James Marta CPA, CGMA, ARPM Ken Hearnsberger, Finance Manager NBSIA Matt Nethaway, CPA 1

 Government wide will recognize pension liability (asset)  Employers with DB pension plans administered through irrevocable trusts  Agencies participating in CalPERS & other California retirement systems/plans  Does not affect contributions (funding)  Net pension liability drives pension expense  Additional note disclosures and RSI 2

3 Unfunded Actuarial Liability (UAL) is moved from the footnote to the Statement of Net Financial Position

 Total Pension Liability  - Plan Net Position  = Net Pension Liability 4

List of affected and new schedules (kh)  Statement of Net Position ◦ Net pension asset/(liability) ◦ Deferred inflows or outflows  Statement of revenues and expenditures ◦ Prior period adjustment (first year) ◦ Pension expense (current year)  New required supplementary information ◦ Sources of changes in net pension liability ◦ Components of net position liability and related ratios  Footnotes ◦ Discussion of assumptions 5

6 The Cash funding requirement is no longer the expense

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 Changes in resulting in deferred inflows/outflows of resources:  Effects of actuarial differences and changes in assumptions related to economic or demographic factors  Differences between actual and projected earnings on plan investments  Employer contributions made directly by the employer subsequent to the measurement date  The plan will report this to you. You wont have to calculate 10

 Amortization due to changes in total pension liability should be over the average of the expected service lives of all employees  Amortization due to differences between projected and actual earnings on investments over five years beginning with the year in which the difference occurred ◦ Results in the creation of “layers”, which are amortized over closed period ◦ (New RSI schedule for disclosure) 11

 Net Pension Liability ◦ The plan’s unfunded liability as of the Measurement Date ◦ Provided by plan’s actuary based on the prescribed GASB methods  Deferred Outflows of Resources ◦ Additional debit balances as of the Measurement Date ◦ Ex. Contributions made to the plan between the Measurement Date and the fiscal year end  Deferred Inflows of Resources ◦ Additional credit balances as of the Measurement Date ◦ Ex. Investment gains that have not yet been recognized in the annual expense 12

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 Changes in net pension liability between FYEs  Include a portion of deferred inflows and outflows of resources related to pensions (“amortization”) ◦ Actuarial (demographic) & investment gains & losses ◦ Assumption changes ◦ Plan changes are recognized immediately 14

 Allocating prior liability to your programs ◦ Could go back and calculate each year payroll by year and program and then calculate weight ◦ If similarly allocated; weight by years of program 15

 Single-employer plans/single employer  Provide benefits to the employees of only one employer. Example: City of Anytown creates a pension system just for its employees  Agent multiple-employer plans/agent employer ◦ Provide benefits to more than one employer by pooling assets for investment purposes, but legally segregating the assets to pay benefits promised by individual employers. Essentially an agent plan is a collection of single-employer plans.  Cost-sharing multiple-employer plans/cost-sharing employer ◦ Provide benefits to more than one employer by pooling the assets and obligations across all participating employers. As a result, plan assets may be used to pay the benefits of any participating employer. 16

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 Begin by calculating the net pension liability at the plan level  Calculate Employers “Proportionate share” GASB encourages the estimation of expected future contributions as the basis to allocate; but it allows any method that is determined on a basis that is consistent with the manner in which required contributions are determined. 19

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 CalPERS risk pools  Plan or risk pool’s net pension liability calculated same as for single and agent employers  Agency reports & recognizes proportionate share of Plan’s or Risk Pool’s net pension liability ◦ Any reasonable method to determine proportion ◦ Should be consistent with contribution determination  No special treatment for Side Funds 21

 An employer should recognize its proportionate share of the collective net pension liability, pension expense, and deferred inflows/outflows of a cost-sharing plan Cost-sharing Multiple-Employer plans – those in which the pension obligations to the employees of more than one employer are pooled (plan assets can be used to pay the benefit of the employees of any employer) 22

 Basis for proportion should be consistent with manner in which required contributions are determined 23 As a practical matter, it is anticipated the calculation of proportion will be performed based on either required contributions or covered payroll

Proportionate share concept results in two types of potential changes in pension liability:  effect of a change in the employer’s proportion of the plan’s collective net pension liability - recognized as deferred inflow/outflow in the period of change  difference during the measurement period between actual plan contributions and the amount of the employer’s proportionate share of collective contributions 24

 Multiple Employer Plan  Must include “On-Behalf” payments from state for CalSTRS ◦ Yes, the state pays part of the CalSTRS liability but you book the whole thing ◦ You must journal in the payment as a source and a use. ◦ CDE has a tool to assist with this calculation. 25

 Amendment of Statement No. 68: ◦ par. 137……It may not be practical for some governments to determine the amounts of all deferred inflows of resources and deferred outflows of resources related to pensions, as applicable, at the beginning of the period when the provisions of this Statement are adopted. In such circumstances, beginning balances for deferred inflows of resources and deferred outflows of resources related to pensions should not be reported.” 26

 Amendment to Statement No. 68 (par. 137) ◦ Recognize a beginning deferred outflow of resources only for its pension contributions, if any, made subsequent to the measurement date of the beginning net pension liability, but before the start of the government’s fiscal year. ◦ No beginning balances for other deferred outflows of resources and deferred inflows of resources related to pensions should be recognized 27

Issues AICPA White Papers Government Employer Participation in Cost-Sharing Multiple Employer Plans: Issues Related to Information for Employer Reporting Information for Employer Reporting Single-Employer and Cost-Sharing Multiple-Employer Plans: Issues Associated with Testing Census Data Substantially finalized Census Data 28

29 Plan prepares the following for which plan auditor is engaged to provide opinion: 1.Schedule of employer allocations Use allocation method based on covered payroll or required (actual) contributions depending on whether resulting allocations are expected to be representative of future contributions Projected future contributions could be used if necessary 2.Schedule of pension amounts by employer Includes the following elements: net pension liability, deferred outflows of resources by category, deferred inflows of resources by category and pension expense Alternative: Prepare a “schedule of collective pension amounts” (excluding employer specific deferrals) for the plan as a whole Information for Employer Reporting

Complete and accurate data to plan Appropriateness of information used to record financial statement amounts Whether plan auditor’s report on schedules are adequate and appropriate for employer purposes Amounts in schedules specific to employer Employer amount used in allocation percentage (numerator) Recalculate allocation percentage of employer Recalculate allocation of pension amounts based on allocation percentage of employer Report Evaluate Verify and recalculate 30

Sufficiency and appropriateness of audit evidence Report Whether plan auditor’s report on schedules are adequate and appropriate for auditor purposes (i.e. evidence) Review plan auditor’s report and any related modifications Evaluate whether the plan auditor has necessary competence and independence Determine whether named as specified user Evaluate Amounts in schedules specific to employer Employer amount used in allocation percentage (numerator) Recalculate allocation percentage of employer Recalculate allocation of pension amounts based on allocation percentage of employer Verify and recalculate Census data submitted to plan Test 31

Plan auditor performs procedures to test census data maintained by the plan Employer auditor performs procedures to test the census data provided to the plan Census data tested should coincide with the data used in the preparation of the actuarial report (measurement date) Testing Underlying Census Data for Active Employees 32

33 Develop a comprehensive implementation plan Meet with finance to determine approach and timing of allocations Working with auditor to plan for the testing of Census Data Draft new financial statements and disclosures Monitor progress of implementation Communicate implementation progress to constituent groups/Board