GASB for Beginners - p2f2.orgFocus was on budgetary reporting rather than accruals ... Interperiod Equity ... (compliance, investments ...p2f2.org/assets/pdfs/2014-Conference-Presentations... ·

www.eidebai l ly.com www.eidebai l ly.com

Public Pension Financial Forum Nashville Tennessee

October 2014 Brad Berls, CPA, Manager

GASB for Beginners

www.eidebai l ly.com www.eidebai l ly.com 1

Agenda

• The focus of GASB Standards For Public Pension Funds

• The Key GASB Standards Applicable to the Public Pension Industry

• Professional Organizations Available to You • Questions These seminar materials are intended to provide the seminar participants with guidance in accounting and financial reporting matters. The materials do not constitute, and should not be treated as professional advice regarding the use of any particular accounting or financial reporting technique. Every effort has been made to assure the accuracy of these materials. Eide Bailly LLP and the author do not assume responsibility for any individual's reliance upon the written or oral information provided during the seminar. Seminar participants should independently verify all statements made before applying them to a particular fact situation, and should independently determine consequences of any particular technique before recommending the technique to a client or implementing it on the client's behalf.


It’s all about 1 word – Accountability!

The Focus of GASB Standards For Public Pension Funds


What is the GASB?

• Governmental Accounting Standards Board • 6 member part-time independent board and full – time

chairman that is a recognized standard setter • Established in 1984 by agreement of the Financial

Accounting Foundation and 10 national stakeholder organizations to develop GAAP for state and local governments

• Audit community recognizes GASB as a standard-setting organization (also FASB, IASB, Federal Accounting Standards Advisory Board, International Public Sector Accounting Standards Board also recognized)

• Funding primarily from bond fees approved in Dodd-Frank • Open due process with posted agendas, preliminary

decisions, free standards, speeches, webcasts etc. • 30 member advisory council from all aspects of

government including public pensions (NASRA is a member)


The Focus of GASB Standards for Public Pension Funds

• It’s all about accountability • New pension standards are the end result of

nearly 35 year evolution of public pension standards with goals of accountability and transparency

• Funding decisions will only have an indirect effect on liability (lower funding, lower discount rate)

• Irrevocable trusts are almost essential • Plan information exchange with employers on a timely,

transparent basis key to successful implementation plan-wide


The Focus of GASB Standards for Public Pension Funds

• It’s all about accountability • New pension standards are the end result of

nearly 35 year evolution of public pension standards with goals of accountability and transparency

• Note disclosure will now have to be clear and concise • Employers will use the disclosure in their financial statements

• Required supplementary information reporting on contributions secondary to accruals

• Only one method to attribute actuarial present value of projected benefit payments – entry age normal • Old standard allowed 6 methods


What Took So Long?

• GASB Pension evolution began in late 1970’s with simple note disclosure of the plan’s existence • Diversity in practices and plan designs hampered

progress • Focus was on budgetary reporting rather than accruals

• Technology wasn’t available to perform complex calculations and allocations

• Much of the information was cash inflows and outflows contained in databases (or on paper)

• Excel and similar for analysis not available until 1997


What Took So Long?

• GASB Pension evolution began in late 1970’s with simple note disclosure of the plan’s existence • Governments largely cash / modified cash basis

• Short – term focus prevalent due to election cycles • Unclear jurisdiction of GASB and pensions until

1990’s • Prior to 1994’s GASB-25 and 27, FASB standards largely

followed • Employer reporting largely cash based (cumulative

contributions vs. Actuarially Required Contributions) • ARC misjudged – not meant to be annual or required • Many state laws aligned to ARC


What Took So Long?

• 2006’s issuance of GASB-43 and 45 on OPEB largely replicated GASB-25 and 27 model

• Problem surfaced in New York City pensions at same time – GASB-50 provided transition disclosure • NYC used aggregate cost method – no liability for

pensions disclosed • Under entry –age normal, liability was $49 billion • Both methods were right!

• New Standards’ Due process began in 2008


9

GASB standards are somewhat about Interperiod Equity

• Interperiod equity is the concept that taxpayers of today should pay for the services that they receive and should not shift the payment burden to taxpayers of the future. • Interperiod equity measurement is the measure of

whether current-year revenues were sufficient to pay for current-year services.

