Pat Robertson

Executive DirectorSeptember 2014

GASB Pension Standards Update

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• Mississippi’s only state-sponsored retirement system• Governmental defined benefit plan qualified under Section

401(a) of the Internal Revenue Code • Established by state Legislature in 1952 to provide benefits

to eligible Mississippi public employees working for state agencies, universities, community colleges, and public schools, as well as counties, cities, and other participating political subdivisions.

A Look at PERS of MS

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• Plans Include:– Public Employees’ Retirement System

– Mississippi Highway Safety Patrol Retirement System

– Municipal Retirement Systems – 19 Systems

– Supplemental Legislative Retirement

– Mississippi Government Employees’ Deferred Compensation Plan & Trust

• Current Statistics – June 30, 2014: – 886 employers

– 291,073 members

– 97,044 retirees

– $25.3 billion in assets

• Annual Payroll– $2.03 billion

A Look at PERS of MS

• GASB Statement No. 67, Financial Reporting for Pension Plans, amends Statement 25– Effective for fiscal years beginning after June 15, 2013

• GASB Statement No. 68, Accounting and Financial Reporting for Pensions, amends Statement 27 for employers– Effective for fiscal years beginning after June 15, 2014

• GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date, clarifies Statement 68– Apply simultaneously with Statement 68

• Statements and Implementation Guides available at www.gasb.org

GASB Accounting Standards

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• Pensions are part of the exchange between employees and employers– Promised benefits are part of the total compensation package for

employees

– The employer is obligated to provide benefits as a result of the employment exchange

– The cost should be recognized in the current service period

• The plan is responsible for assets

• The employer is responsible for benefit promises beyond those covered by assets

Key Concepts

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GASB’s Defined Benefit Plan Categories

• Single-employer DB plan– Provides pensions to employees of one employer

• Agent multiple-employer DB pension plan– Provides pensions to employees of more than one plan

– Assets are pooled but separate accounts are maintained

– Employer’s share of assets legally available for its own employees

• Cost-sharing multiple-employer DB pension plan– Provides pensions to employees of more than one employer

– Employers pool obligations

– Assets used for benefits of any employee

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• Determined using Entry Age normal cost method

• Use single discount rate if contributions and assets not sufficient to pay projected benefits

– Long-term expected rate – Use to extent projected plan fiduciary net assets are sufficient to pay future benefits

– Municipal bond index rate – Use for portion of future benefits not covered by projected fiduciary net assets

– If both rates used, combine to form a blended single discount rate

Total Pension Liability

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• Assets held by the plan including contributions and investment assets

• FNP is the responsibility of the plan administrator

Plan Fiduciary Net Position

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TPL – FNP = NPL

Net Pension Liability

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• Recognition of changes to NPL applicable to the current reporting period:

–Service cost – Increases PE

–Interest on the TPL – Increases PE

–Projected investment earnings – Decreases PE

–Member contributions – Decreases PE

–Administrative costs – Increases PE

–Changes in benefit terms affecting TPL – Increases or decreases PE

–Current portion of deferred outflows/inflows of resources – Increases or decreases PE

Pension Expense

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• Recognized over average expected remaining service lives of actives and inactives:– Actual versus expected demographic factors – actuarial

experience

– Changes in assumptions

– For cost-sharing employers:

» Actual versus proportionate share of contributions – Not necessary when actual contributions are used as the basis for proportional share

» Change in employer proportion from one measurement period to the next

• Recognized over a closed 5-year period» Actual versus projected investment earnings

• Layers must be tracked

Deferred Outflows/Inflows of Resources

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Example: Schedule of Plan Pension Amounts by Employer

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• Collective amounts to be provided by the plan– Total pension liability

– Fiduciary net position

– Net pension liability

– Pension expense

– Deferred outflows/inflows of resources

• Employer’s proportionate share– Basis for determination

• Method of communicating with employers

Transition Planning

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GASB Proportionate ShareCost-Sharing System Example

Employer 

Contributions ProportionateShare

City of Clayborne $1,227,329,600 32.9051%

Cedar Medical Center 446,524,900 11.9715%

City of Smithville 408,734,200 10.9583%

Johnson County 376,868,300 10.1039%

City of Woodville 251,127,000 6.7328%

State University 234,263,200 6.2807%

Lincoln County Schools 226,256,200 6.0660%

Estes Public Schools 208,201,900 5.5819%

Washington County 199,048,800 5.3365%

Best Community College 151,557,800 4.0633%

Total Plan $3,729,911,900  

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Example Schedule of Collective Pension Amounts

