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June 2015

Office of Retirement ServicesServing more than 530,000 customers

Michigan Public School Employees Retirement System

Agenda

wSupreme Court UpdatewGASB 68§ Overview§ Timelines for ORS and Reporting Units§ ORS Implementation§ Resources

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Supreme Court Update

w PA 300§ Supreme Court ruled it is constitutional

w PA 75§ Waiting for ruling

What Is GASB 68?

w The Governmental Accounting Standards Board Statement 68 (GASB 68)

§ Sets accounting and reporting requirements for stateand local government employers regarding pensions(not OPEB such as health).

§ In effect for all employers for fiscal years beginningafter June 15, 2014.

§ Shifts focus of reporting from a funding-basedapproach to an accounting-based approach.

3% from 9/4/12 to present are all VALID

3% HCC from 2010 to 9/3/12

Once this is received, ORS will request a PLR from the IRS.

Only Pensions

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Why GASB 68?

w The new standards are intended to:

§ Enhance usefulness of employer-level pensioninformation in financial reports.

§ Improve transparency — retirement system’s liability isshared by all participants (employers) in the plan.

§ Make it easier to compare public pension plans bystandardizing financial reporting requirements.

What does GASB 68 require?

w GASB 68 requires the annual government-widefinancial statements of MPSERS reporting units to include:

§ The proportionate share of net pension liability

§ The proportionate share of pension expense

§ Additional pension-related note disclosures(Notes to Financial Statement)

§ Additional pension-related Required SupplementalInformation

Proportionate Share

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Net Pension Liability

w Net pension liability is the liability of employers for benefits provided to plan members through a defined benefit pension plan.

w Total Pension Liability (TPL) minus Market Value of Assets (MVA) equals Net Pension Liability (NPL)

��� � � �� � ���

w Based on market value (cash value of pension assets at a given time), not actuarial value (like UAAL).

Total Pension Expense

GASB 68 also requires employers to recognize a new measure of their proportionate share of the total pension expense on their financial statements.

w No longer equal to the contribution amount dictated by the contribution rate.

w Now represents the change in net pension liability from year to year.

w Can change materially from one year to the next.

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Proportionate Share:How is it calculated?w Each plan year, ORS will provide each reporting unit’s

proportionate share (%).

w Proportionate share is based on reporting unit’s historical pension contributions to the system.

w Calculated as a percent of the total pensioncontributions required from all reporting units in the plan.

w Based on the plan’s fiscal year (Oct. 1 – Sept. 30)

Proportionate Share – ExampleABC District’s Proportionate Share of Net Pension Liability

Fiscal Year Ending September 30, 2013

ABC District’s required pension contributions (October 1, 2012 – September 30, 2013) $1,351,000

ORS’s total pension contributions required from all reporting units (October 1, 2012 – September 30, 2013) $1,124,330,000

Calculation: Row 1 divided by row 2 0.0012 or 0.12%

MPSERS total net pension liability on September 30, 2013

$23,824,188,000(~$23.8 billion)

ABC District’s proportionate share of the liability $28,589,000

UAALRetirement IncentiveNormal Costs

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Date Definitions

w Fiscal year end (FYE) for MPSERS (the “plan”) is different from the FYE for your reporting unit:§ MPSERS fiscal year ends September 30ØGASB 68 calls this the “measurement date”

§ Your reporting unit fiscal year ends June 30ØGASB 68 calls this the “reporting period”

w Reporting unit must provide all information for the period subsequent to the measurement date (October 1 – June 30).

Measurement period

Cal

enda

r

2013

Cal

enda

r

2014

Cal

enda

r

2015

Rep

ortin

g U

nit FY 2013-14(July-June) R

epor

ting

Uni

t FY 2014-15(July-June)

MP

SE

RS

(P

lan) FY 2013-14

(Oct.-Sept.) MP

SE

RS

(P

lan) FY 2014-15

(Oct.-Sept.)

