of the plan.

Required Supplementary Information

9. Sole and agent employers that use the aggregate actuarial cost method to determine

the ARC should prepare the information identified in paragraph 22 of Statement 27 using

the entry age actuarial cost method and should disclose that fact and that the purpose of

this disclosure is to provide information that serves as a surrogate for the funding

progress of the plan.7

10. If the cost-sharing plan in which an employer participates does not issue and make

publicly available a stand-alone plan financial report prepared in accordance with the

requirements of Statement 25, as amended, and the plan is not included in the financial

report of a public employee retirement system or another entity, the cost-sharing

5See footnote 2.

6If an employer also elects to include in the annual financial report pro forma quantitative information

about pension benefits (for example, pro forma calculations of the ARC, annual pension cost, or the funded

status of the plan) recalculated to take into consideration a funding limitation, that information should be

presented as supplementary information. 7See footnote 4.

6

employer should present as RSI in its own financial report schedules of funding progress

and employer contributions for the plan (and notes to these schedules), prepared in

accordance with the requirements of Statement 25, as amended. The employer should

disclose that the information presented relates to the cost-sharing plan as a whole, of

which the employer is one participating employer, and should provide information

helpful for understanding the scale of the information presented relative to the employer.

EFFECTIVE DATE AND TRANSITION

11. With the exception of the requirements discussed in paragraph 12, the requirements

of this Statement are effective for periods beginning after June 15, 2007. Early

implementation is encouraged.

12. The requirements of paragraphs 4c, 4d, and 6 (for plans) and 8a, 8b(1), 8b(3)(b),

and 9 (for sole and agent employers) of this Statement with regard to preparation of a

schedule of funding progress using the entry age actuarial cost method and presentation

of certain information related to the actuarial calculations by pension plans and sole and

agent employers that use the aggregate actuarial cost method to determine the ARC are

effective for periods for which the financial statements and RSI contain information

resulting from actuarial valuations as of June 15, 2007, or later.

13. With regard to the provisions discussed in paragraph 12, in the initial year of

application, pension plans and sole and agent employers that use the aggregate actuarial

cost method to determine the ARC can meet the requirement of this Statement to prepare

a schedule of funding progress using the entry age actuarial cost method by presenting

the required elements of information as of the most recent actuarial valuation date. In

7

subsequent years, information should be added as of subsequent actuarial valuation dates

until the requirements of Statements 25 and 27, as amended by this Statement, are met.

The provisions of this Statement need not be

applied to immaterial items.

This Statement was issued by unanimous vote of the seven members of the

Governmental Accounting Standards Board:

Robert H. Attmore, Chairman

Cynthia B. Green

William W. Holder

Edward J. Mazur

Marcia L. Taylor

Richard C. Tracy

James M. Williams

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Appendix A

BACKGROUND

14. In April and June 2004, respectively, the GASB issued standards of accounting and

financial reporting for postemployment benefits other than pensions (other

postemployment benefits, or OPEB) in Statements 43 and 45. In developing those

standards, the Board followed the same general approach taken in Statements 25 and 27

(both issued in November 1994) for pension accounting and reporting. In most cases,

Statements 43 and 45 require OPEB plans and employers that provide OPEB to present

note disclosures and RSI parallel to those required by Statements 25 and 27 for pension

plans and employers. However, in developing the OPEB Statements, the Board

concluded that disclosure and RSI requirements for OPEB should be modified at several

points to improve accountability and the decision usefulness of reported financial

information.

15. At its August 2006 meeting, the Board approved a limited-scope standards-setting

project to consider whether pension plan and employer disclosure and RSI requirements

should be amended to conform to the more recently adopted disclosure and RSI

requirements of Statements 43 and 45. As a result of that project, in December 2006, the

Board issued for comment an Exposure Draft of this Statement. The Board received 36

comment letters in response to its proposals in the Exposure Draft. Significant issues that

were raised by respondents are discussed in the Basis for Conclusions.

16. The project that resulted in this Statement proceeded concurrently with, but within a

shorter time frame than, a research project intended to review the effectiveness of

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Statements 25 and 27 in meeting the financial reporting objectives that the Board set for

them. In this Statement, the Board amends Statements 25 and 27 to strengthen note

disclosures or RSI. Broader consideration of the effectiveness of the requirements of

Statements 25 and 27 is the ongoing focus of the research project, and consideration of

any other potential modifications was deferred pending the completion of that research.

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Appendix B

BASIS FOR CONCLUSIONS

17. This appendix summarizes factors considered significant by the Board members in

reaching the conclusions in this Statement. It includes discussion of alternatives

considered and the Board’s reasons for accepting some and rejecting others. Individual

Board members may have given greater weight to some factors than to others.

Scope and Applicability

18. The scope of the pension disclosure project from which this Statement is derived

was limited to considering whether Statements 25 and 27 should be amended to conform

to certain disclosures and RSI presentations now required for OPEB.

19. In the OPEB project, the Board used the pension accounting and financial reporting

model established in Statements 25 and 27 as a foundation for the development of

standards of accounting and financial reporting for OPEB. However, in the course of

developing Statements 43 and 45, the Board concluded that the pension requirements

should be enhanced in certain respects for OPEB accounting and reporting purposes. The

modifications made for OPEB that also have resonance for pension benefits generally

relate to note disclosures and RSI, rather than to the overall approach taken to

measurement, recognition, or display.

20. This Statement is intended to bring the pension and OPEB standards with regard to

note disclosures and RSI into closer alignment as expeditiously as possible. In view of

the previous progress made on these matters in the OPEB project and the potential

benefits to financial report users of similar changes to pension reporting, the Board

concluded that these issues should be addressed concurrently with, and without waiting

11

for completion of, a broader scope pension accounting and financial reporting research

project currently in progress. The Board concluded, further, that the disclosure and RSI

changes in this Statement would not necessarily limit or prejudice the matters that might

be considered in the research project.

21. In response to the Exposure Draft, the Board received comment letters that included

suggestions regarding issues that were not within the intended limited scope of the

project. The Board notes that many of the issues raised require discussion in a broader

context and, therefore, deferred discussion of those issues to the pension accounting and

financial reporting research project.

Disclosure of the Funded Status of a Defined Benefit Pension Plan

22. This Statement amends Statements 25 and 27 to require defined benefit pension

plans and sole and agent employers, respectively, to disclose the funded status of a

pension plan as of the most recent actuarial valuation date in the notes to financial

statements. This requirement is in addition to requirements in Statements 25 and 27 to

present a multiyear trend schedule of funding progress. Together, these requirements

supersede the three alternative methods of presentation (RSI, notes to financial

statements, or additional financial statement) originally permitted by footnote 18 of

Statement 25 and the two alternative methods of presentation (RSI or notes to financial

statements) originally permitted by footnote 17 of Statement 27.

23. In the Statement 25 pension plan reporting framework, multiyear trend information

about funding progress—including actuarial accrued liabilities, the actuarial values of

plan assets, total unfunded actuarial liabilities, funded ratios, covered payrolls, and

unfunded actuarial liabilities as percentages of covered payrolls—generally is required to

12

be presented as RSI. That basic standard—presentation as RSI—was adopted in part as

the result of consideration by the Board of concerns from the audit community regarding

the auditing of note disclosures of funding progress (as well as employer contribution)

information from multiple past years, as originally proposed. Statement 25 also

permitted, as optional methods of communicating the information, note disclosures or an

additional financial statement. Statement 27 originally included similar requirements with

regard to the reporting of information about the funding progress of each defined benefit

plan in which a sole or agent employer participates—except that the option of presenting

funding progress information by means of an additional financial statement was not

available for employer reporting purposes.

24. Subsequently, in deliberating issues related to reporting by defined benefit OPEB

plans and by sole and agent employers in such plans, the Board reconsidered whether RSI

was an appropriate or adequate method of presentation, considering that information

about the funded status of pension plans has been widely viewed as one of the most

significant pieces of information reported about those plans, notwithstanding the method

in which it generally has been presented. Providing information to financial report users

regarding the funded status of a defined benefit plan was viewed by the Board as

essential in the context of OPEB, given the low level of funding of most postemployment

healthcare and other OPEB plans. After reviewing the history of the method(s) adopted in

Statement 25, the Board instead required in Statements 43 and 45 that OPEB plans and

sole and agent employers, respectively, report funded status/funding progress information

in the following manner:

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Disclose the funded status of the plan as of the most recent actuarial valuation date in

the notes to the financial statements

Present multiyear funding progress information as RSI

Include in the notes a reference linking the two.

25. In proposing the adoption of the same method for defined benefit pension plans and

employers in single-employer and agent multiple-employer pension plans, the Board

observed that although pension plans generally are better funded than OPEB plans, the

significance to financial report users of information about the funded status of defined

benefit pension plans in the public sector has been underscored by increased attention in

the last few years from taxpayer groups, analysts, and others. The Board reiterated its

conclusion that information about the funded status of defined benefit pension plans has

come to be widely viewed as essential financial information. The Board noted that

Concepts Statement No. 3, Communication Methods in General Purpose External

Financial Reports That Contain Basic Financial Statements (issued in April 2005,

subsequent to the issuance of Statements 43 and 45), provides that information that is

considered essential to financial statement users’ understanding of the financial

statements but that does not meet the criteria for recognition in the financial statements

should be reported in notes to the financial statements.

26. In support of the proposal to require note disclosure of the most recent available

funded status information, the Board also referred to a concern, originally discussed

during the OPEB project, that the effect on the auditor’s report of omitting a required

schedule of funding progress (or RSI generally) might not sufficiently discourage the

omission of information significant to financial report users. The Board noted that

because RSI, by definition, is not part of the basic financial statements, the omission of

funding progress information currently would not require modification of an auditor’s

14

report on the basic financial statements. The Board’s concern was that mention of omitted

RSI in a subsequent paragraph of an auditor’s report (based on generally accepted

auditing standards), without modification of the auditor’s report on the basic financial

statements, might not be a compelling disincentive if an OPEB—or pension—plan or

employer was considering either not obtaining or obtaining but not presenting the RSI.

27. The Exposure Draft proposal to conform the requirements of Statements 25 and 27

to those of Statements 43 and 45 with regard to the methods of reporting information

about the funded status and funding progress of defined benefit pension plans was

intended to improve financial reporting by plans and sole and agent employers by

requiring a more appropriate method of reporting essential information about the current

funded status of the plan. At the same time, it was intended to preserve the original

benefit of presenting multiyear funding progress trend information and to help ensure that

essential information would be reported and publicly available to users.

28. Some respondents to the Exposure Draft supported the proposal to change the

required method of communicating information about the funded status of a pension plan

as of the most recent actuarial valuation. Other respondents questioned whether note

disclosure of funded status information would be consistent with the definition of, and

criteria for, notes to financial statements adopted in Concepts Statement 3, or whether the

benefit of the proposed change would exceed the cost, particularly the potential increase

in audit costs in certain cases.

29. Respondents who questioned whether the proposal to require note disclosure of

pension funded status information would be consistent with Concepts Statement 3

15

pointed out that the Board adopted Concepts Statement 3 subsequent to the issuance of

Statements 43 and 45. Therefore, they thought that the Board should base the method of

communication primarily on the respective definitions of and criteria for notes to

financial statements and RSI in Concepts Statement 3, rather than on consistency with the

decisions reached in Statements 43 and 45.