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Employer Developed Schedules

Example Cost-Sharing Pension Plan

Schedule of Pension Amounts for an Employer

As of June 30, 2015 Pension

Expense - CY

Changes in Changes in

Net Difference Proportion Net Difference Proportion

Between and Differences Between and Differences

Difference Projected Between Total Difference Projected Between Total

Between and Actual ER Contributions Deferred Between and Actual ER Contributions Deferred

Net Expected Investment Changes and Proportionate Outflows Expected Investment Changes and Proportionate Inflows

Pension and Actual Earnings on of Share of ER of and Actual Earnings on of Share of ER of Pension

Employer Liability Experience InvestmentsAssumptions Contributions Resources Experience Investments Assumptions Contributions Resources Expense

Total Plan $124,325,432 $1,206,453 $4,315,618 $3,860,253 - $9,382,324 $978,435 - - - $978,435 $5,243,245

City of Clayborne 40,909,408 324,143 1,136,045 1,037,150 - 2,497,338 262,881 - - - 262,881 1,194,448

Deferred Outflows of Resources - Current Year Deferred Inflows of Resources - Current Year

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Employer Developed Schedules - Deferred Outflows

Fiscal Year Ended: 6/30/2015Employer: City of ClayborneCurrent Year Proportionate Share: 32.9051% (PERS will provide)Average Remaining Service Life: 5.45 years (PERS will provide)

Differences Between Expected and Actual Experience

Total Employer Total AmortizedPlan Proportionate Employer Amort. Annual

Total Deferred Outflows Amount Share Amount Period AmountDiff Expected Vs Actual $1,206,453 32.9051% $396,984 5.45 $72,841Diff Proj vs Act Inv. 4,315,618 32.9051% 1,420,057 5.00 284,011Changes in Assumptions 3,860,253 32.9051% 1,270,218 5.45 233,068

Amortized Amounts: 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 TotalDiff Expected Vs Actual 72,841 72,841 72,841 72,841 72,841 32,779 396,984Diff Proj vs Act Inv. 284,012 284,012 284,011 284,011 284,011 1,420,057Changes in Assumptions 233,068 233,068 233,068 233,068 233,068 104,878 1,270,218Total 589,921 589,921 589,920 589,920 589,920 137,657 0 0 0 0 3,087,259

Summary of Deferred Outflows:Diff Expected Vs Actual - 72,841 72,841 72,841 72,841 32,779 324,143Diff Proj vs Act Inv. - 284,012 284,011 284,011 284,011 1,136,045Changes in Assumptions - 233,068 233,068 233,068 233,068 104,878 1,037,150Deferred 589,921 589,920 589,920 589,920 137,657 0 0 0 0 2,497,338

Additional Expense:Diff Expected Vs Actual 72,841 - - - - - - - - - 72,841Diff Proj vs Act Inv. 284,012 - - - - - - - - - 284,012Changes in Assumptions 233,068 - - - - - - - - - 233,068Expensed 589,921 0 0 0 0 0 0 0 0 0 589,921

3,087,259

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Employer Developed Schedules

Example Cost-Sharing Pension PlanSchedule of Pension Amounts for an Employer

As of June 30, 2015 PensionExpense - CY

Changes in Changes inNet Difference Proportion Net Difference Proportion

Between and Differences Between and DifferencesDifference Projected Between Total Difference Projected Between TotalBetween and Actual ER Contributions Deferred Between and Actual ER Contributions Deferred

Net Expected Investment Changes and Proportionate Outflows Expected Investment Changes and Proportionate InflowsPension and Actual Earnings on of Share of ER of and Actual Earnings on of Share of ER of Pension

Employer Liability Experience InvestmentsAssumptions Contributions Resources Experience Investments Assumptions Contributions Resources Expense

Total Plan $124,325,432 $1,206,453 $4,315,618 $3,860,253 - $9,382,324 $978,435 - - - $978,435 $5,243,245

City of Clayborne 40,909,408 324,143 1,136,045 1,037,150 - 2,497,338 262,881 - - - 262,881 1,194,448

Deferred Outflows of Resources - Current Year Deferred Inflows of Resources - Current Year