• New Pension standards have a basis in Interperiod equity through the accrual of net pension liability

• Almost direct correlation between • Investment allocation • Investment return • Plan provisions


New Pension Standards Fit In Well With Accountability Model in Use Since 1987

GASB Concepts Statement No. 1 Objectives of Financial Reporting, as amended

New GASB Pension Standards Fit Here


GASB’s Jurisdiction is General Purpose External Financial Reporting

• GASB’s purview in all standards not meant to drive management decisions – HOWEVER • Increased accountability / transparency may drive

management decisions – pensions prime example • Many governments are in the process of pension reform

(Rhode Island, California, others) • Converting to hybrid plans • Lowering target rates of return • Reviewing plan provisions about retirement age and employee

contributions • Eliminating “spiking” and retroactive benefit adjustments

• All could be said as an indirect result of the new statements


What is General Purpose External Financial Reporting?

• CAFRs • Annual Financial Reports

• Basic Financial Statements • Required Supplementary Information

• Management’s Discussion and Analysis • Other RSI (budget : actual, modified approach, post-

employment disclosures) • Other Supplementary Information (not required)

• Combining statements • Statistical Section • Introduction • Other sections (compliance, investments, actuarial)

• Popular / Citizens’ Centric Reports


Building blocks of Financial Statements for Plans

• Government – wide financial statements • Statement of Fiduciary Net Position (full accrual) • Statement of Changes in Fiduciary Net Position (full

accrual) • Notes to the financial statements • Required Supplementary Information

• Management’s Discussion and Analysis (Not Auditor’s Discussion and Analysis)

• Schedules of Required Supplementary Information • Schedule of Changes in Net Pension Liability and Related

Ratios • Schedule of Contributions • Schedule of Investment Returns • Notes to Required Supplementary Information


Building blocks of CAFR for Plans (Optional)

• Introductory Section • Introductory Letter • Board of Governance • Organizational Chart • List of consultant / professional services • Awards

• Financial Statements (see previous slide) • Other supplementary information

• Administrative expense schedules • Investment expense schedules • Consultant / professional services schedules

• Investment Section • Actuarial Section • Statistical Section • Compliance Section (if applicable)


Statistical Information for Separately Issued Pension and OPEB

• Minimum • Additions by source • Deductions by type • Changes in Net Position • Membership and Retired members by type of benefit • Average benefit payments • Participating employers – for each individual pension

and OPEB

15


Key GASB Standards Applicable to the Public Pension Industry


GAAP Standards are Evolving But Have Common Themes For Public Pensions

• Assets are at fair value • Liabilities are limited to payments in transit or

trade-date settlements • Note disclosure and required supplementary

information is limited compared to general purpose governments

• Only 2 basic financial statements needed (unless multiple plans administered by one entity)

• Fiduciary component units of Plans do not have common GAAP yet


Assets at Fair Value

• Basic Standards • GASB-31- Accounting and Financial Reporting for

Certain Investments and for External Investment Pools

• Defines and investment (until future Fair Value standards will change it)

• Requires fair value on most investments that do not have a net asset value or are permitted to report at amortized cost

• GASB-40 – Deposit and Investment Risk Disclosures • Classifies major investment risks in notes to financial

statements • Custodial credit risk • Concentrations • Interest rate risk • Foreign currency risk


Assets at Fair Value

• Basic Standards • GASB-52, Land and Other Real Estate Held as Investments

by Endowments • Requires fair value for real estate – changes in fair value as

investment income • Forthcoming

• Fair Value Measurement and Application • Likely amends or supersedes 31, 40, 52 • Redefines investments • Investments at fair value unless NAV allowed in standard

• Investments where no readily determinable fair value • Liabilities held as investments of others would be fair valued • Disclosure very similar to for-profit standards (FASB ASC™-820) • Proposed effective date – periods beginning after June 15, 2015

with restatement of prior periods


Liabilities

• GASB-67 – Financial Reporting for Pension Plans – an amendment of GASB Statement No. 25 • Only consist of

• Benefits payable to plan members • Refunds of contributions • Accrued investment and administrative expenses • Allocated insurance benefits excluded

• Rest of reporting model is also in GASB-67 • Statement of Fiduciary Net Position • Statement of Changes in Fiduciary Net Position