Jan Jul Oct

Fiscal year timelineand GASB terms

Measurement date (9/30/14)

Reporting period

Jan Jul Oct Jan Jul Oct

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Covered-Employee Payroll

w GASB 68 definition: covered-employee payroll is total payroll, not pensionable payroll*§ Total payroll (of covered employees) = gross wagesØ Includes (for example) bonuses, stipends, other

nonreportable compensation.

ØSee ORS Reporting Instruction Manual (RIM) 4.01.01

§ “Pensionable payroll” = “reportable compensation”ØDefined in ORS RIM Chapter 4 (not required for GASB 68)

*GASB 68 Implementation Guide, Question 210, page 54

Covered-Employee Payroll:Translating GASB terms

GASB 68

w Total covered-employee payroll

w Pensionable payroll

MPSERS

w Gross wages for covered-employees (not currently reported to ORS)

w Reportable compensation (reported to ORS on DTL2)

GASB 67 and 68 define “covered-employee payroll” as “total payroll of covered employees,” not “pensionable payroll.” It then defines total payroll as gross wages.*

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Covered-Employee Payroll

w Ongoing national discussion of the GASB 67/68 definition (gross wages).

w Gross wages of covered employees typically not provided to retirement systems; obtaining data presents issues for both plans and employers.

§ Plans need it for GASB 67

§ Employers need it for GASB 68

Implementing GASB 68

w When: 2015 Time frame§ Responsibilities of ORS and its partners

§ Reporting Unit responsibilities

w How: GASB 68 area on Employer Information website (michigan.gov/psru)§ Overview of the website and its sections

§ Using Data Tables, Notes, and RSI sample language

w Archiving 2013 plan data estimates on June 15

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ORS and its external partners

w ORS’s actuary

§ Performs valuations of the retirement system

§ Instrumental in preparing the GASB 68 data

w Michigan’s Office of the Auditor General (OAG)

§ Expected to attest to the accuracy and validity of thedata provided by ORS and its actuary

All partners are communicating and working together to plan implementation of GASB 68.

OAG engagement

w ORS is engaging OAG to audit MPSERS plan as of 9/30/2014 (FYE)w AICPA GAAS Audit Typew AICPA guidelines (AU-C Section 9805)§ Exhibit 1 – Schedule of Employer Allocations –

“Required Employer Contributions” Basis; NOT “ActualEmployer Contributions” Basis

§ Exhibit 2(b) – Schedule of Collective Pension Amounts

at reporting unit level

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Exhibit 1 – AU-C Section 9805(AICPA Audit Guidelines)

Exhibit 2(b) – AU-C Section 9805(AICPA Audit Guidelines)

This "Actual" means "Required"

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2015 Time Frame: ORS

w January – mid-June: Actuary and ORS generate data and compile sample language for Notes and RSI

w Mid-June – late July: Office of the Auditor General (OAG) reviews and attests to data

w Late July – early August: ORS posts data and sample language on web and Data Exchange Gateway (DEG)

w August: ORS work with reporting units and their auditors to implement GASB 68

2015 Time Frame: Reporting Unitsw Now – early August: Prepare to collect data:§ Actual pension contributions made between measurement date and

reporting period (October 1, 2014 – June 30, 2015)

§ Covered-employee payroll for the measurement period(October 1, 2013 – September 30, 2014)

§ Covered-employee payroll information for the reporting period(July 1, 2014 – June 30, 2015)

w August (as soon as ORS publishes the information)§ retrieve data from the website and the DEG

§ incorporate information into financial statements

§ work with auditors to check information

Will be posting the actual and required contributions

Need to start to collect this date;

This is ONLY the Pension Piece;

This is the ER only contributions

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Implementing GASB 68:Employer Information Website

w The GASB 68 section of Employer Information website (michigan.gov/psru) provides§ Data tables (Proportionate share calculations for all

reporting units, through the measurement date (9/30)

§ Sample language for Notes to Financial Statements§ Sample schedules for Required Supplemental

Information and some data for these schedules

§ Additional resources (FAQ, glossary, links to resources provided by GASB)

GASB 68 Website

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GASB 68 WebsiteFinancial Data Tables

GASB 68 Website Using the financial data tables

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GASB 68 Website Sample Notes to Financial Statements

GASB 68 WebsiteExcerpt from Sample Note 3

ORS will provide the stuff in the green box

We need to get the blue box

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GASB 68 WebsiteRequired Supplemental Information (RSI)

w Two schedules showing 10 years of historical data:

§ Schedule of Reporting Unit’s Proportionate Share ofNet Pension Liability

§ Schedule of Reporting Unit’s Pension Contributions

w These two schedules don’t use same time period.

w Reporting Unit will maintain and update both schedules as additional years of data are added.