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Employer Developed Schedules - Deferred Inflows

Fiscal Year Ended: 6/30/2015Employer: City of ClayborneCurrent Year Proportionate Share: 32.9051% (PERS will provide)Average Remaining Service Life: 5.45 years (PERS will provide)

Differences Between Expected and Actual Experience

Total Proportionate Employer Amort. Annual Total Deferred Inflows Amount Share Share Period AmountDiff Expected Vs Actual $978,435 32.9051% $321,955 5.45 $59,074

Amortized Amounts: 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 TotalDiff Expected Vs Actual 59,074 59,074 59,074 59,074 59,074 26,585 321,955

Summary of Deferred Inflows:Expensed 59,074 59,074Deferred 59,074 59,074 59,074 59,074 26,585 0 0 0 0 262,881

321,955

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Employer Developed Schedules – Pension Expense

Fiscal Year Ended: 6/30/2015

Employer: City of Clayborne

Current Year Pension Expense Reported at the Plan Level

Total Plan Employer EmployerPension Proportionate Share of

Year Expense Share Expense2015 $5,243,245 32.9051% $1,725,295

Summary Calculation of Total Employer Pension Expense:

EmployerExpense From Expense From Proportionate

Deferred Deferred Share of TotalOutflows Inflows Current Year Employer

Year Recognized Recognized Pension Expense Pension Expense2015 <$589,921> $59,074 $1,725,295 $1,194,448

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Employer Developed Schedules

Example Cost-Sharing Pension PlanSchedule of Pension Amounts for an Employer

As of June 30, 2015 PensionExpense - CY

Changes in Changes inNet Difference Proportion Net Difference Proportion

Between and Differences Between and DifferencesDifference Projected Between Total Difference Projected Between TotalBetween and Actual ER Contributions Deferred Between and Actual ER Contributions Deferred

Net Expected Investment Changes and Proportionate Outflows Expected Investment Changes and Proportionate InflowsPension and Actual Earnings on of Share of ER of and Actual Earnings on of Share of ER of Pension

Employer Liability Experience InvestmentsAssumptions Contributions Resources Experience Investments Assumptions Contributions Resources Expense

Total Plan $124,325,432 $1,206,453 $4,315,618 $3,860,253 - $9,382,324 $978,435 - - - $978,435 $5,243,245

City of Clayborne 40,909,408 324,143 1,136,045 1,037,150 - 2,497,338 262,881 - - - 262,881 1,194,448

Deferred Outflows of Resources - Current Year Deferred Inflows of Resources - Current Year

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• Reporting date – plan’s fiscal year-end

• Measurement date – date as of which TPL, FNP and NPL are determined

• Actuarial valuation date – date as of which TPL is determined and date of the actuarial valuation– Should be performed at least biennially

Timing and Frequency of Measurements

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• If valuation date is before the reporting date, TPL is rolled forward to the reporting date

– Valuation can be no older than 30 months and 1 day from the employer’s fiscal year-end

– Update procedures are used to roll forward to the measurement date

– Use professional judgment to determine extent of procedures

Timing and Frequency of Measurements

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Actuarial valuation date 6/30/2013

Roll forward TPL to 6/30/2014 measurement date:

TPL 6/30/2013 $110,000

Plus service cost 5,200

Plus interest 7,900

Minus benefit payments (8,500)

TPL 6/30/2014 $114,600

TPL minus the market value of assets at the measurement date (6/30/2014) is the NPL

Example of Roll Forward of Total Pension Liability

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• Non-employer is legally responsible for making contributions directly to the plan for employees of another entity and either of the following:

– Contributions from the non-employer are not dependent on circumstances or events which are unrelated to pensions

– The non-employer is the only entity with a legal obligation to make contributions

• Does not include circumstances in which resources are provided to the employer

Special Funding Situations

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• Three Whitepapers were issued by the AICPA related to GASB 67 and 68 cost-sharing and single plans and participating employers

– Governmental Employer Participation in Cost-Sharing Multiple-Employer Plans: Issues Related to Information for Employer Reporting

– Single-Employer and Cost-Sharing Multiple-Employer Plans: Issues Associated with Testing Census Data in an Audit of Financial Statements

– Governmental Employer Participation in Agent Multiple-Employer Plans: Issues Related to Information for Employer Reporting

