The Governmental Accounting Standards Board (GASB) issued two related statements which substantially change the accounting and financial reporting of pensions for PERA and PERA employers (employers). Statement No. 67, Financial Reporting for Pension Plans, affects the financial statements of PERA; Statement No. 68, Accounting and Financial Reporting for Pensions, affects the financial statements of employers.
Here are answers to some frequently asked questions about these new reporting standards:
- What is GASB?
- When do these new standards go into effect?
- What do these new standards mean for employers?
- Is this liability due and payable immediately?
- Will these changes affect the amount of contributions sent to PERA?
- Do the new GASB Statements establish requirements for how governments should fund their pensions?
- What steps is PERA taking to reduce the collective net pension liability of each division’s pension trust fund?
- Will PERA provide net pension liability and other pension-related amounts to assist employers with GASB Statement No. 68?
- Will PERA provide the allocation percentage necessary to derive an employer’s proportionate share of the collective net pension liability and other collective pension-related amounts?
- What is the basis used for calculating the employers’ allocation percentages?
- Will employers need to maintain amortization schedules for deferred outflows of resources and deferred inflows of resources?
- Will PERA assist employers with the note disclosures required by the new reporting standards?
- When does PERA publish its Annual Report?
- Where can I find additional information about the new pension reporting standards?
- Will PERA provide any information I can use to communicate these new reporting standards for pensions to my governing board?
- How do I receive specific updates regarding the new reporting standards from PERA?
- Are the new reporting standards, detailed in Statement Nos. 67 and 68, applicable to Other Postemployment Benefit (OPEB) plans?
- Who do I contact with specific questions about the new reporting standards?
What is GASB?
GASB is an independent, non-profit, non-governmental regulatory body charged with setting authoritative standards of accounting and financial reporting for state and local governments.
When do these new standards go into effect?
Statement No. 67 replaces the requirements of the existing Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, and is effective for fiscal years beginning after June 15, 2013. PERA will include these new requirements in its Annual Report for the year ended December 31, 2015.
Statement No. 68 replaces the requirements of Statement No. 27, Accounting for Pensions by State and Local Governmental Employers. This reporting requirement applies to the GAAP-based financial statements of employers and is effective for fiscal years beginning after June 15, 2014.
What do these new standards mean for employers?
Each employer is part of one pension trust fund at PERA (State Division Trust Fund, School Division Trust Fund, Local Government Division Trust Fund, Judicial Division Trust Fund, or DPS Division Trust Fund). GASB now will require, for purposes of governmental financial reporting, that a proportionate share of the total net pension liability (unfunded liability) of the pension trust fund at PERA be shown on the face of each employer’s financial statements. Similarly, a proportionate share of the total pension expense and collective deferred inflows of resources and deferred outflows of resources of the pension trust fund at PERA will also be shown on the face of each employer’s financial statements. In addition, these standards will require employers to include additional footnote disclosures about the pension trust fund in their financial statements.
Is this liability due and payable immediately?
No, the net pension liability is unlike any of the other liabilities reported on an employer’s balance sheet, in that it is not immediately due and cannot be paid off under any accelerated schedule. Contribution rates are set in statute. As a result, an employer would not be able to remit payment, in addition to their statutory contribution amount, for their proportionate share of the net pension liability in order to remove this liability from their financial statements.
Will these changes affect the amount of contributions sent to PERA?
No, only the Colorado Legislature has the power to change the contribution rate through the statutes that govern PERA. Although a proportionate share of the collective net pension liability is shown on the face of each employer’s financial statements, contribution requirements to PERA are not impacted by this change.
Do the new GASB Statements establish requirements for how governments should fund their pensions?
No, the new reporting standards break the link between actuarial funding and financial accounting for pensions. Previous GASB standards required pension plans to calculate the annual required contribution (ARC) and report payments toward the ARC. This measured the plan’s funding of the pension obligation. The new standards consider only how systems account for and report pension costs.
What steps is PERA taking to reduce the collective net pension liability of each division’s pension trust fund?
The financial crisis of 2008 resulted in a 26 percent reduction in PERA’s investment portfolio, which brought into question the sustainability of the system. In response, the PERA Board of Trustees engaged stakeholders throughout Colorado to gather input and develop a comprehensive set of pension reforms. The PERA Board then recommended a package of comprehensive reforms to the General Assembly for their consideration. The General Assembly, with bipartisan support, enacted Senate Bill 10-001, which was the first such public pension reform enacted in the nation in response to the financial crisis of 2008 and is a model used by other systems. With the passage of Senate Bill 10-001, many changes were made which increased the funding to the system and lowered the cost of the benefits paid by the system. As a result of decisive and comprehensive action in 2010, Colorado PERA’s unfunded liabilities were immediately reduced by over $9 billion and the costs of future pensions were substantially reduced. As a result of Senate Bill 10-001, and based on the most recent actuarial valuation, PERA is projected to be fully funded within approximately 30-40 years. Ninety percent of the cost of these changes is borne by PERA members and retirees.