30. After considering these concerns, the Board reaffirmed its conclusion that defined

benefit pension plans and sole and agent employers should disclose information about the

most recently measured funded status of the plan in the notes to financial statements—

and that a requirement to do so is consistent with the definition of and criteria for notes to

financial statements in paragraphs 35 and 36 of Concepts Statement 3. That is, paragraph

35 states that ―notes to financial statements are integral to financial statements and are

essential to a user’s understanding of financial position or inflows and outflows of

resources.‖ Paragraph 36 elaborates by stating that ―notes have a clear and demonstrable

relationship to information in the financial statements to which they pertain and are

essential to a user’s understanding of those financial statements.‖ Moreover, essential in

that context means ―so important as to be indispensable to a user (a) with a reasonable

understanding of government and public finance activities and of the fundamentals of

governmental financial reporting and (b) with a willingness to study the information with

reasonable diligence.‖

31. The Board concluded that funded status information is integrally related to—and

essential to such a user’s understanding of—financial reporting of pension plans and of

sole and agent employers in the following ways:

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a. For plan financial reporting, the Board concluded that plan net assets held in trust

for pension benefits lacks essential context without disclosure of a measure of the

actuarial accrued liabilities for which those net assets are accumulated and held in

trust.8 The Board concluded, further, that note disclosure of funded status

information is consistent with the use of notes to financial statements identified in

paragraph 35c of Concepts Statement 3—―additional information about financial

position . . . that does not meet the criteria for recognition.‖9

b. For financial reporting by sole and agent employers, the Board concluded that

information about the funded status of defined benefit pension plans in which an

employer participates is essential to a user’s understanding of financial position

because unfunded actuarial accrued liabilities for pension benefits represent an

obligation to make future sacrifices of financial resources.

32. Some respondents commented that the proposed change in method of

communicating funded status information would involve increased audit cost. Of those

respondents, some questioned whether the benefit of the proposed change would exceed

the incremental cost. The Board’s understanding, based on research of applicable

auditing standards, is that the potential incremental cost would relate to the difference

between auditing requirements related to (a) RSI and (b) establishing a basis for reliance

on the work of a specialist—the actuary. Further, the Board concluded that significant

incremental cost would be unlikely, or reduced, in situations in which auditors already

are required to use the work of a specialist—that is, audits of sole or agent employers or

audits of single-employer or agent pension plans in which the plan auditor also audits an

employer in the plan. In those situations, auditors already would have a need to establish

a basis for reliance on the work of the actuary because information from actuarial

valuations is used in expense and liability measurements and in note disclosures of the

8The requirement to disclose the funded status of the plan in the notes to financial statements eliminates the

need for the requirement of paragraph 27 of Statement 25 that the caption net assets held in trust for

pension benefits ―be followed by a parenthetical reference to the plan’s schedule of funding progress.‖ 9For reasons discussed in the Basis for Conclusions to Statement 25, the Board concluded that actuarial

accrued liabilities do not meet the criteria for recognition as liabilities of a pension plan. Moreover, the

funded status information includes plan assets valued on a different basis (actuarial value, which should be

a market-related value) than that required for financial statement purposes (including investments at fair

value).

17

employer(s). The Board concluded, therefore, that incremental auditing costs generally

would occur in plan audits in which a different auditor or auditors are responsible for

opining on employer financial statements. However, even in that circumstance, the Board

believes there may be opportunities to rely on the work of other auditors in order to

mitigate additional costs.

33. The Board concluded, on balance, that requiring note disclosure of the most recent

funded status information would result in a more appropriate method of communication

of that essential information and that the benefit of the change would exceed the cost. The

Board concluded, moreover, that:

a. Retaining the requirement for presentation of multiyear trend information about

funding progress as RSI is appropriate because information about funding progress

over time is essential for placing the basic financial statements and notes to basic

financial statements in an appropriate economic and historical context.

b. The overlap between the note disclosure and RSI requirements with regard to the

most recent funded status information is appropriate in order to communicate

essential information.

34. After discussion of related respondent comments, the Board also decided to retain

in this Statement a related proposal to require disclosure in notes to financial statements

―that the required schedule of funding progress immediately following the notes to the

financial statements presents multiyear trend information about whether the actuarial

value of plan assets is increasing or decreasing over time relative to the actuarial accrued

liability for benefits‖ [paragraphs 4d(1) and 8b(1)]. The Board reaffirmed that the

purpose of the disclosure would be to provide an informative link from the funded status

information disclosed in the notes to financial statements as of the most recent actuarial

valuation date to the funding progress trend information presented as RSI. Concerns were

expressed by some respondents that such a link could create confusion regarding the

18

status of the information presented as RSI, including auditor association with that

information. To address those concerns, the Board added a footnote in the standards

section clarifying that the required link to RSI does not imply incorporation of the RSI

into the notes to financial statements by reference.

Required Reporting of Funded Status/Funding Progress Information When the

Aggregate Actuarial Cost Method Is Used to Determine the ARC

35. This Statement amends Statements 25 and 27 to require that defined benefit plans

and sole and agent employers, respectively, that use the aggregate actuarial cost method

to determine the ARC disclose the funded status of the plan and present multiyear

funding progress trend information as RSI using the entry age actuarial cost method as a

surrogate for that purpose only.

36. That requirement was adopted in Statements 43 and 45 and proposed as an

amendment to Statements 25 and 27 because the aggregate actuarial cost method does not

calculate an actuarial accrued liability and, for that reason, does not produce information

necessary to prepare a schedule of funding progress or a note disclosure of funded status.

Even so, the aggregate method has been included among the acceptable actuarial cost

methods for accounting and financial reporting by pension and OPEB plans and

employers, based on its strength as a funding methodology if an employer consistently

contributes the ARC determined using that method. During OPEB project discussions,

however, the Board viewed more critically than it had previously the significance of the

method’s inability to support the presentation of information about a defined benefit

plan’s funded status and funding progress, as discussed in paragraphs 110–112 of the

Basis for Conclusions to Statement 43:

19

Aggregate actuarial cost method

The aggregate actuarial cost method cannot be used to prepare a

schedule of funding progress because it does not separately determine

actuarial accrued liabilities. (The total actuarial present value of projected

benefits is amortized as normal cost over average remaining service life,

rather than dividing the total into normal cost and actuarial accrued

liabilities and separately amortizing the two amounts over, generally,

different periods.) In Statement 25, the Board exempted pension plans that

use the aggregate method from preparing the schedule of funding progress

(but not from preparing the schedule of employer contributions), although

preparation of the schedule of funding progress using another method,

such as entry age, is acceptable. The Board concluded in that Statement

that ―a requirement to use a different method would be inconsistent with

the general approach of [Statement 25] to require application of the

method used to determine funding requirements, when that method meets

the parameters.‖ Moreover, the Board noted that ―relatively few [pension]

plans use the aggregate method; for example, 6 percent of 451 [pension]

plans included in a survey conducted in 1993 by the Public Pension

Coordinating Council reported using that method, and most are small

plans. The Board is reluctant to impose additional costs on those [pension]

plans‖ (paragraph 124, footnote omitted).

The Board notes, however, that when the pension standards were

adopted, a large majority of pension plans had been advance-funding on

an actuarially determined basis for many years. Thus, the unfunded

actuarial accrued liabilities of plans using the aggregate actuarial cost

method effectively were being included in funding requirement

determinations, even though they were not separately calculated. In

contrast, very few OPEB plans currently are advance-funded on an

actuarially determined basis. It is not possible at this time to reliably

estimate what proportion of OPEB plans might select the aggregate

actuarial cost method (a) for funding purposes or (b) solely for financial

reporting purposes if they remain unfunded. The Board concluded that if

an unfunded (for example, pay-as-you-go) OPEB plan selected the

aggregate actuarial cost method solely for financial reporting purposes

(that is, unfunded actuarial accrued liabilities effectively were not being

included in funding requirement determinations), exempting the plan from

preparing a schedule of funding progress would leave users without

sufficient information to assess the financial effects of the plan’s method

of financing. Therefore, the Board concluded that plans that elect to use

the aggregate method should be required to prepare a schedule of funding

progress using an acceptable actuarial cost method that separately

identifies actuarial accrued liabilities. The Board believes it is unnecessary

to allow a choice of methods for that limited purpose. The Board selected

the entry age method as the required method because it is conceptually

similar to the aggregate method.

20

The Board acknowledges that a requirement to use entry age for the

schedule of funding progress when the aggregate method is used for other

accounting information is a departure from the general approach of this

Statement and the related Statement. Nevertheless, for the reasons stated

above, the Board believes that funded status information based on the

entry age method is more useful to users of OPEB plan financial reports

than providing no information about funded status. Moreover, the

potential for confusion for users due to the use of two different methods

can be mitigated by disclosure of the reason the entry age method is used

for the schedule of funding progress only—that is, that it cannot be

prepared using the aggregate method. Most respondents to the plan

Exposure Draft who commented on this issue concurred with the Board’s

position to require disclosure of information about funded status and

funding progress using the entry age method. The Board reiterates that the

aggregate method is required for determining the employer’s ARC when

that method is used for funding; it is not acceptable under this Statement

or the related Statement to use entry age or another method for

determining the ARC when the aggregate method is used for funding.

Similarly, when the aggregate method is used for determining the ARC,

the schedule of employer contributions should be computed using that

method.

37. The change adopted in Statements 43 and 45 was based on the view that the

presentation of funded status and funding progress information is so basic to achievement

of the financial reporting objectives of the OPEB Statements that it should be required,

without regard to which actuarial cost method has been used to determine the ARC. In

proposing the same change for pension reporting, the Board tentatively concluded that

the same perspective applies there, as well. As discussed previously, the Board believes

that funded status and funding progress information is considered essential by pension

plan financial report users. Moreover, based on observations made after the

implementation of Statements 25 and 27, the Board tentatively concluded that the

absence of that information could be misinterpreted by financial report users. The Board

also noted that it would be difficult, if not impossible, for even reasonably

knowledgeable, diligent financial report users having an interest in pensions to estimate

funding progress if an employer had not contributed to the plan on a consistent basis an

21

amount equal to the ARC determined using the aggregate actuarial cost method. The

Board expressed the belief that the requirements of this Statement for reporting of funded

status and funding progress information using the entry age actuarial cost method as a

surrogate could avoid questions about where a defined benefit plan stands,

approximately, with regard to funding.

38. In proposing the change, the Board noted that recent information confirms that

relatively few pension plans use the aggregate method, and for those that do, the

proposed change would involve an incremental actuarial cost to calculate the surrogate

actuarial accrued liabilities and funded status of the plan using the entry age actuarial cost

method for that purpose. The Exposure Draft reflected the Board’s tentative conclusion

that the benefit of the information to the users of those plans’ financial reports would

exceed the incremental cost to those plans to produce the information.

39. Some respondents to the Exposure Draft agreed that current reporting for pension

plans that use the aggregate actuarial cost method to determine the ARC does not provide

a basis for understanding the funded status of the plan and that requiring presentation of

estimated funded status information using the entry age actuarial cost method would be

appropriate and useful. Some, however, questioned the tentative decision to specify use

of the entry age actuarial cost method for that purpose, rather than allow a range of

choices, which Statements 25 and 27 permits for other uses. Others who disagreed with

the proposal questioned the benefit of requiring funded status information prepared using

an actuarial cost method different from that used to manage the plan or whether the

benefit would exceed the cost of preparing the information. One respondent also

commented that because entry age would only approximate what the funded status using

22

the aggregate actuarial cost method (if knowable) would be, an unintended result could

be the disclosure of funded status information that could be misused to support a level of

employer contributions lower than the level determined using the aggregate method, in

some circumstances.