Auditing Considerations

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• Risk-based approach by plan auditor to select employers to test

• Employer auditor may perform procedures under examination engagement in accordance with AT (Attest) section 101

• Absence of effective management procedures and controls by plan to verify census data is considered a control deficiency and will impact level of auditor testing

Auditing ConsiderationsCost-Sharing Multiple-Employer PlansTesting of Underlying Census Data

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• Three interpretations to AU-C Sections have been issued by the AICPA

– AU-C 500: Audit Evidence

– AU-C 600: Audits of Group Financial Statements (Including the Work of Component Auditors)

– AU-805: Special Considerations-Audits of Single Financial Statements and Specific Elements, Accounts, or Items of a Financial Statement

Auditing ConsiderationsCost-Sharing Multiple-Employer Plans and Participants

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• Plan prepares “schedule of plan pension amounts by employer” for which plan auditor engaged to provide opinion– Supplemental schedule of plan pension amounts by employer

includes net pension liability, deferred outflows/inflows of resources, and pension expense for each employer

– Alternative to include a “schedule of collective pension amounts” for the plan as a whole

– Plan auditor needs to consider the appropriateness of the materiality used in the audit of plan financial statements

• Employer auditor issues opinion on total of each of the four elements in accordance with AU-C 805

Auditing ConsiderationsCost-Sharing Multiple-Employer PlansAICPA Recommendations

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• Two Whitepapers– Governmental Employer Participation in Agent Multiple-

Employer Plans: Issues Related to Information for Employer Reporting – Issued

– Agent Multiple-Employer Plans: Issues Associated with Testing Census Data in an Audit of Plan Financial Statements

» Issues and potential recommendations are more complex

» Not yet available

– Four Audit Interpretations

» Not yet available

Auditing Considerations Agent Multiple-Employer Plans

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•We are currently working to resolve census data testing challenges

– Working with the Mississippi State Audit Department, our independent accounting firm, our actuaries and the state as an employer

– Issues of timing and meeting our CAFR release deadline

•Use of a roll forward from a prior period in financial reporting.•Note disclosure for the plan under GASB 67 and the employers under GASB 27

Issues Considered

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• Excluding small immaterial pension plans from the plan and employer’s financial reports

• Inquiries about allocating NPL to departmental financial statements

• AICPA white paper regarding agent multiple-employer plans

Other Issues Considered

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Transition

• Communications essential to successful implementation

• MS PERS transition efforts

– Employer eUpdate

– Mississippi Implementation Work Group

– Pension Standards Implementation Work Group

– Communications with Users

• Challenges for employers and public pension plans are many and time is here

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Plan Description Plan Investments

Name, type, board, members Investment policy authority

Classes covered, authority Allocation requirements, greater than 5%

Benefits, contributions, DROP Money weighted ROR

GASB 67 Note DisclosureAll Plans

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Significant

NPL Components Assumptions

Total pension liability Discount rate

Fiduciary net position LT expected ROR overall and by asset class

Net pension liability Sensitivity measures on

discount rate + and – 1%

GASB 67 Note Disclosure Single and Cost-Sharing Plans

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10 Yr NPL & Change Actuarial Required

In NPL Contributions 10 Yrs

Beginning & ending TPL, NPL Required contributions

Effects of underlying parts Actual contributions

Revenue & expenses Difference, % of total payroll

GASB 67 Required Supplementary Information (RSI)

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Plan Description Assumptions

Name, type, terms, admin. All NPL assumptions

Classes covered, benefits, LT expected ROR overall

authority and by investment class

No. participants and Sensitivity measure for

contributions discount rate + and – 1%

GASB 68 Note DisclosureSingle and Agent Plans

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Change in NPL Other Information

Beginning & ending TPL, Measurement date of NPL,

NPL changes from measurement

date to reporting date

Interest on TPL, difference in Makeup of deferred outflows/

expected & actual inflows of resources

Contributions, benefits 5 year expected changes in

deferred outflows/inflows

GASB 68 Note DisclosureSingle and Agent Employers

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10 Yr. NPL & Change In NPL 10 Yr. Schedules of:

Beginning & ending TPL, Actuarial contributions,

NPL required & actual

Interest on TPL, difference in Difference in above

expected & actual

Contributions, benefits Actual contributions as %

of covered payroll

GASB 68 RSI Single and Agent Plans

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Questions?

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