1. Auxiliary Organizations GASB Statement No. 68 Accounting and Financial Reporting for Pensions Sheralin Klinthong, Associate Director, FS / SFSR Chancellor’s Office May 19, 2015

2. Learning Objectives At the end of the session, participants should be able to: Understand the accounting and financial reporting implications of GASB Statement No. 68. Understand the components of net pension liability, pension expense, and deferred outflows/inflows of resources related to pension. Know the required note disclosures and supplemental information. May 2015Year-End GAAP Training2

3. Overview - GASB Statement No. 68  In June 2012, the Governmental Accounting Standard Board (GASB) issued Statement No. 68, Accounting and Financial Reporting for Pensions, effective for fiscal year beginning after June 15, 2014.  Implementation of GASB 68 requires employers to recognize a liability as employees earn their pension benefits versus unfunded annual required contribution.  GASB 68 requires the recognition of net pension liability and deferred outflows/inflows of resources in the SNP and pension expense in SRECNP. May 2015Year-End GAAP Training3

4. Scope and Applicability Scope is limited to defined benefit and defined contribution pensions provided through trusts that meet following criteria: Employer/non-employer contributions irrevocable Plan assets are dedicated to providing pensions Plan assets are legally protected from creditors Excludes all Other Postemployment Benefits (OPEB) Applies to employers and non-employer contributing entities legally obligated to contribute to the plan May 2015Year-End GAAP Training4

5. Scope and Applicability (cont.) A special funding situation arises when a non- employer entity makes contributions directly to the plan and one of the following conditions holds: Non-employer contributing entity is the only entity required to contribute to the plan, or Amount of contributions legally required from the non-employer contributing entity is not dependent on a factor unrelated to pension. May 2015Year-End GAAP Training5

6. Three Pension Plan Types Single pension plan that covers the employees of a single employer. Single Employer Single pension plan that covers the employees of multiple employers. Plan assets are segregated for each participating employer and cannot legally be used to pay other employer’s pension obligation. Agent Multiple Employer Single pension plan that covers the employees of multiple employers. Plan assets are not legally segregated for each participating employer and can legally be used to pay other employer’s pension obligation. Cost Sharing Multiple Employer May 2015Year-End GAAP Training6

7. Pension Accounting for Employer GASB issued a detailed implementation guide for Statement No. 68 in early 2014. Below is the link to the GASB website for future reference. http://gasb.org/jsp/GASB/Page/GASBSectionPage &cid=1176163026371 May 2015Year-End GAAP Training7

8. Pension Accounting for Employer Calculation of pension expense and net pension liability is straightforward, particularly if no special funding situation applies. Single Employer Each participating employer will get an individual calculation of specific net pension liability, since individual employer total pension liability and fiduciary net position of plan assets will be available. Agent Multiple Employer A proportionate share of the net pension liability and total pension expense must be calculated for each participating employer. Cost Sharing Multiple Employer May 2015Year-End GAAP Training8

9. Measurement – Key Dates May 2015Year-End GAAP Training9 Fiscal Year-End Measurement Date o No earlier than end of prior fiscal year o Total pension liability and plan fiduciary net position are calculated as of this date Actuarial Valuation Date (of total pension liability) o If not measurement date, as of date no more than 30 months (+1 day) prior to FYE o At least every 2 years (more frequent valuations encouraged)

10. Calculating Net Pension Liability May 2015Year-End GAAP Training10 Total Pension Liability Pension Plan’s Fiduciary Net Position Net Pension Liability

11. Calculating Net Pension Liability (cont.) Equal to or a portion of the actuarial present value of projected benefit payments that is attributable to past periods of employee service. Total Pension Liability(TPL) Should be determined using the same valuation methods used by the pension plan for purpose of preparing statement of fiduciary net position. Pension Plan’s Fiduciary Net Position It is the difference between the two components above. Net Pension Liability(NPL) May 2015Year-End GAAP Training11