40. After discussion of the respondents’ comments, the Board reaffirmed its tentative

conclusions that:

a. The funded status of a defined benefit pension plan is essential information.

b. Because the aggregate actuarial cost method does not measure funded status, the

use of a surrogate method to present the funded status of a plan is appropriate.

c. Considerations underlying the Board’s decision to permit the use of one of several

actuarial cost methods (including aggregate) to determine the ARC do not apply to

the selection of a method to serve as a surrogate for the aggregate method with

regard to presentation of funded status information.

41. For plans and sole and agent employers that use the aggregate method for

determining the ARC, the Board concluded that the benefit of reporting the funded status

and funding progress of the plan using the entry age actuarial cost method as a surrogate

exceeds the incremental cost of producing that information. However, the Board decided

not to require such plans and employers to obtain that information for actuarial valuations

as of dates prior to June 15, 2007, as discussed in paragraph 56.

42. The Board acknowledges that the aggregate actuarial cost method can be a

relatively more aggressive funding method than entry age if an employer consistently

makes the contributions determined on that basis. As a result, it is conceivable that a user

might infer from the surrogate funded status information disclosed that an employer

contribution less than the ARC determined using the aggregate actuarial cost method

would be sufficient to fund the plan. As observed by one respondent, this situation arose

when Statement No. 5, Disclosure of Pension Information by Public Employee

23

Retirement Systems and State and Local Governmental Employers, required disclosure of

a standardized measure of the pension obligation calculated using the projected unit

credit method. The Board notes, however, that because both the entry age actuarial cost

method and the aggregate actuarial cost method are cost-allocation approaches, the

funded status information required by this Statement will be a closer surrogate than was

the information resulting from the use of the projected unit credit method (a benefit-

allocation approach) required by Statement 5. Moreover, this Statement requires that the

purpose of disclosing funded status information using the entry age method—as a

surrogate for the plan’s funded status—be disclosed, and a financial-statement preparer is

not precluded from including additional explanatory information in notes to the financial

statements if it is perceived as clarifying the actuarial information presented.

Explanatory Disclosures Regarding the Actuarial Measurement Process

43. In the Exposure Draft, the Board proposed amendments to Statements 25 and 27

that would incorporate from Statements 43 and 45, respectively, disclosure of specified

information about actuarial methods and assumptions used in valuations on which

reported information about the ARC and the funded status and funding progress of

pension plans are based. The proposed disclosures included the following disclosures of

an explanatory nature regarding the nature of the actuarial methodology used in the

measurement process for accounting and financial reporting purposes:

Disclosure that actuarial valuations involve estimates of the value of reported

amounts and assumptions about the probability of events far into the future, and that

actuarially determined amounts are subject to continual revision as actual results are

compared to past expectations and new estimates are made about the future.

Disclosure that actuarial calculations reflect a long-term perspective and, if

applicable, that consistent with that perspective, actuarial methods and assumptions

used include techniques that are designed to reduce short-term volatility in actuarial

accrued liabilities and the actuarial value of assets.

24

44. The Board’s basis for requiring the preceding explanatory note disclosures for

OPEB plans and employers related, in part, to financial report users’ lack of familiarity

with the use of actuarial concepts in the measurement of OPEB costs and obligations, in

contrast to pension costs and obligations. The Board referred again to that difference in

paragraph 33 of the Exposure Draft of this Statement but explained its tentative

conclusion in favor of requiring the same explanatory disclosures for pension plans and

employers as follows:

As discussed in the preceding Basis for Conclusions of Statements 43

and 45, financial report users generally are more familiar with the

application of actuarial valuation concepts derived from funding practice

to pension reporting than they are with the application of those same

concepts to OPEB reporting. However, the Board also notes that some

users of the pension information reported by plans and employers are

more familiar than others with the measurement approach taken for

financial reporting by state and local governmental pension plans.

Accordingly, the Board has concluded that requiring narrative disclosures

of an informative nature regarding the pension measurement process could

have the benefit of better informing the user community.

45. Although some respondents to the Exposure Draft supported the Board’s proposal,

others questioned whether the disclosures quoted in paragraph 43, above, which are of a

general explanatory or educational nature are essential to an understanding of the basic

financial statements by a user with the degree of background and diligence described in

paragraph 36 of Concepts Statement 3 (discussed previously in paragraph 30). After

considering respondents’ comments, the Board concluded that although the explanatory

disclosures in question are potentially useful to some financial report users, in the context

of pension reporting, they do not meet the criteria for disclosure in notes to the financial

statements. Therefore, the Board decided not to include those proposed disclosure

requirements in this Statement.

25

Disclosure of the Basis for Determining Contractually Required Contributions to a

Cost-Sharing Plan

46. This Statement amends Statement 27 to conform to the requirement of paragraph

24b(3) of Statement 45 that a cost-sharing employer disclose ―how the [contractually]

required contribution rate is determined (for example, by statute or by contract, or on an

actuarially determined basis) or that the plan is financed on a pay-as-you-go basis.‖ This

requirement reflects the Board’s intent to help users of a cost-sharing employer’s

financial report place in perspective the implications of the employer’s paying its

contractually required contributions to the plan. Although all the employers in a cost-

sharing pension plan might regularly pay 100 percent of their contractually required

amounts, if the contractually required contributions assessed by the plan are determined

based on something other than the ARC and are insufficient to fund the benefits, financial

statement users may be unaware of that fact without proper disclosure.

47. The Board’s understanding with regard to pension practice has been that cost-

sharing pension plans generally set the contractually required contribution either equal to

the ARC or, if not, at least with a strong funding objective. That is not to say, however,

that all cost-sharing pension plans necessarily set contractually required contribution rates

equal to or approximating the ARC, or that there are no instances, or there is no future

possibility, of cost-sharing pension plans in which the contractually required contribution

rates are assessed in a way that significantly departs from the ARC. The amendments to

Statement 27 to conform to the disclosure change made in Statement 45 require that cost-

sharing employers disclose to users of their financial reports relevant information about

the financing policy of the plan, regardless of individual plan circumstances. In some

cases, that disclosure could alert users of a cost-sharing employer’s financial report to

26

obtain a copy of the plan’s financial report in order to investigate further the funded

status and funding progress of the cost-sharing plan as a whole and assess the impact of

that information on potential demands on employer cash flows in future years.

Respondents to the Exposure Draft who commented on this issue generally supported the

additional disclosure requirement.

Requirement That Certain Cost-Sharing Employers Present RSI for the Plan

48. This Statement amends Statement 27 to conform to the requirement of Statement 45

that a cost-sharing employer present RSI for the cost-sharing plan as a whole in the

employer’s financial report, if the plan does not issue a publicly available stand-alone

financial report compliant with the requirements of Statement 25 (as amended) and

including RSI, or the plan is not included in the financial report of a public employee

retirement system or other entity. This change reflects the Board’s intent that users of a

cost-sharing employer’s financial report be able to obtain information about the funded

status and funding progress of the cost-sharing pension plan and the percentage of the

ARC represented by contractually required contributions recognized by the plan, even if

the plan does not issue a financial report prepared in conformity with generally accepted

accounting principles (GAAP).

49. Paragraphs 147 and 165 of the Basis for Conclusions to Statement 45 discuss the

Board’s decision on this point, in the context of cost-sharing OPEB employers, as

follows:

The Board believes . . . that users need information about the cost of

the commitment to provide benefits to members of OPEB plans and the

extent to which the employers’ contributions cover that cost, whether the

cost is attributable to individual employers (single-employer and agent

plans) or is pooled (cost-sharing plans), and regardless of how

27

contributions assessed to the employers are determined. Therefore,

Statement 43 requires cost-sharing plans to measure and report the total

ARC (all employers) in the schedule of employer contributions in the

same manner required of single-employer and agent plans. All plans

should include in that schedule the percentage of the ARC recognized by

the plan as contributions, for each year included in the schedule. Similarly,

the Board believes that users need information about the funded status and

funding progress of the plan, regardless of the type of plan. For that

reason, Statement 43 requires cost-sharing plans to report a schedule of

funding progress in the same manner required of single-employer and

agent plans.42

This Statement adds a requirement that cost-sharing employers present

schedules of funding progress and employer contributions for the plan, if

the plan does not issue and make publicly available a plan financial report

prepared in accordance with the requirements of Statement 43 on OPEB

plan reporting and the plan is not included in the financial report of a

PERS or another entity. This requirement reflects consideration that the

OPEB plan financial reporting laws and practices are in a formative stage

and recognizes the possibility that some plans may not issue financial

reports prepared in accordance with generally accepted accounting

principles. If so, without the required disclosure in the employer’s report,

financial report users would not have access to information about the

funded status and funding progress of a cost-sharing plan, or employer

contributions in comparison to the ARC.

_____________________________

42In addition, as discussed in paragraphs 159 and 160, this Statement requires cost-

sharing employers to disclose the basis on which contractually required contributions

were determined. As discussed in paragraph 165, this Statement also requires cost-

sharing employers to present schedules of funding progress and employer contributions

for the plan (all employers) as required supplementary information (RSI) in the

employers’ reports, if the plan does not issue and make publicly available a GAAP-

compliant financial report that includes that information and the plan is not included in

the financial report of a PERS or another entity.

50. The Board recognizes that, generally, the larger cost-sharing pension plans,

including those administered by the states, issue plan financial reports prepared in

conformity with Statement 25, including presenting the required schedules of funding

progress and employer contributions. However, the preceding financial reporting practice

may not apply to all cost-sharing pension plans. By its nature, the requirement that a cost-

sharing employer provide plan RSI if the pension plan does not applies on an as-needed

28

basis to provide report users access to the information of which they otherwise would be

deprived—and if not needed imposes no additional requirement.

Additional, Amplified, or Clarified Note Disclosure Requirements

51. This Statement amends Statement 25 to conform to the amplified disclosure

requirement of Statement 43 regarding how the fair value of plan investments was

determined. Paragraph 30b(2) of Statement 43 added that the disclosure of fair-value

methodology should include ―the methods and significant assumptions used to estimate

the fair value of investments, if that fair value is based on other than quoted market

prices.‖ The Board believes that the same added specificity clarifies the disclosure for

pension plans as well.

52. This Statement amends Statements 25 and 27 to conform to the requirements of

Statements 43 and 45 to disclose legal or contractual maximum contribution rates, if

applicable, and to disclose, further, that such maximum contribution rates, if applicable,

are not explicitly taken into consideration in the projection of benefits for accounting

purposes. The amendment to Statement 25 includes the stipulation in footnote 13 of

Statement 43 that if a plan elects to present pro forma quantitative information taking

maximum contribution rates into effect, it should be presented as supplementary

information. These requirements may not have broad applicability to pension plans.

However, the Board believes that the additional contribution rate disclosures are relevant

and useful for pension plans and employers to which they do apply.

53. This Statement amends Statements 25 and 27 to conform to the requirements of

Statements 43 and 45 that, when select and ultimate assumptions are used, an OPEB plan

or employer should disclose the initial rate as well as the ultimate rate. That requirement

29

was made in consideration of the requirement to use select and ultimate assumptions for

the healthcare cost trend rate in actuarial valuations of postemployment healthcare plans.

Statements 25 and 27 originally required disclosure only of the ultimate rates, when

economic assumptions are made in terms of select and ultimate rates. The change

conforms the two sets of requirements. The Board believes that the incremental cost

associated with this disclosure will be negligible.