RSI: Schedule of RU’s Proportionate Share of Net Pension Liability

w Based on the measurement period* (MPSERS FY) October 1 – September 30

w ORS provides some data (in the data tables)

w Reporting unit must provide covered-employee payroll information (gross wages)

w See GASB 68 Implementation Guide, Illustration 3a, page 159

*GASB 68 Implementation Guide, Question 211, page 54

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• Until a 10-year trend is compiled,present information for years forwhich information is available.

• Each year a new column will becompleted and the previousyears’ information retained, untila full 10-year history is shown.

RSI: Schedule of RU’s Proportionate Share of Net Pension Liability

Measurement period

Schedule of Reporting Unit’s Pension Contributionsw Based on the reporting period – the RU fiscal year:

July 1 – June 30

w Reporting Units will provide (for this period):

§ Covered-employee payroll (gross wages)

§ Required pension contributions – not OPEB (Health)

§ Actual pension contributions – not OPEB (Health)

Green=ORS Information Provided

Blue=LEA Provided

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RSI: Reporting Unit Contributions

Reporting Unit provides data for Rows A, B, and D and performs calculations for Row C (B minus A) and Row E (B divided by D)

(actual contributions)

(reporting period)

Total payroll (gross wages)

Data Exchange Gateway

w ORS will use the Data Exchange Gateway to deliver any data that is deemed sensitive.

w Only for the measurement period (October 1 – September 30)

w Example: details regarding a reporting unit’s actual contributions.

w When: approximately the same time as the information on the GASB 68 website.

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Resources: GASB.org

w GASB.org – go to Standards and Guidance§ Guidance: “Guide to Implementation of GASB

Statement 68…” (Implementation Guide)Ø “Multiple Employer Cost-Sharing Plans” sections (ignore

other sections—they are for different plan categories)

Ø Illustration 3 (pp. 155-165)

§ PronouncementsØGASB Statement 68

ØGASB Statement 71 (amends one paragraph of GASB 68)

Resource: GASB Definition of Employer Compensationw National Council on Teacher Retirement (NCTR)’s

national webinar on April 30, 2015: “GASB Definition of Employer Compensation”

w Addresses definition of “covered-employee payroll”

w Audio recording of the webinar available:http://www.nctr.org/federal-government-relations/federal-webinar/

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Resource: NASACT Webinar

w National Association of State Auditors, Comptrollers and Treasurers (NASACT) webinar – May 27, 2015

w “GASB 68 Accounting and Auditing Issues –Implementation is Coming Soon … Are You Ready?”

w Printable copy of presentation available at http://www.nasact.org/webinars

Journal Entry Examples(Source: NASACT webinar)

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Questions?

Contact Information: ORS – GASB 68

w Anastasia C. Ferguson-Nelligan§ FergusonNelliganA@michigan.gov

§ (517) 322-6082

w Kevin Kubacki§ KubackiK@michigan.gov

§ (517) 322-6994

Disclaimer: Information provided in this presentation reflects the position of the Office of Retirement Services (ORS) as of June 2, 2015, regarding GASB 68 and decisions made by ORS and its partners about ORS’s implementation. GASB Statement No. 68 and its corresponding Implementation Guide should be considered the final authority on all matters.

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ORS General Contact Information

w Employer Reporting Questions§ Website: www.michigan.gov/psru§ Email: ORS_Web_Reporting@michigan.gov§ Call Center: 517-636-0166

w Member Questions§ Website: www.michigan.gov/orsschools§ Call Center: 800-381-5111§ www.michigan.gov/orsmiaccount