2014 2015

AssetsCash and Cash Equivalents 2,001,113 2,254,000

Receivables Receivables from Employer Contributions 399,234 386,003 Receivables from Non-Employer Contributing Entities 3,999,003 4,250,000 Interest/Dividend Receivables 123,990 230,990 Receivables from Brokers (Unsettled Trades) 4,553,990 5,445,990 Total Receivables 9,076,217 10,312,983

Prepaid Expenses 422,134 599,844

Investments Domestic Equity 70,888,346 35,000,023 International Equity 41,007,445 57,000,345 Real Estate 1,003,456 2,331,234 Private Equity 456,332 654,998 Total Investments 113,355,579 94,986,600

Securities Lending Cash Collateral 334,999 456,332Capital Assets (net of accum. depr.) 100,000 100,000Assets used in Pension Plan Operations 239,990 256,667

Total Assets 125,530,032 108,966,426

2014 2015

LiabilitiesBenefits Payable 98,700,643 78,861,243Securities Lending Cash Collateral 334,999 456,332Broker Fees Payables (Unsettled Trades) 23,445 34,998Refunds of Plan Member Contributions 556,990 223,332Accrued Investment Expenses 340,000 450,000Accrued Administrative Expenses 386,000 455,322

Total Liabilities 100,342,077 80,481,227

Net Position Restricted for Pensions 25,187,955 28,485,199

XYZ County Pension Plan Statement of Fiduciary Net

Position December 31, 2014 and 2015

“Like a Balance Sheet”


AdditionsMember Contributions 4,349,902Employer Contributions 4,338,998Total Contributions 8,688,900

Investment Income (Loss) Interest Income 344,588 Dividend Income 400,223 Net Increase in Fair Value of Investments 1,677,580 Securities Lending Income 112,332Less: Investment Expenses Investment Expenses (Direct) (1,000,000) Securities Lending Expenses (920,702) Net Investment Income 614,021

Other Income 40,000Total Additions 9,342,921

DeductionsService Benefits 4,204,455Disability Benefits 455,332Death Benefits 1,123,445Refunds 23,455Administrative Expenses 238,990Total Deductions 6,045,677

Net Increase/(Decrease) 3,297,244

Net Position Restricted for PensionsBeginning of the Year 25,187,955End of the Year 28,485,199

XYZ County Pension Plan Statement of Changes in Fiduciary Net Position

December 31, 2014 and 2015

Like an “Income Statement”

+ Additions - Deductions = Net Increase/Decrease + Beginning Statement of Changes in Fiduciary Net Position = Ending Statement of Changes in Fiduciary Net Position


Focusing on Public Pensions

Common Resources Supporting the Public Sector


Common Resources to Turn To for Information

• Advocacy and Information Sharing Organizations • Association of Government Accountants

(http://www.agacgfm.org) • Council of State Governments (http://www.csg.org) • Government Finance Officers Association

(http://www.gfoa.org) • International City / County Management Association

(http://www.icma.org) • National Association of State Auditors, Comptrollers and

Treasurers (http://www.nasact.org) • National Association of State Retirement Administrators

(http://www.nasra.org) • National Governors’ Association (http://www.nga.org) • National League of Cities (http://www.nlc.org) • P2F2 (http://www.p2f2.org)

http://www.agacgfm.org/

http://www.csg.org/

http://www.gfoa.org/

http://www.icma.org/

http://www.nasact.org/

http://www.nasra.org/

http://www.nga.org/

http://www.nlc.org/

http://www.p2f2.org/


Common Resources to Turn To for Information

• Audit and Consulting Organizations • American Institute of Certified Public Accountants

(http:www.aicpa.org) • Eide Bailly LLP (http://www.eidebailly.com)

• Award Programs • AGA (Citizens’ Centric Report) • GFOA (CAFR and Popular Reports) • Public Pension Coordinating Council (part of NASRA)

http://www.eidebailly.com/


Questions!

877 W. Main St., Ste. 800 Boise, ID 83702-5858

Brad Berls, CPA Manager

Eide Bailly LLP

T 208.383.4711 M 208.344.4735

E [email protected] www.eidebailly.com

Experience the Eide Bailly Difference

http://www.eidebailly.com/

Documents

GASB for Beginners - p2f2.orgFocus was on budgetary reporting rather than accruals ... Interperiod Equity ... (compliance, investments ...p2f2.org/assets/pdfs/2014-Conference-Presentations... ·