12. Change in Net Pension Liability May 2015Year-End GAAP Training12 NPL recognized in current reporting period less NPL recognized in prior reporting period The change resulting from service cost, interest in TPL, effects of benefit changes, projected earnings on plan investments are recognized as pension expense. Exceptions: Difference between expected and actual experience (TPL) Changes of assumptions (TPL) Difference between projected and actual earnings on pension plan investments Employer contributions

13. Changes in NPL – TPL exceptions Expense recognized in current and future periods Portion not recognized in expense are in deferred outflow/inflow of resources related to pensions May 2015Year-End GAAP Training13

14. Changes in NPL – Investment Earnings Exception May 2015Year-End GAAP Training14 Expense recognized in current and future periods Portion not recognized in expense are in deferred outflow/inflow of resources related to pensions Report net deferred outflow/inflow of resources related to pensions

15. Net Pension Liability – Employer Contribution Contributed during the measurement period o Directly reduce NPL (no expense impact) Subsequent to measurement date o Deferred outflow of resources related to pension o Directly reduce NPL in the next reporting period (no expense impact) May 2015Year-End GAAP Training15

16. Special Consideration: Cost-Sharing Employers Determine the proportionate share (%) using a basis and consistently apply from period to period. Net effect of change in proportion Difference between: o Employer’s proportionate share of total employer contributions o Actual contributions during the measurement period Employer’s contributions subsequent to measurement date May 2015Year-End GAAP Training16

17. Note Disclosures Descriptive information of the Pension Plan Significant assumptions/other inputs used in determining TPL Information on pension plan’s fiduciary net position or reference to the plan report or link to the public website where it is posted Relevant dates, i.e. actuarial valuation and measurement dates Changes in the assumptions/other inputs and changes in benefit terms Changes subsequent to measurement date May 2015Year-End GAAP Training17

18. Note Disclosures (cont.) Pension expense in current reporting period Deferred outflows/inflows of resources – by source, net impact on pension expense in each of the next 5 years, and thereafter in aggregate, and amount that will reduce NPL May 2015Year-End GAAP Training18

19. Note Disclosures (cont.) Cost-sharing employers only: Employer’s proportionate share, basis and change in proportion Employer’s proportionate share (in $) of collective NPL. Non-employer contributing entity’s proportionate share (in % and $), if applicable May 2015Year-End GAAP Training19

20. Required Supplementary Information 10-year schedules Employer’s proportion (%), proportionate share (amount) of collective NPL, covered- employee payroll, proportionate share as % of covered-employee payroll, pension plan’s net position as % of TP Notes to RSI with significant changes May 2015Year-End GAAP Training20

21. Defined Contribution Pension Pension expense for amounts defined by benefit terms as attributable to the reporting period – Net of forfeited amounts removed from employee accounts Liability for difference between pension expense and contributions Note disclosures – Descriptive information about plan, benefit terms, contribution rates, amount of expense, amount of forfeitures, amount of liability Non-employer contributing entities with legal requirements to contribute directly to pension plan also addressed May 2015Year-End GAAP Training21

22. Reminders for Successful Implementation Determine the pension plan type as early as possible, consult with legal counsel if needed. Identify individuals that will be focused on the implementation and gathering information. Form a timeline for implementation. Prepare for the increased note disclosures. Work closely with auditors May 2015Year-End GAAP Training22

23. CSU SW GAAP Reporting Requirement Despite the new accounting and disclosure requirements, the audited financials are expected to be final by September 18 th. Use the supplemental information template in Chapter 8 of the GAAP Manual which was updated to include pension related accounts. No specific footnote disclosures have been added to the template. Wait for further instructions. May 2015Year-End GAAP Training23

24. Knowledge Check Question Which of the following is a criteria in determining whether a pension plan is within the scope of GASB 68? a)Employer/non-employer contributions irrevocable b)Plan assets are dedicated to providing pensions c)Plan assets are legally protected from creditors d)All of the above May 2015Year-End GAAP Training24

25. www.calstate.edu May 2015Year-End GAAP Training25