54. Comments received from respondents to the Exposure Draft with regard to the

additional note disclosures discussed in paragraphs 51–53 generally agreed with the

additional disclosure requirements.

Effective Date and Transition Provisions

55. With the exception of certain provisions related to plans and employers that use the

aggregate actuarial cost method, the effective date of the requirements of this Statement

is for periods beginning after June 15, 2007. That timing reflects the Board’s intent that

the benefits of the changes to note disclosures and RSI be provided to financial report

users as soon as possible and its belief that the effective date is feasible for financial

statement preparers. The Board notes that the note disclosure and RSI changes required

by this Statement are not extensive and generally involve information that either already

is reported in some fashion or already is available to financial statement preparers.

56. The Exposure Draft proposal would have required pension plans and sole and agent

employers that use the aggregate actuarial cost method to determine the ARC to obtain

from their actuaries funded status information prepared using the entry age actuarial cost

method prior to the issuance of plan or employer annual financial reports for years ending

June 30, 2008, or thereafter. Several respondents to the Exposure Draft noted that

30

because of the parameters of Statements 25 and 27 with regard to the timing and

frequency of actuarial valuations, in order to comply with the requirements of the

Exposure Draft, some plans and employers would have to obtain additional actuarial

calculations with regard to actuarial valuations that already had been completed. Those

respondents raised concerns about the potential cost of obtaining the required

information. To address the concerns raised by these respondents, the Board modified the

requirements so that the presentation of funded status information by plans and

employers that use the aggregate actuarial cost method is effective for financial

statements that include information resulting from actuarial valuations as of June 15,

2007, or later. This change avoids the need for obtaining additional actuarial services

related to completed valuations that otherwise would meet the requirements of Statement

25 or Statement 27.

57. In addition, to reduce the cost of implementation for plans and employers that use

the aggregate actuarial cost method to determine the ARC, the Board included in the

Exposure Draft a proposed transition provision to allow funding progress information to

be presented only for the most recent actuarial valuation reported in the initial period of

implementation. The Board retained that transition provision in this Statement, and,

therefore, plans or employers in that situation can build a multiyear schedule of funding

progress prospectively as additional actuarial valuations are obtained and the results

reported.

58. Employers in cost-sharing pension plans for which financial statements and RSI

prepared in conformity with the requirements of Statement 25 are not issued and publicly

available have at a minimum one year to obtain the required schedules from the plan for

31

inclusion in the employers’ reports. Some respondents to the Exposure Draft suggested

that additional time be provided for employers in this circumstance because of the

potential difficulty and cost of obtaining information needed to comply with the

requirements of the Statement prior to the effective date. The Board acknowledges that in

the event that a cost-sharing plan has not obtained actuarial valuations prepared in

conformity with the parameters of Statement 25, an employer in such a plan that reports

in conformity with the requirements of Statement 27 may find it difficult to comply with

this requirement in a timely manner. However, the Board believes that if such a

combination of circumstances exists, additional time to comply with the requirements

would not significantly diminish the difficulties faced by those employers and would

result in delayed presentation of information that it believes to be essential to users of the

financial statements. Therefore, this Statement does not provide for delayed

implementation of the requirements for those cost-sharing employers.

32

Appendix C

ILLUSTRATIVE NOTE DISCLOSURES AND REQUIRED SUPPLEMENTARY

INFORMATION

59. This paragraph illustrates the requirements of this Statement. The facts assumed in

these examples are illustrative only and are not intended to modify or limit the

requirements of this Statement or to indicate the GASB’s endorsement of the policies or

practices shown. Existing standards may require disclosures in addition to those

illustrated.

Illustrations 2 and 3 of this appendix update Illustrations 1 and 3, respectively, in

Appendix C of Statement 25 for certain effects of this Statement. Illustrations 1 and 4–7

of this appendix update Illustrations 1–5, respectively, in Appendix D of Statement 27 for

certain effects of this Statement. The employers in Illustrations 4–6 participate in the

retirement system for which note disclosures and required supplementary

information (RSI) are presented in Illustration 2. Accordingly, the illustrations for those

employers and for the plan reflect a common information base. (Note that the name of the

retirement system in Illustrations 2 and 4–6 has been changed from that used in

Statements 25 and 27. However, unless otherwise noted, the facts and circumstances

depicted in those illustrations do not differ from the facts and circumstances originally

illustrated in Statements 25 and 27.)

Illustration 1: Summary of Note Disclosures and RSI for Employer Reporting (Including

Pension Trust Funds)

Illustration 2: Notes to the Financial Statements and RSI for a Defined Benefit Pension

Plan

Illustration 3: Notes to the Financial Statements for a Defined Contribution Pension Plan

Illustration 4: Notes to the Financial Statements for an Employer Contributing to a

Single-Employer Defined Benefit Pension Plan

Illustration 5: Notes to the Financial Statements for an Employer Contributing to a Cost-

Sharing Multiple-Employer Defined Benefit Pension Plan

33

Illustration 6: Notes to the Financial Statements for an Employer Contributing to an

Agent Multiple-Employer Defined Benefit Pension Plan

Illustration 7: Notes to the Financial Statements for an Employer with Three Single-

Employer Defined Benefit Pension Plans

Illustration 1—Summary of Note Disclosures and RSI for Employer Reporting

(Including Pension Trust Funds)

This illustration updates the information contained in Illustration 2 of Statement 25 and

Illustration 1 of Statement 27 for the effects of this Statement. The table that follows

identifies the note disclosure and RSI requirements of Statements 25, 27, and 50 that are

applicable for employer reporting (including the reporting of pension trust funds in the

employer’s financial report) in various reporting circumstances.

To use this chart to identify the note disclosure and RSI requirements of Statements 25,

27, and 50 that apply to its reporting circumstance, an employer should (1) identify the

row that corresponds to the manner in which the pension plan is reported (using the two

leftmost columns of the table) and (2) locate the columns that correspond to the

employer’s classification (sole, agent, or cost-sharing) with regard to the type of plan in

which it participates (using the top row of the table). The boxes in the chart that are

located at the intersection of the row and columns identified in steps (1) and (2) indicate

the paragraphs of Statements 25, 27, and 50 that apply. Other standards may require

note disclosures and RSI in addition to those identified in this illustration, and the

information in this illustration is in no way intended to limit the applicability of other

standards or requirements. Note that all stand-alone plan reports are required to include

full notes and RSI. (See Statement 25, ¶32 and ¶33–¶40, and Statement 50, ¶4 and ¶6.)

34

Sole Employer Agent Employer Cost-Sharing Employer

Manner in Which the

Plan Is Reported Employer Reporting

Reporting of PTF in the

Employer’s Report Employer Reporting

Reporting of PTF in the

Employer’s Report Employer Reporting

Reporting of PTF in the

Employer’s Report

Employer

Report

Includes

Pension

Trust Fund

(PTF)

Plan

Issues

Stand-

Alone

Report Notes RSI Notes RSI Notes RSI Notes RSI Notes RSI Notes RSI

YES

YES

GASBS 27, ¶20 and ¶21

GASBS 50, ¶7a and ¶8

GASBS 25,

¶32a(1),

¶32b, ¶32c(4), and

¶32d

GASBS 50,

¶4a

GASBS 25,

¶33–¶40 (Reduced)10

GASBS 50, ¶6

GASBS 27, ¶20 and ¶21

GASBS 50, ¶7a and ¶8

GASBS 27, ¶2212

GASBS 50, ¶9

GASBS 25,

¶32a(1),

¶32b, ¶32c(4), and

¶32d

GASBS 50,

¶4a

GASBS 27, ¶20

GASBS 50, ¶7

GASBS 25,

¶32a(1),

¶32b, ¶32c(4), and

¶32d

GASBS 50,

¶4a

NO

GASBS 25,

¶32 (Full)

GASBS 50,

¶4

GASBS 25, ¶33–¶40

(Full)11

GASBS 50,

¶6

GASBS 25,

¶32 (Full)

GASBS 50,

¶4

GASBS 25, ¶33–¶40

(Full)13

GASBS 50,

¶6

GASBS 25,

¶32 (Full)

GASBS 50,

¶4

GASBS 25, ¶33–¶40

(Full)11

GASBS 50,

¶6

NO

YES

GASBS 27,

¶2210

GASBS 50,

¶9

NO

GASBS 50,

¶10

____________________

10Comprises a schedule of funding progress for at least three valuations.

11Comprises a schedule of funding progress and a schedule of employer contributions for each of the past six consecutive fiscal years of the plan and RSI notes.

12Comprises a schedule of funding progress for at least three valuations for the employer’s individual plan.

13Comprises a schedule of funding progress and a schedule of employer contributions for each of the past six consecutive fiscal years of the plan and RSI notes for the aggregate (all employers) plan.

35

Illustration 2—Notes to the Financial Statements and RSI for a Defined Benefit

Pension Plan

This illustration updates Illustration 1 of paragraph 153 of Statement 25 for certain effects

of this Statement and includes notations related to the requirements of this Statement. The

information in this illustration relates to the retirement system in which the employers in

Illustrations 4–6 participate. Note that in this illustration, there are no legally required

reserve accounts, no investment concentrations, and no differences between required and

actual contributions.

Kremer Retirement System

Notes to the Financial Statements

for the Fiscal Year Ended December 31, 20X2

The Kremer Retirement System (KRS) administers three defined benefit pension plans—

State Employees Pension Plan (SEPP), School District Employees Pension Plan (SDEPP),

and Municipal Employees Pension Plan (MEPP). Although the assets of the plans are

commingled for investment purposes, each plan’s assets may be used only for the payment

of benefits to the members of that plan, in accordance with the terms of the plan.

A. Summary of Significant Accounting Policies

Basis of Accounting. KRS’s financial statements are prepared using the accrual basis

of accounting. Plan member contributions are recognized in the period in which the

contributions are due. Employer contributions to each plan are recognized when due and the

employer has made a formal commitment to provide the contributions. Benefits and refunds

are recognized when due and payable in accordance with the terms of each plan.

Method Used to Value Investments. Investments are reported at fair value. Short-term

investments are reported at cost, which approximates fair value. Mortgages are valued on the

basis of future principal and interest payments and are discounted at prevailing interest rates

for similar instruments. The fair value of real estate investments is based on independent

appraisals. Fair value of other securities is determined by the mean of the most recent bid

and asked prices as obtained from dealers that make markets in such securities. Investments

for which market quotations are not readily available are valued at their fair values as

determined by the custodian under the direction of the KRS Board of Trustees, with the

assistance of a valuation service.

Paragraph 4a

of this

Statement

requires that

plans disclose

the methods

and significant

assumptions

used to

estimate the

fair value of

investments, if

that fair value

is based on

other than

quoted market

prices.

36

B. Plan Descriptions and Contribution Information

Membership of each plan consisted of the following at December 31, 20X1, the date of

the latest actuarial valuation:

SEPP SDEPP MEPP

Retirees and beneficiaries receiving benefits 15,274 17,337 1,857

Terminated plan members entitled to, but

not yet receiving, benefits 1,328 1,508 162

Active plan members 38,292 61,004 3,481

Total 54,894 79,849 5,500

Number of participating employers 1 203 53

State Employees Pension Plan

Plan Description. SEPP is a single-employer defined benefit pension plan that covers

the employees of the state including all departments and agencies. SEPP provides

retirement, disability, and death benefits to plan members and their beneficiaries. Cost-of-

living adjustments (COLAs) are provided at the discretion of the state legislature. Article 29

of the Regulations of the state of Kremer assigns the authority to establish and amend the

benefit provisions of the plan to the state legislature.

