Tag Archives: GASB 67

GASB 67/68: Special Funding Situations

In 2014, new accounting rules for U.S. public pension plans took effect. To implement those rules successfully, a variety of technical concepts regarding newly required calculations need to be understood. The Government Accounting Standards Board (GASB) Statements No. 67 and 68 miniseries discusses special funding situations. With special funding situations, major accounting metrics under GASB must be adjusted to reflect the relationship. Milliman’s Jennifer Sorensen Senta provides perspective in this PERiScope article.

GASB 67/68: Proportionate share allocation

This PERiScope article in Milliman’s Governmental Accounting Standards Board (GASB) Statements No. 67 and 68 miniseries discusses the allocation of financial reporting liabilities for cost-sharing multiple employer plans.

Under the new GASB 67/68 rules, a cost-sharing multiple-employer pension plan is a plan that is used to provide pensions to employees of more than one employer, and plan assets are pooled such that they can be used to pay the benefits of the employees of any employer. Other plan types defined under the new GASB statements include single employer plans (where a plan involves only one employer), and agent employer plans (where assets of one employer may not legally be used to pay the benefits of the employees of any other employer). For cost-sharing plans, a “proportionate share” for each employer must be developed to distribute the aggregate plan liability and expense among the employers’ financial statements. An individual employer’s proportionate share will almost certainly change from measurement date to measurement date, and the financial impact of this change must be quantified. In addition, to the extent that an employer makes actual contributions during the year that are different from its allocated proportionate share of contributions, this difference must also be tracked and accounted.

GASB 67/68: Pension expense, balance sheet items, and projections from valuation date to measurement date

In 2012, the Governmental Accounting Standards Board (GASB) released new accounting standards for public pension plans and participating employers, GASB Statements No. 67 and 68. This PERiScope article by Jennifer Castelhano and Erik Goodhart examines the impact these new accounting standards have on the pension expense and balance sheets of both pension plans and participating employers. In addition, the article explores roll-forward procedures that can be used to project plan liabilities from the valuation date to the measurement date.

To read Milliman’s PERiScope series on technical and implementation issues surrounding GASB 67 and 68, click here.

GASB 67/68: Substantively automatic plan provisions

This PERiScope article authored by Michael Iacoboni discusses “substantively automatic” plan provisions and their inclusion in the determination of a plan’s total pension liability (TPL). For many plans, the concept of “substantively automatic” is critical to the treatment of cost-of-living adjustments (COLAs), which are often granted on a discretionary or ad hoc basis. In Statements 67 and 68, the Governmental Accounting Standards Board (GASB) neither objectively nor specifically defines the term “substantively automatic” and it does not prescribe a one-size-fits-all formula for determining if a plan’s COLA policies fall into this category.

To read Milliman’s PERiScope series on technical and implementation issues surrounding GASB 67 and 68, click here.

GASB 67/68: Calculation specifics on individual entry age normal and recognition of deferred inflows/outflows

New accounting rules for public pension plans in the United States are set to take effect beginning in 2014. This PERiScope article in the Governmental Accounting Standards Board (GASB) Statements No. 67 and 68 miniseries discusses the individual entry age (IEA) actuarial cost method.

The IEA cost method is specifically identified in the new standards as the only appropriate method for determining a plan’s total pension liability (TPL), which is the portion of the present value of benefits attributable to past service. This article also discusses the calculation of the amortization period to be utilized in recognizing gains or losses that are due to demographic experience or actuarial assumption changes in the annual expense under GASB 68.

Post-retirement benefits: Three new exposure drafts from GASB

AlexKaplanPhoto.comOver the past two years, the Governmental Accounting Standards Board (GASB) has been working on a project to modify accounting for post-retirement benefits that covers both “other post-employment benefits” (OPEB) and pensions that are not funded through a trust. The new GASB 67 and 68 rules for pensions published in 2012 apply only to pension benefits funded through a trust.

That project has reached fruition and the GASB has published three new exposure drafts. The first describes new requirements for the external financial reports of OPEB plans. The second proposes new accounting requirements for governmental entities that provide OPEB benefits to their employees. The third establishes requirements for defined benefit (DB) pension plans not funded through a trust, which are therefore not subject to GASB 67 or 68. It also contains some minor amendments to GASB 67 and 68.

The timeline for this project is:

• August 29, 2014: Comment deadline
• September 10-12, 2014: Public hearings
• First half of 2015: Final statements

The new accounting for OPEB and pensions not funded through a trust are largely based on the same principles as those found in GASB 68. Especially for an entity that provides OPEB benefits to its employees, this represents a significant change from the requirements of GASB 45. In particular, the use of the entry age normal funding method will be required and liabilities will be valued using an interest rate that is representative of a combination of the rate to be earned on invested assets and the rates in a government bond index. Perhaps more importantly, the plan’s unfunded accrued liability (i.e., the entire accrued liability for unfunded plans) will be placed on the balance sheet of the entity sponsoring the plan. For many small local entities such as towns and school districts this liability may exceed the entire size of their annual budgets.

The proposed effective dates of the new standards are as follows:

• For OPEB plans, the fiscal year beginning after December 15, 2015 (2016 for calendar-year plans)
• For an entity that provides OPEB benefits to its employees, the fiscal year beginning after December 15, 2016 (2017 for calendar-year plans)
• For pension benefits not funded through a trust (i.e., not subject to GASB 67 or 68), fiscal years beginning after June 15, 2016 (June 15, 2015, for the minor amendments to GASB 67 and 68)

To read Milliman’s PERiScope series on technical and implementation issues surrounding GASB 67 and 68, click here.