Will PERA provide net pension liability and other pension-related amounts to assist employers with GASB Statement No. 68?
Yes, PERA will provide several calculated items to assist employers. These items will be at the pension trust fund, or collective, level including: collective net pension liability, collective deferred outflows of resources, collective deferred inflows of resources, and collective pension expense amounts. The information will be available approximately six months after the end of the plan year. Timing questions and answers are addressed in PERA’s Educational GASB Video, Measurement Date vs. Reporting Date.
Will PERA provide the allocation percentage necessary to derive an employer’s proportionate share of the collective net pension liability and other collective pension-related amounts?
Yes, PERA will prepare a schedule of employers’ allocation percentages for all pension trust funds on an annual basis. It is understood at this time that this schedule will be audited by PERA’s auditors to ensure the employers are receiving accurate allocation information. The appropriate allocation percentage then can be used by an employer to determine the pension-related amounts to be included in their financial statements. The AICPA has published a white paper containing a proposed schedule of employer allocations. It’s important to note that PERA can only provide the allocation percentage at the level the employer (each PERA reporting agency number) reports contributions to PERA. An employer’s allocation percentage will be calculated for each PERA reporting agency. However, if the PERA reporting agency is a primary government with component units or is a component unit of a separate government, employers may need to perform further allocations or roll-ups of pension-related amounts based on their financial reporting structure.
What is the basis used for calculating the employers’ allocation percentages?
In accordance with the standard, PERA will calculate the allocation percentage using the current year’s employer contributions on an accrual basis based on PERA’s year-end of December 31. PERA is working on developing reports which employers can use to reconcile contributions made on a cash basis to the contribution amounts derived for the employer allocation percentage schedule.
Will employers need to maintain amortization schedules for deferred outflows of resources and deferred inflows of resources?
Yes and no. PERA will maintain amortization schedules for pension-related information at the collective level for each pension trust fund and the number of years each deferral is to be amortized. However, employers will need to maintain the employer-level amortization schedules for deferrals arising from the change in the employer’s allocation percentage and the difference between the proportionate and actual contributions to PERA, if any. The reasoning behind this approach is that the lowest level of information PERA can provide employers is at the reporting agency level, which does not necessarily match the amounts an employer would need to report on their financial statements.
Will PERA assist employers with the note disclosures required by the new reporting standards?
Yes. PERA will provide sample footnote disclosures about the pension trust fund which employers can choose to include in their financial statements. PERA work with the Colorado State Auditor’s office to get their feedback on this approach. It may be very difficult for employers to complete these pension trust fund disclosures without assistance from PERA.
When does PERA publish its Annual Report?
PERA’s fiscal year-end is December 31 and normally publishes its Annual Report in late June following the fiscal year-end. It’s also important to note that PERA performs an actuarial valuation on an annual basis as of December 31. The valuation results for a given year are included in the current year’s Annual Report.
Where can I find additional information about the new pension reporting standards?
Please view the video, Overview of GASB Pension Statements for Cost-Sharing Plans, presented by PERA’s Chief Financial Officer, Karl Greve. PERA is also developing an educational series which will contain separate videos covering specific aspects of the new reporting standards in greater detail. Notices will be sent regarding the release of these videos. The new reporting pronouncements are available on the GASB website. GASB also published a plain language document covering these pronouncements which may prove helpful. Consultation with an independent auditor or your own accountant about these GASB standards and their implementation also is encouraged.
Will PERA provide any information I can use to communicate these new reporting standards for pensions to my governing board?
Yes. PERA has developed a fact sheet for the specific purpose to help communicate the issues surrounding the new reporting standards to your governing boards. In addition, PERA is developing a web-based video to assist with these discussions.
How do I receive specific updates regarding the new reporting standards from PERA?
A few months ago, PERA sent a survey to all PERA reporting agencies to confirm the financial reporting contacts. If you completed this survey, you are on the distribution list to receive future updates. If your organization hasn’t received anything from PERA regarding the new reporting standards and would like to receive future communications, please contact PERA at GASBMail@copera.org.
Are the new reporting standards, detailed in Statement Nos. 67 and 68, applicable to Other Postemployment Benefit (OPEB) plans?
No. GASB Statement Nos. 67 and 68 do not apply to OPEB plans. Currently, GASB is deliberating the possibility of adopting improvements to the existing standards for accounting and financial reporting for OPEB plans. New guidance pertaining to OPEB plans currently is in Exposure Draft form with final guidance anticipated in June 2015.
Who do I contact with specific questions about the new reporting standards?
Please contact the PERA GASB Workgroup at GASBMail@copera.org. Successful implementation of the new reporting standards is a joint responsibility between PERA and employers, so PERA is interested to know what questions or concerns you may have. The GASB Workgroup will continue to incorporate additional issues and questions into future educational materials to benefit all employers.