Contributions. Plan members are required to contribute 7.8 percent of their annual

covered salary. The state is required to contribute at an actuarially determined rate. Per

Article 29, contribution requirements of the plan members and the state are established

and may be amended by the state legislature. Article 29(d) states that the employer

contribution rate may not exceed 14 percent of payroll. Administrative costs of SEPP are

financed through investment earnings.

School District Employees Pension Plan

Plan Description. SDEPP is a cost-sharing multiple-employer defined benefit pension

plan that covers teaching-certified employees of participating school districts. SDEPP

provides retirement, disability, and death benefits to plan members as well as an annual

COLA. Article 30 of the Regulations of the state of Kremer assigns the authority to establish

and amend benefit provisions to the SDEPP Board of Trustees.

Contributions. Plan members are required to contribute 7.6 percent of their annual

covered salary. Participating school districts are required to contribute at actuarially

determined rates. Per Article 30, contribution requirements of the plan members and the

participating employers are established and may be amended by the SDEPP Board of

Trustees. Administrative costs of SDEPP are financed through investment earnings and an

assessment of 0.18 percent of covered payroll for each participating school district.

Long-Term Receivables. In addition to actuarially determined contributions, certain

employers also make semi-annual installment payments, including interest at 8 percent per

Paragraph 4b

of this

Statement

requires plans

to disclose

legal or

contractual

maximum

contribution

rates, if

applicable.

37

year, for the cost of service credit granted retroactively to employees when the employers

initially joined MEPP. As of December 31, 20X2 and 20X1, the outstanding balances were

$986 and $1,088, respectively. These payments are due over various time periods not

exceeding 10 years at December 31, 20X2, and 11 years at December 31, 20X1.

Municipal Employees Pension Plan

Plan Description. MEPP is an agent multiple-employer defined benefit pension plan

that covers general and public safety employees of political subdivisions of the state of

Kremer that have elected to participate in MEPP. Benefit provisions are established by each

participating employer when the employer elects to participate in MEPP. Benefit provisions

may be amended by the individual participating employers. MEPP provides retirement,

disability, and death benefits to plan members and beneficiaries. An annual COLA is

provided to benefit recipients of employers that contract for this option. At December 31,

20X1, the date of the most recent actuarial valuation, there were 53 participating employers

consisting of:

Cities 16

Townships 15

Counties 10

Special districts 12

Total 53

Contributions. Contribution rates for each participating employer and its covered

employees are established and may be amended by the MEPP Board of Trustees. The

contribution rates are determined based on the benefit structure established by each

employer. Plan members are required to contribute between 4 and 12 percent of their annual

covered salary. Participating employers are required to contribute the remaining amounts

necessary to finance the coverage of their employees through periodic contributions at

actuarially determined rates. Administrative costs of MEPP are financed through investment

earnings and an assessment of $20 per participating active plan member per year.

38

C. Funded Status and Funding Progress—Pension Plans

The funded status of each plan as of December 31, 20X1, the most recent actuarial

valuation date, is as follows (dollar amounts in thousands):

Actuarial UAAL as a

Actuarial Accrued Unfunded Percentage

Value of Liability (AAL) AAL Funded Covered of Covered

Assets —Entry Age (UAAL) Ratio Payroll Payroll

(a) (b) (b – a) (a / b) (c) ((b – a) / c)

SEPP $ 3,658,323 $ 4,284,961 $ 626,638 85.4% $ 1,156,346 54.2%

SDEPP 5,269,502 5,709,764 440,262 92.3 1,546,650 28.5

MEPP 549,696 559,367 9,671 98.3 209,715 4.6

The schedules of funding progress, presented as required supplementary information

(RSI) following the notes to the financial statements, present multiyear trend information

about whether the actuarial values of plan assets are increasing or decreasing over time

relative to the AALs for benefits.

Paragraph 4c

of this

Statement

requires that

the illustrated

funded status

information be

disclosed as of

the most

recent

actuarial

valuation date.

Paragraph

4d(1) of this

Statement

requires that

the plan

include

disclosure

indicating that

multiyear

funding

progress

information is

presented as

RSI.

In this illustration, the plans use the entry age actuarial cost method for purposes of

calculating the annual required contributions of the employers (ARCs). However, if

the ARCs were calculated using the aggregate actuarial cost method, the plan would

be required by paragraph 4c of this Statement to present current-year funded status

information calculated using the entry age actuarial cost method and would be

required by paragraph 4d(3)(d) of this Statement to disclose that because the

aggregate actuarial cost method does not identify or separately amortize unfunded

actuarial liabilities, information about the plan’s funded status and funding progress

has been prepared using the entry age actuarial cost method for that purpose, and that

the information presented is intended to serve as a surrogate for the funded status and

funding progress of the plan.

39

Additional information as of the latest actuarial valuation follows:

SEPP SDEPP MEPP

Valuation date 12/31/X1 12/31/X1 12/31/X1

Actuarial cost method Entry age Entry age Entry age

Amortization method Level percent Level percent Level percent

open closed closed

Remaining amortization period 23 years 15 years Weighted average

of 25 years

Asset valuation method 4-year 4-year 4-year

smoothed market smoothed market smoothed market

Actuarial assumptions:

Investment rate of return* 7.5% 7.5% 7.5%

Projected salary increases* 5.5–9.5% 5.5–11.5% 5.5–11.5%

COLAs None 1/2 CPI increase, 1–3%

maximum of 3%

*Includes inflation at 5.5% 5.5% 5.5%

For financial reporting purposes, the projection of benefits for SEPP does not

explicitly incorporate the potential effects of the legal limit on employer contributions

disclosed in Note B.

In this illustration,

year-based rates

were not used.

However, if the

economic

assumptions had

contemplated

different rates for

successive years,

the plan would be

required by

paragraph 4d(3)(c)

of this Statement to

disclose the initial

and ultimate rates.

Paragraph 4d(3) of this Statement

requires plans to disclose information

about the actuarial methods and

significant assumptions used to

determine the ARC for the current year

and funded status information.

Because there is a legal funding limit for SEPP,

paragraph 4d(2) of this Statement requires that the

plan disclose that the actuarial valuation does not

explicitly consider the effects of the limitation in

the projection of benefits.

40

REQUIRED SUPPLEMENTARY INFORMATION

SCHEDULES OF FUNDING PROGRESS

(Dollar amounts in thousands)

Actuarial UAAL as

Actuarial Accrued Unfunded a Percentage

Actuarial Value of Liability (AAL) AAL Funded Covered of Covered

Valuation Assets —Entry Age (UAAL) Ratio Payroll Payroll

Date (a) (b) (b – a) (a / b) (c) ((b – a) / c)

SEPP

12/31/W6 $2,005,238 $2,626,296 $621,058 76.4% $ 901,566 68.9%

12/31/W7 2,411,610 2,902,399 490,789 83.1 956,525 51.3

12/31/W8 2,709,432 3,331,872 622,440 81.3 1,004,949 61.9

12/31/W9* 3,001,314 3,604,297 602,983 83.3 1,049,138 57.5

12/31/X0 3,366,946 3,930,112 563,166 85.7 1,093,780 51.5

12/31/X1 3,658,323 4,284,961 626,638 85.4 1,156,346 54.2

SDEPP

12/31/W6 $2,888,374 $3,499,572 $ 611,198 82.5% $1,205,873 50.7%

12/31/W7 3,473,718 3,867,483 393,765 89.8 1,279,383 30.8

12/31/W8 3,902,705 4,439,761 537,056 87.9 1,344,151 40.0

12/31/W9* 4,323,137 4,802,700 479,563 90.0 1,403,255 34.2

12/31/X0 4,849,798 5,236,922 387,124 92.6 1,462,965 26.5

12/31/X1 5,269,502 5,709,764 440,262 92.3 1,546,650 28.5

MEPP

12/31/W6 $ 301,305 $ 342,842 $ 41,537 87.9% $ 163,508 25.4%

12/31/W7 362,366 378,885 16,519 95.6 173,476 9.5

12/31/W8 407,117 434,949 27,832 93.6 182,258 15.3

12/31/W9* 450,975 470,512 19,537 95.8 190,272 10.3

12/31/X0 505,714 513,044 7,330 98.6 198,368 3.7

12/31/X1 549,696 559,367 9,671 98.3 209,715 4.6

*Revised economic and noneconomic assumptions due to experience review.

In this illustration, the plans use the entry age actuarial cost method for purposes of calculating

the ARC of the employers. However, if the ARCs were calculated using the aggregate

actuarial cost method, the plans would be required by paragraph 6 of this Statement to present

information in the schedule of funding progress calculated using the entry age actuarial cost

method as a surrogate, to disclose that fact, and to disclose that the purpose of the presentation

is to provide information that serves as a surrogate for the funding progress of the plans.

41

REQUIRED SUPPLEMENTARY INFORMATION (cont.)

SCHEDULES OF EMPLOYER CONTRIBUTIONS

(Dollar amounts in thousands)

Employer Contributions

SEPP SDEPP MEPP

Year Annual Annual Annual

Ended Required Percentage Required Percentage Required Percentage

12/31 Contribution Contributed Contribution Contributed Contribution Contributed

20W7 $100,729 100% $115,935 100% $15,042 100%

20W8 106,030 100 122,682 100 15,959 100

20W9 112,798 100 129,822 100 16,768 100

20X0 118,735 100 137,378 100 17,505 100

20X1 124,276 100 142,347 100 18,049 100

20X2 137,916 100 157,783 100 18,653 100

42

Illustration 3—Notes to the Financial Statements for a Defined Contribution Pension

Plan

This illustration updates Illustration 3 of paragraph 154 of Statement 25 for the effects of

this Statement and includes a notation related to the requirements of this Statement.

City of CW Notes to the Financial Statements

for the Year Ended December 31, 20X2

A. Plan Description

The CW Retirement Plan (CWRP) is a defined contribution pension plan established

by the city of CW to provide benefits at retirement to general and public safety employees of

the city. At December 31, 20X2, there were 429 plan members. Plan members are required

to contribute 6 percent of covered salary. The city is required to contribute 9 percent of

annual covered payroll. Plan provisions and contribution requirements are established and

may be amended by the CW City Council.

B. Significant Accounting Policies

Basis of Accounting. CWRP financial statements are prepared using the accrual basis

of accounting. Employer and plan member contributions are recognized in the period that

the contributions are due.

Method Used to Value Investments. Plan investments are reported at fair value. Short-

term investments are reported at cost, which approximates fair value. Fair value of other

securities is determined by the mean of the most recent bid and asked prices as obtained

from dealers that make markets in such securities. Investments for which market quotations

are not readily available are valued at their fair values as determined by the custodian under

the direction of the CWRP Board of Trustees, with the assistance of a valuation service.

Paragraph 5 of

this Statement

requires that

defined

contribution

plans disclose

the methods

and significant

assumptions

used to

estimate the

fair value of

investments, if

that fair value

is based on

other than

quoted market

prices.

43

Illustration 4—Notes to the Financial Statements for an Employer Contributing to a

Single-Employer Defined Benefit Pension Plan

This illustration updates Illustration 2 of paragraph 198 of Statement 27 for certain effects

of this Statement and includes notations related to the requirements of this Statement. The

employer in this illustration participates in the retirement system for which note disclosures

and RSI are presented in Illustration 2. Note that this example assumes that the plan is

included as a pension trust fund in the employer’s financial reporting entity. Therefore, the

requirement of paragraph 22 of Statement 27 and paragraph 9 of Statement 50 to present a

schedule of funding progress covering at least three actuarial valuations would be met by

complying with paragraphs 33–40 of Statement 25 and paragraph 6 of Statement 50 for the

pension trust fund. That schedule is not included in this illustration. Information required by

Statement 25, as amended, would be shown in addition to the information illustrated below

because the plan is reported as a pension trust fund. If the plan was not included in the

employer’s financial reporting entity, the employer would be required to present a schedule

of funding progress similar to those included in Illustrations 6 and 7 of this appendix.

State of Kremer Notes to the Financial Statements

for the Year Ended December 31, 20X2

Note X. Pension Plan

Plan Description. State Employees Pension Plan (SEPP) is a single-employer defined

benefit pension plan administered by the Kremer Retirement System (KRS). SEPP provides

retirement, disability, and death benefits to plan members and beneficiaries. Cost-of-living

adjustments are provided to members and beneficiaries at the discretion of the state

legislature. Article 29 of the Regulations of the state of Kremer assigns the authority to

establish and amend benefit provisions to the state legislature. KRS issues a publicly

available financial report that includes financial statements and required supplementary

information (RSI) for SEPP. That report may be obtained by writing to KRS, State

Government Lane, Anytown, USA 01000 or by calling (000) 000-PLAN.

Funding Policy. The contribution requirements of plan members and the state are

established and may be amended by the state legislature. Plan members are required to

contribute 7.8 percent of their annual covered salary. The state is required to contribute at

an actuarially determined rate; the current rate is 11.9 percent of annual covered payroll.

Article 29(d) states that the state’s contribution rate may not exceed 14 percent of payroll.

Paragraph 7a

of this

Statement

requires

employers to

disclose legal

or contractual

maximum

contribution

rates, if

applicable.

44

Annual Pension Cost and Net Pension Obligation. The state’s annual pension cost and

net pension obligation to SEPP for the current year were as follows:

(Dollar amounts in thousands)

Annual required contribution (ARC) $ 137,916

Interest on net pension obligation 2,867

Adjustment to ARC (2,089)

Annual pension cost 138,694

Contributions made (137,916)

Increase (decrease) in net pension obligation 778

Net pension obligation beginning of year 38,221

Net pension obligation end of year $ 38,999

Three-Year Trend Information

(Dollar amounts in thousands)

Fiscal Annual Percentage Net

Year Pension of APC Pension

Ending Cost (APC) Contributed Obligation

12/31/X0 $119,757 99.1% $37,458

12/31/X1 125,039 99.4 38,221

12/31/X2 138,694 99.4 38,999

Funded Status and Funding Progress. As of December 31, 20X1, the most recent

actuarial valuation date, the plan was 85.4 percent funded. The actuarial accrued liability for

benefits was $4.3 billion, and the actuarial value of assets was $3.7 billion, resulting in an

unfunded actuarial accrued liability (UAAL) of $0.6 billion. The covered payroll (annual

payroll of active employees covered by the plan) was $1.2 billion, and the ratio of the

UAAL to the covered payroll was 54.2 percent.

The schedule of funding progress, presented as RSI following the notes to the financial

statements, presents multiyear trend information about whether the actuarial value of plan

assets are increasing or decreasing over time relative to the actuarial accrued liability for

benefits.

Paragraph

8b(1) of this

Statement

requires that

the plan

include

disclosure

indicating that

multiyear

funding

progress

information is

presented as

RSI.

45

Actuarial Methods and Assumptions. In the December 31, 20X1, actuarial valuation,

the entry age actuarial cost method was used. The actuarial assumptions included (a) 7.5

percent investment rate of return (net of administrative expenses) and (b) projected salary

increases ranging from 5.5 to 9.5 percent per year. Both (a) and (b) included an inflation

component of 5.5 percent. The assumptions did not include postretirement benefit increases,

which are funded by state appropriation when granted. The projection of benefits for

financial accounting purposes also does not explicitly incorporate the potential effects of the

14 percent limitation on the state’s contribution rate disclosed above under ―Funding

Policy.‖ The actuarial value of assets was determined using techniques that spread the

effects of short-term volatility in the market value of investments over a four-year period.

The UAAL is being amortized as a level percentage of projected payroll on an open basis.

The remaining amortization period at December 31, 20X1, was 23 years.

Because the employer has a legal funding limit for

this plan, paragraph 8b(2) of this Statement requires

disclosure that the actuarial valuation does not

explicitly consider the effects of the limitation in the

projection of benefits.

In this

illustration,

year-based

rates were not

used.

However, if

the economic

assumptions

had

contemplated

different rates

for successive

years, the plan

would be

required by

paragraph

8b(3)(a) of

this Statement

to disclose the

initial and

ultimate rates.

In this illustration, the ARC is determined using the entry age actuarial cost method.

However, if the ARC was calculated using the aggregate actuarial cost method, the

employer would be required by paragraph 8a of this Statement to present funded

status information using the entry age actuarial cost method. In that circumstance,

paragraph 8b(3)(b) of this Statement also would require disclosure that because the

aggregate actuarial cost method does not identify or separately amortize unfunded

actuarial liabilities, information about funded status and funding progress has been

prepared using the entry age actuarial cost method for that purpose, and that the

information presented is intended to serve as a surrogate for the funded status and

funding progress of the plan.

Paragraph 8b of this Statement requires disclosure of information about actuarial

methods and assumptions used in determining the ARC, annual pension cost, and

funded status and funding progress information.

46

Illustration 5—Notes to the Financial Statements for an Employer Contributing to a

Cost-Sharing Multiple-Employer Defined Benefit Pension Plan

This illustration updates Illustration 3 of paragraph 198 of Statement 27 and includes

notations related to the requirements of this Statement. Note that the cost-sharing pension

plan in which this illustrative employer participates (the plan for which note disclosures and

RSI are presented in Illustration 2) is included in the publicly available financial report of

the public employee retirement system (PERS), prepared in accordance with the

requirements of Statement 25, as amended. If, however, the cost-sharing plan was not

included in the financial report of a PERS or another entity and did not issue a publicly

available stand-alone financial report, paragraph 10 of this Statement would require that

the cost-sharing employer present as RSI schedules of funding progress and employer

contributions for the plan (and notes to these schedules) prepared in accordance with

Statement 25, as amended. Those schedules are included in Illustration 2 of this appendix.

In that circumstance, paragraph 10 also would require that the employer disclose that the

information presented relates to the plan as a whole, of which the employer is one

participating employer, and should provide information helpful for understanding the scale

of the information presented relative to the employer. Additionally, in this illustration, there

are no legal or contractual maximum contribution rates.

47

Poison Ivy School District Notes to the Financial Statements

for the Year Ended December 31, 20X2

Note X. Pension Plan

Plan Description. The Poison Ivy School District contributes to the School District

Employees Pension Plan (SDEPP), a cost-sharing multiple-employer defined benefit

pension plan administered by the Kremer Retirement System (KRS). SDEPP provides

retirement and disability benefits, annual cost-of-living adjustments, and death benefits to

plan members and beneficiaries. Article 30 of the Regulations of the state of Kremer assigns

the authority to establish and amend benefit provisions to the SDEPP Board of Trustees.

KRS issues a publicly available financial report that includes financial statements and

required supplementary information for SDEPP. That report may be obtained by writing to

KRS, State Government Lane, Anytown, USA 01000 or by calling (000) 000-PLAN.

Funding Policy. Plan members are required to contribute 7.6 percent of their annual

covered salary, and Poison Ivy School District is required to contribute at an actuarially

determined rate. The current rate is 10.5 percent of annual covered payroll. The

contribution requirements of plan members and Poison Ivy School District are established

and may be amended by the SDEPP Board of Trustees. The School District’s contributions

to SDEPP for the years ending December 31, 20X2, 20X1, and 20X0, were $7,619, $6,926,

and $6,596, respectively, equal to the required contributions for each year.

Paragraph 7b of

this Statement

requires that

cost-sharing

employers

describe in notes

to the financial

statements how

the required

contribution rate

is determined or

that the plan is

financed on a

pay-as-you-go

basis.

48

Illustration 6—Notes to the Financial Statements for an Employer Contributing to an

Agent Multiple-Employer Defined Benefit Pension Plan

This illustration updates Illustration 4 of paragraph 198 of Statement 27 for certain effects

of this Statement and includes notations related to the requirements of this Statement. The

employer in this illustration participates in the retirement system for which note disclosures

and RSI are presented in Illustration 2. Note that in this illustration, there are no legal or

contractual maximum contribution rates.

City of Dill Notes to the Financial Statements

for the Year Ended December 31, 20X2

Note X. Pension Plan

Plan Description. The city’s defined benefit pension plan, Dill Employees Pension

Plan (DEPP), provides retirement and disability benefits, annual cost-of-living adjustments

(COLAs), and death benefits to plan members and beneficiaries. DEPP is affiliated with the

Municipal Employees Pension Plan (MEPP), an agent multiple-employer pension plan

administered by the Kremer Retirement System (KRS). Article 39 of the Regulations of the

state of Kremer assigns the authority to establish and amend the benefit provisions of the

plans that participate in MEPP to the respective employer entities; for DEPP, that authority

rests with the city of Dill. KRS issues a publicly available financial report that includes

financial statements and required supplementary information (RSI) for MEPP. That report

may be obtained by writing to KRS, State Government Lane, Anytown, USA 01000 or by

calling (000) 000-PLAN.

Funding Policy. DEPP members are required to contribute 8 percent of their annual

covered salary. The city is required to contribute at an actuarially determined rate; the

current rate is 11 percent of annual covered payroll. The contribution requirements of plan

members and the city are established and may be amended by the MEPP Board of Trustees.

Annual Pension Cost. For 20X2, the city’s annual pension cost of $2,590,000 for

DEPP was equal to the city’s required and actual contributions.

49

Three-Year Trend Information for DEPP

(Dollar amounts in thousands)

Fiscal Annual Percentage Net

Year Pension of APC Pension

Ending Cost (APC) Contributed Obligation

12/31/X0 $2,409 100% $0

12/31/X1 2,511 100 0

12/31/X2 2,590 100 0

12/31/X1 2,511 100 0

12/31/X2 2,590 100 0

The required contribution was determined as part of the December 31, 20X1, actuarial

valuation using the entry age actuarial cost method. The actuarial assumptions at

December 31, 20X1, included (a) 7.5 percent investment rate of return (net of administrative

expenses), (b) projected salary increases ranging from 5.5 to 11.5 percent per year, and (c)

2 percent per year COLAs. Both (a) and (b) included an inflation component of 5.5 percent.

The actuarial value of DEPP assets was determined using techniques that spread the effects

of short-term volatility in the market value of investments over a four-year period. DEPP’s

unfunded actuarial accrued liability is being amortized as a level percentage of projected

payroll on a closed basis. The remaining amortization period at December 31, 20X1, was 14

years.

Paragraph 8b

of this

Statement

requires

disclosure of

information

about

actuarial

methods and

assumptions

used in

determining

the annual

required

contribution

of the

employer

(ARC),

annual

pension cost,

and funded

status and

funding

progress

information.

In this illustration, year-based rates were not used. However, if the economic assumptions had

contemplated different rates for successive years, the plan would be required by paragraph

8b(3)(a) of this Statement to disclose the initial and ultimate rates.

50

Funded Status and Funding Progress. As of December 31, 20X1, the most recent

actuarial valuation date, the plan was 94.3 percent funded. The actuarial accrued liability for

benefits was $59.3 million, and the actuarial value of assets was $62.8 million, resulting in

an unfunded actuarial accrued liability (UAAL) of $3.5 million. The covered payroll (annual

payroll of active employees covered by the plan) was $23.5 million, and the ratio of the

UAAL to the covered payroll was 15.1 percent.

The schedule of funding progress, presented as RSI following the notes to the financial

statements, presents multiyear trend information about whether the actuarial value of plan

assets is increasing or decreasing over time relative to the actuarial accrued liability for

benefits.

Paragraph 8a of this Statement requires that the illustrated funded status

information be disclosed as of the most recent actuarial valuation date.

In this illustration, the ARC is determined using the entry age actuarial cost

method. However, if the ARC was calculated using the aggregate actuarial cost

method, the employer would be required by paragraph 8a of this Statement to

present funded status information using the entry age actuarial cost method. In

that circumstance, paragraph 8b(3)(b) of this Statement also would require

disclosure that because the aggregate actuarial cost method does not identify or

separately amortize unfunded actuarial liabilities, information about funded status

and funding progress has been prepared using the entry age actuarial cost method

for that purpose, and that the information presented is intended to serve as a

surrogate for the funded status and funding progress of the plan.

Paragraph

8b(1) of this

Statement

requires that

the plan

include

disclosure

indicating that

multiyear

funding

progress

information is

presented as

RSI.

51

REQUIRED SUPPLEMENTARY INFORMATION

Schedule of Funding Progress for DEPP

(Dollar amounts in thousands)

Actuarial UAAL as

Actuarial Accrued Unfunded a Percentage

Actuarial Value of Liability (AAL) AAL Funded Covered of Covered

Valuation Assets —Entry Age (UAAL) Ratio Payroll Payroll

Date (a) (b) (b – a) (a / b) (c) ((b – a) / c)

12/31/W9* $49,629 $52,838 $3,209 93.9% $21,367 15.0%

12/31/X0 55,088 57,615 2,527 95.6 22,276 11.3

12/31/X1 59,262 62,817 3,555 94.3 23,551 15.1

*Revised economic and noneconomic assumptions due to experience review.

In this illustration, the entry age actuarial cost method is used to calculate the ARC. However, if the ARC

was calculated using the aggregate actuarial cost method, paragraph 9 of this Statement would require the

employer to present information in the schedule of funding progress calculated using the entry age actuarial

cost method as a surrogate, to disclose that fact, and to disclose that the purpose of the presentation is to

provide information that serves as a surrogate for the funding progress of the plan.

52

Illustration 7—Notes to the Financial Statements for an Employer with Three Single-

Employer Defined Benefit Pension Plans

This illustration updates Illustration 5 of paragraph 198 of Statement 27 for certain effects

of this Statement and includes notations related to the requirements of this Statement. It

shows one way an employer with several plans can combine disclosures so that the required

information is presented for each plan without unnecessary duplication. The Illustration

assumes that each plan issues a stand-alone report that complies with Statement 25, as

amended. However, the plans are not included in the employer’s financial reporting entity.

Therefore, the employer is required to present a schedule of funding progress for each plan,

in accordance with paragraph 22 of Statement 27 and paragraph 9 of Statement 50.

City of Barbet Notes to the Financial Statements

for the Year Ended December 31, 20X2

Note X. Pension Plans

Plan Descriptions. The City of Barbet contributes to three single-employer defined

benefit pension plans: Employees Retirement Plan, Fire and Police Retirement Plan, and

Elected Officials Retirement Plan. Each plan provides retirement, disability, and death

benefits, and annual cost-of-living adjustments (COLAs) to plan members and beneficiaries.

Article 37 of the Barbet City Code assigns the authority to establish and amend benefit

provisions to the Board of Trustees of each retirement plan. Each plan issues a publicly

available financial report that includes financial statements and required supplementary

information (RSI) for that plan. Those reports may be obtained by writing or calling the

plan.

53

Employees Fire and Police Elected Officials

Retirement Plan Retirement Plan Retirement Plan

101 Municipal Lane 105 Municipal Lane 108 Municipal Lane

Barbet, XX 12345 Barbet, XX 12345 Barbet, XX 12345

(999) 999-9999 (999) 999-9998 (999) 999-9997

Funding Policy and Annual Pension Cost. The Board of Trustees of each plan

establishes and may amend the contribution requirements of plan members and the city.

The city’s annual pension cost for the current year and related information for each plan is

as follows: Employees Fire and Police Elected Officials

Retirement Plan Retirement Plan Retirement Plan

Contribution rates:

City 4.6% 25.1% 28.3%

Plan members 5.0% 7.0% 5.8%

Annual pension cost (thousands) $11,778 $38,626 $195

Contributions made (thousands) $11,778 $38,626 $195

Actuarial methods and assumptions. The following is information as of the most recent

actuarial valuation:

In this illustration, the employer does not have a legal or contractual funding limit for any

of the plans. If the employer had such a limitation, paragraph 7a of this Statement would

require disclosure of the limitation, and paragraph 8b(2) would require disclosure that the

actuarial valuation does not explicitly consider the effects of the limitation in the

projection of benefits.

54

Employees Fire and Police Elected Officials

Retirement Plan Retirement Plan Retirement Plan

Actuarial valuation date 1/1/X2 1/1/X2 1/1/X2

Actuarial cost method Entry age Aggregate* Attained age

Amortization method Level n/a* Level

percentage percentage

of pay, open of pay, closed

Remaining amortization period 20 years n/a* 8 years

Asset valuation method 5-year 5-year 5-year

smoothed smoothed smoothed

market market market

Actuarial assumptions:

Investment rate of return† 8.5% 8.5% 7.5%

Projected salary increases† 6.2–8.0% 5.7–10.3% 6% every 4 years

COLAs 1.25% per year 1.25% per year 6% every 4 years

_________________________

*The aggregate actuarial cost method is used to determine the annual required contribution of the employer

(ARC) for the Fire and Police Retirement Plan. Because the method does not identify or separately amortize

unfunded actuarial liabilities, information about funded status is prepared using the entry age actuarial cost

method and is intended to serve as a surrogate for the funded status of the plan.

†Includes inflation assumption of 4%.

Paragraph 8a of this Statement requires disclosure of information about the funded status of the

plan as of the most recent valuation date in notes to the financial statements. If the aggregate

actuarial cost method is used to determine the ARC, funded status and funding progress

information is required to be prepared using the entry age method, and paragraph 8b(3)(b) of this

Statement requires the additional disclosure illustrated here. (The cost method used by the Fire and

Police Retirement Plan in this illustration has been changed from that originally illustrated in

Statement 27 in order to illustrate information required by this Statement when the aggregate

actuarial cost method is used.)

In this

illustration,

year-based

rates were not

used.

However, if

the economic

assumptions

had

contemplated

different rates

for successive

years, the

plan would be

required by

paragraph

8b(3)(a) of

this

Statement to

disclose the

initial and

ultimate rates.

55

Three-Year Trend Information

(Dollar amounts in thousands)

Annual Percentage Net

Year Pension of APC Pension

Ending Cost (APC) Contributed Obligation

Employees Retirement Plan

12/31/X0 $10,247 100% $0

12/31/X1 13,944 100 0

12/31/X2 11,778 100 0

Fire and Police Retirement Plan

12/31/X0 $37,015 100% $0

12/31/X1 39,501 100 0

12/31/X2 38,626 100 0

Elected Officials Retirement Plan

12/31/X0 $255 100% $0

12/31/X1 165 100 0

12/31/X2 195 100 0

Funded Status and Funding Progress. The following is funded status information for

each plan as of 1/1/X2, the most recent actuarial valuation date:

Actuarial

Value of

Assets

(a)

Actuarial

Accrued

Liability

(AAL)

—Entry Age

(b)†

Unfunded

AAL

(Excess of

Assets over

AAL)

(b – a)

Funded

Ratio

(a / b)

Covered

Payroll

(c)

UAAL

(Excess of

Assets over

AAL) as a

Percentage

of Covered

Payroll

((b – a) / c)

Employees

Retirement Plan

$693,241

$676,442

$(16,799)

102.5%

$298,770

(5.6)%

Fire and Police

Retirement Plan

1,160,880

1,205,406

44,526

96.3

153,989

28.9

Elected Officials

Retirement Plan

4,023

4,075

52

98.7

690

7.5

†For purposes of this schedule, the AAL for each plan is determined using the entry age actuarial cost method.

Note that for the Fire and Police Retirement Plan, the ARC is calculated using the aggregate actuarial cost

method.

The aggregate actuarial cost method is used to calculate the ARC for the Fire and Police Retirement Plan. In

this circumstance, paragraph 8a of this Statement requires the employer to present funded status information

calculated using the entry age actuarial cost method as a surrogate.

56

The schedule of funding progress, presented as RSI following the notes to the financial

statements, presents multiyear trend information about whether the actuarial value of plan

assets is increasing or decreasing over time relative to the AAL for benefits.

Paragraph

8b(1) of this

Statement

requires that

the plan

include

disclosure

indicating that

multiyear

funding

progress

information is

presented as

RSI.

57

REQUIRED SUPPLEMENTARY INFORMATION

Schedules of Funding Progress

(Dollar amounts in thousands)

Employees Retirement Plan Excess of Assets

Actuarial over AAL as

Actuarial Accrued Excess of a Percentage

Actuarial Value of Liability (AAL) Assets over Funded Covered of Covered

Valuation Assets —Entry Age AAL Ratio Payroll Payroll

Date (a) (b) (a – b) (a / b) (c) ((a – b) / c)

1/1/X0 $621,334 $591,196 $30,138 105.1% $299,438 10.1%

1/1/X1 651,223 602,472 48,751 108.1 301,872 16.1

1/1/X2 693,241 676,442 16,799 102.5 298,770 5.6

Fire and Police Retirement Plan UAAL as

Actuarial Unfunded a Percentage

Actuarial Value of AAL AAL Funded Covered of Covered

Valuation Assets —Entry Age† (UAAL) Ratio Payroll Payroll

Date (a) (b) (b – a) (a / b) (c) ((b – a) / c)

1/1/X0 $ 993,044 $1,059,517 $66,473 93.7% $147,593 45.0%

1/1/X1 1,065,786 1,140,059 74,273 93.5 157,471 47.2

1/1/X2* 1,160,880 1,205,406 44,526 96.3 153,989 28.9

Elected Officials Retirement Plan UAAL as

Actuarial a Percentage

Actuarial Value of AAL Funded Covered of Covered

Valuation Assets —Entry Age UAAL Ratio Payroll Payroll

Date (a) (b) (b – a) (a / b) (c) ((b – a) / c)

1/1/X0* $3,216 $3,803 $ 587 84.6% $495 118.6%

1/1/X1* 3,531 4,682 1,151 75.4 495 232.5

1/1/X2‡ 4,023 4,075 52 98.7 690 7.5

*Revised economic assumptions and changes in plan benefit provisions.

†The ARC is calculated using the aggregate actuarial cost method. Information in this schedule is calculated

using the entry age actuarial cost method as a surrogate for the funding progress of the plan.

‡Revised economic assumptions.

The aggregate actuarial cost method is used to calculate the ARC for the Fire and Police Retirement Plan. In

this circumstance, paragraph 9 of this Statement requires the employer to present information in the

schedule of funding progress calculated using the entry age actuarial cost method, to disclose that fact, and

to disclose that the purpose of the presentation is to provide information that serves as a surrogate for the

funding progress of the plan.

58

Appendix D

CODIFICATION INSTRUCTIONS

60. The sections that follow update the June 30, 2006, Codification of Governmental

Accounting and Financial Reporting Standards for the effects of this Statement. Only the

paragraph number of the Statement is listed if the paragraph will be cited in full in the

Codification.

* * *

PENSION ACTIVITIES—EMPLOYER REPORTING SECTION P20

Sources: [Add GASB Statement 50.]

.101 [Update cross-references in footnote 1.]

.107 [Revise the last sentence of footnote 12 as follows:] Separate determination and

amortization of the unfunded actuarial liability are not part of the aggregate actuarial cost

method and are not required when that method is used; however, the disclosure

requirements of paragraphs .118c, .118d(3)(d), and .119 are applicable when that method

is used. [GASBS 27, fn10, as amended by GASBS 50, ¶8 and ¶9]

.108 [Update cross-references.]

.117 [Revise subparagraph b.3 as follows:] Required contribution rate(s) of the employer

in accordance with the funding policy, in dollars or as a percentage of current-year

covered payroll, and, if applicable, legal or contractual maximum contribution rates. If

the plan is a single-employer or agent plan and the rate differs significantly from the

ARC, disclose how the rate is determined (for example, by statute or contract, or that the

59

plan is financed on a pay-as-you-go basis). If the plan is a cost-sharing plan, disclose the

required contributions in dollars, the percentage of that amount contributed for the

current year and each of the two preceding years, and how the required contribution rate

is determined (for example, by statute or by contract, or on an actuarially determined

basis) or that the plan is financed on a pay-as-you-go basis.

[Add GASBS 50, ¶7, to sources.]

.118 [Insert new subparagraph c, including footnotes, as follows; renumber subsequent

subparagraph and footnotes.]

c. Information about the funded status of the plan as of the most recent valuation date,

including the actuarial valuation date, the actuarial value of assets, the actuarial

accrued liability, the total unfunded actuarial liability (or funding excess), the

actuarial value of assets as a percentage of the actuarial accrued liability (funded

ratio), the annual covered payroll, and the ratio of the unfunded actuarial liability

(or funding excess) to annual covered payroll.18

Employers that use the aggregate

actuarial cost method should prepare this information using the entry age actuarial

cost method for that purpose only.19

[Revise current subparagraph c as follows:]

d. Information about actuarial methods and assumptions used in valuations on which

reported information about the ARC, annual pension cost, and the funded status and

funding progress of pension plans is based, including the following:

1. Disclosure that the required schedule of funding progress immediately

following the notes to the financial statements presents multiyear trend

information about whether the actuarial value of plan assets is increasing or

decreasing over time relative to the actuarial accrued liability for benefits.20

2. Disclosure that the projection of benefits for financial reporting purposes does

not explicitly incorporate the potential effects of legal or contractual funding

limitations (as discussed in the disclosure of funding policy in paragraph

.117b(3)), if applicable.21

3. Identification of the actuarial methods and significant assumptions used to

determine the ARC for the current year and the information required by

paragraph .118c. The disclosures should include:

(a) The actuarial cost method.

(b) The method(s) used to determine the actuarial value of assets.

60

(c) The assumptions with respect to the inflation rate, investment return,

projected salary increases, and postretirement benefit increases. If the

economic assumptions contemplate different rates for successive years

(year-based or select and ultimate rates), the rates that should be

disclosed are the initial and ultimate rates.

(d) The amortization method (level dollar or level percentage of projected

payroll) and the amortization period (equivalent single amortization

period, for plans that use multiple periods) for the most recent actuarial

valuation and whether the period is closed or open. If the aggregate

actuarial cost method is used, disclose that because the method does not

identify or separately amortize unfunded actuarial liabilities, information

about funded status and funding progress has been prepared using the

entry age actuarial cost method for that purpose and that the information

presented is intended to serve as a surrogate for the funded status and

funding progress of the plan.

[Add GASBS 50, ¶8, to sources.]

18[GASBS 50, fn3] [Update cross-reference.]

19[GASBS 27, fn17, as amended by GASBS 50, ¶8; GASBS 50, fn4] [Change Statement to section and

update cross-references.] 20

The required reference to the schedule of funding progress presented as RSI is not intended to represent

or imply incorporation of the schedule of funding progress into notes to the basic financial statements.

[GASBS 50, fn5] 21

[GASBS 50, fn6]

.119 [Revise as follows:] Sole and agent employers should present the following

information for the most recent actuarial valuation and the two preceding valuations:

a. Information about the funding progress of the plan, including, for each valuation,

each of the elements of information listed in paragraph .118c.

b. Factors that significantly affect the identification of trends in the amounts reported,

including, for example, changes in benefit provisions, the size or composition of the

population covered by the plan, or the actuarial methods and assumptions used.

(The amounts reported for prior years should not be restated.)22

The information should be calculated in accordance with the parameters and should be

presented as required supplementary information. (Until three actuarial valuations have

been performed in accordance with the parameters, the required information should be

presented for as many years as it is available.) Employers that use the aggregate actuarial

61

cost method to determine the ARC should prepare the funding progress information using

the entry age actuarial cost method and should disclose that fact and that the purpose of

this disclosure is to provide information that serves as a surrogate for the funding

progress of the plan.23

[GASBS 27, ¶22; GASBS 50, ¶9]

22[Insert current footnote 18.]

23[GASBS 50, fn7] [Update cross-reference.]

[Insert new paragraph .120 as follows; renumber subsequent paragraphs.]

.120 [GASBS 50, ¶10] [Update cross-references.]

.127 [Update cross-references in current footnote 22.]

.128 [Update cross-references in current paragraph .127.]

* * *

PENSION PLANS—DEFINED BENEFIT SECTION Pe5

Sources: [Add GASB Statement 50.]

.119 [Delete the second sentence.] [GASBS 25, ¶27, as amended by GASBS 34, ¶13,

and GASBS 50, fn2]

.124 [In the last sentence, replace reference to subparagraph d with reference to

subparagraph e. Revise subparagraphs as follows:]

[Revise subparagraph b.2 as follows:] Brief description of how the fair value of

investments is determined, including the methods and significant assumptions used to

62

estimate the fair value of investments, if that fair value is based on other than quoted

market prices.

[Add the following to the end of subparagraph c.2:] Legal or contractual maximum

contribution rates should be disclosed, if applicable.

[Insert new subparagraph d, including footnotes, as follows; renumber subsequent

subparagraph and footnotes.]

d. Funded status and funding progress

1. Information about the funded status of the plan as of the most recent valuation

date, including the actuarial valuation date, the actuarial value of assets, the

actuarial accrued liability, the total unfunded actuarial accrued liability, the

actuarial value of assets as a percentage of the actuarial accrued liability

(funded ratio), the annual covered payroll, and the ratio of the unfunded

actuarial liability to annual covered payroll.15

The information should be

calculated in accordance with the parameters set forth in paragraphs .127 and

.128 of this section. Plans that use the aggregate actuarial cost method to

calculate the ARC should prepare funded status information using the entry

age actuarial cost method.

2. Information about actuarial methods and assumptions used in valuations on

which reported information about the ARC and the funded status and funding

progress of pension plans are based, including the following:

(a) Disclosure that the required schedule of funding progress immediately

following the notes to the financial statements presents multiyear trend

information about whether the actuarial value of plan assets is increasing

or decreasing over time relative to the actuarial accrued liability for

benefits.16

(b) Disclosure that the projection of benefits for financial reporting purposes

does not explicitly incorporate the potential effects of legal or

contractual funding limitations.

(c) Identification of the actuarial methods and significant assumptions used

to determine the ARC for the current year and the information required

by paragraph .124d(1) of this section. The disclosures should include:

(i) The actuarial cost method.

(ii) The method(s) used to determine the actuarial value of assets.

(iii) The assumptions with respect to the inflation rate, investment

return (discount rate), projected salary increases, and

postretirement benefits increases. If the economic assumptions

contemplate different rates for successive years (year-based or

63

select and ultimate rates), the rates that should be disclosed are

the initial and ultimate rates.

(iv) The amortization method (level dollar or level percentage of

projected payroll) and the amortization period (equivalent single

amortization period, for plans that use multiple periods) for the

most recent actuarial valuation and whether the period is closed or

open. Plans that use the aggregate actuarial cost method should

disclose that because the method does not identify or separately

amortize unfunded actuarial accrued liabilities, information

about the plan’s funded status and funding progress has been

prepared using the entry age actuarial cost method for that purpose

and that the information presented is intended to serve as a

surrogate for the funded status and funding progress of the plan.

[Add GASBS 50, ¶4, to sources.]

15

[GASBS 50, fn1] [Update cross-references.] 16

[GASBS 50, fn2]

.125 [Delete current footnotes 16 and 17; renumber subsequent footnotes.]

.128 [Revise subparagraphs as follows:]

c. [Remove bold from all terms.]

d. [Remove bold from actuarial cost method; bold aggregate in the first sentence.

Add the following to the end of the subparagraph:] A plan that uses the aggregate

actuarial cost method should prepare a schedule of funding progress following the

requirements of paragraph .129 using the entry age actuarial cost method for that

purpose and should follow the related disclosure requirements of that paragraph.

e. [Update cross-reference in current footnote 22.]

f. [Remove bold from unfunded actuarial accrued liability, equivalent single

amortization period in subparagraph 1, and level dollar and level percentage of the

project payroll in subparagraph 3; revise last sentence of current footnote 23 as

follows:] Separate determination and amortization of the unfunded actuarial

liability are not part of the aggregate actuarial cost method and are not required

when that method is used, with regard to computation of the ARC; however, the

disclosure requirements of paragraphs .124d(1), .124d(2)(c)(iv), and .129 are

applicable when that method is used. [GASBS 25, fn24, as amended by GASBS 50,

¶4 and ¶6]

[Add GASBS 50, ¶4, to sources.]

64

.129 [Revise as follows:] The schedule of funding progress should present information

about the funding progress of each plan, including each of the elements of information

listed in paragraph .124d(1) for each of the past six consecutive years of the plan, at a

minimum. All actuarially determined information reported should be calculated in

accordance with the parameters and should be presented as of the actuarial valuation

date.24

Plans that use the aggregate actuarial cost method should prepare the information

using the entry age actuarial cost method and should disclose that fact and that the

purpose of this disclosure is to provide information that serves as a surrogate for the

funding progress of the plan. [GASBS 25, ¶37; GASBS 50, ¶6]

24

[Insert current footnote 25.]

.132 [Revise as follows:] The schedules of required supplementary information should

be accompanied by disclosure of factors that significantly affect the identification of

trends in the amounts reported in the required schedules, including, for example, changes

in benefit provisions, the size or composition of the population covered by the plan, or

the actuarial methods and assumptions used. (The amounts reported for prior years

should not be restated.)27

[GASBS 25, ¶40, as amended by GASBS 50, ¶2]

27[Insert current footnote 28.]

* * *

65

PENSION AND OTHER POSTEMPLOYMENT SECTION Pe6

BENEFIT PLANS—DEFINED CONTRIBUTION

Sources: [Add GASB Statement 50.]

.104 [Revise subparagraph b as follows:] Summary of significant accounting policies—

Basis of accounting, fair value of plan assets (unless plan assets are reported at fair

value), and a brief description of how the fair value is determined, including the methods

and significant assumptions used to estimate the fair value of investments, if that fair

value is based on other than quoted market prices.

[Add GASBS 50, ¶5, to sources.]