GASB 67/68 Implementation
The Governmental Accounting Standards Board (GASB) issued two related statements that substantially change the accounting and financial reporting of pensions like the Public School and Education Employee Retirement Systems of Missouri (PSRS/PEERS) and our employers. Statement No. 67, Financial Reporting for Pension Plans, affects the financial statements of PSRS/PEERS; Statement No. 68, Accounting and Financial Reporting for Pensions, affects the financial statements of participating employers.
The GASB standards break the link between actuarial funding and financial accounting. 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 pension plans account for and report pension costs. The bigger change in requirements is for the participating employers.
Please be assured that PSRS/PEERS is committed to helping our participating employers learn as much as possible about these new accounting standards. We have provided answers to some frequently asked questions about these new reporting standards along with links to valuable resources.
We know complying with these new standards may seem complex at first, but we will be going through this adjustment process together. Should you have any questions about either GASB accounting standard, please feel free to contact Anita Brand, PSRS/PEERS Chief Financial Officer. You may also wish to consult with your own accountant or an independent auditor about these new standards.
Frequently Asked Questions
- Q. What is GASB?
- A. 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.
- Q. When do these new standards go into effect?
- A. 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. PSRS/PEERS will include these new requirements in our Comprehensive Annual Financial Report (CAFR) for the fiscal year ended June 30, 2014. 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 financial statements of employers and is effective for fiscal years beginning after June 15, 2014.
- Q. What do these new standards mean for employers?
- A. GASB will now require a proportionate share of the total net pension liability (unfunded liability) of PSRS/PEERS to 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 PSRS/PEERS will also be shown on the face of each employer's financial statements. Employers will also be required to include additional footnote disclosures about PSRS/PEERS in their financial statements.
- Q. Is this liability due and payable immediately?
- A. 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, nor can it be paid off under any accelerated schedule. An employer cannot remit additional payments beyond the required contribution amount to remove this liability from its financial statements. The presence of a new pension liability on school district balance sheets could give the incorrect impression that employers have a liability that must be paid immediately. This is not the case. Pension costs are amortized over long periods - much like home mortgages.
- Q. Will these changes affect the amount of contributions sent to PSRS/PEERS?
- A. Although a proportionate share of the collective net pension liability will be shown on the face of each employer's financial statements, contribution requirements to PSRS/PEERS are not impacted by this change. Employer contribution rates are set annually by the PSRS/PEERS Board of Trustees as required by Missouri law.
- Q. Do the new GASB Statements establish requirements for how governments should fund their pensions?
- A. 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 pension plans account for and report pension costs.
- Q. Will PSRS/PEERS provide the allocation percentage necessary to determine an employer's proportionate share of the collective net pension liability and other collective pension-related amounts?
- A. Yes. We will prepare Audited Schedules of Employers' Allocation Percentages on an annual basis. The American Institute of CPAs (AICPA) has published a white paper containing a proposed schedule of employer allocations. We will prepare separate schedules for PSRS and for PEERS. Our external auditors will audit each schedule.
- Q. What basis will be used to calculate the employer's allocation percentage?
- A. In accordance with the standard, we chose to calculate the allocation percentage using the fiscal year's employer contributions on an accrual basis. PSRS/PEERS' fiscal year ends June 30.
- Q. Will PSRS/PEERS provide net pension liability and other pension-related amounts to assist employers with GASB Statement No. 68?
- A. Yes. We will provide Audited Schedules of Pension Amounts by Employers. The schedules will be similar to the format included in the ACIPA published white paper and include net pension liability, deferred outflows of resources, deferred inflows of resources, and pension expense amounts.
- Q. Will PSRS/PEERS require additional payroll information from the employers?
- A. Yes. The AICPA issued a white paper detailing additional audit and review procedures necessary for employer payroll (census) data. We will work with our external and internal auditors to establish additional reconciliation procedures and processes.
- Q. Will PSRS/PEERS assist employers with the note disclosures required by the new reporting standards?
- A. Yes. We will provide sample footnote disclosures about PSRS/PEERS that employers can choose to include in their financial statements.
- Q. When does PSRS/PEERS publish a Comprehensive Annual Financial Report (CAFR)?
- A. Our fiscal year-end is June 30 and normally, we publish the CAFR in December following the fiscal year-end. It's also important to note that we perform actuarial valuations on an annual basis as of June 30. The valuation results for a given year are included in the current year's CAFR.
- Q. Where can I find more information about the new pension reporting standards?
- A. The new reporting pronouncements are available on the GASB website, www.gasb.org. GASB also has published a plain language document and implementation toolkit covering these pronouncements that may prove helpful. Consultation with an independent auditor or your own accountant about these GASB standards and their implementation also is encouraged.
Official GASB Links
- Governmental Accounting Standards Board (GASB)
- GASB Toolkit - GASB's pension implementation toolkit assists governments in implementation on Statement No. 68.
- GASB Statement No. 67 - Financial Reporting for Pension Plans
- GASB Statement No. 68 - Accounting and Financial Reporting for Pensions - an amendment of GASB Statement No. 27
- GASB Statement No. 68 Implementation Guide - Guide to implementation of GASB Statement No. 68 on Accounting and Financial Reporting for Pensions
- Emerging Pension Issues for State and Local Governments- The KPMG Government Institute, and partners and professionals of KPMG LLP, invite you to join them for an urgent discussion of critical issues facing governments as they implement the new Governmental Accounting Standards Board (GASB) pension standards. The discussion will include the status of the AICPA's proposed recommendations for plans to communicate pension information to employer governments, as well as AICPA pension-related audit guidance.
- AICPA Whitepaper: Single-Employer and Cost-Sharing Multiple-Employer Plans: Issues Associated with Testing Census Data in an Audit of Financial Statements - The purpose of this whitepaper is to address the role of census data in single-employer and cost-sharing plan financial statements and the plan auditor's responsibility for such census data. Single-employer and cost-sharing plans are covered together in this whitepaper because they have similar reporting and disclosure requirements. This whitepaper addresses the responsibility of the cost-sharing plan to obtain all necessary information and the plan auditors to obtain sufficient appropriate evidence regarding the completeness and accuracy of all census data underlying certain financial statement elements of the plan.
- AICPA Whitepaper: Governmental Employer Participation in Cost-Sharing Multiple-Employer Plans: Issues Related to Information for Employer Reporting - This whitepaper was prepared by the AICPA State and Local Government Expert Panel (SLGEP) and is intended to describe accounting and auditing issues facing governmental employers (employers) that participate in cost-sharing multiple-employer defined benefit pension plans (cost-sharing plan or plan), as well as best practice solutions to address these issues
Sample Reporting Guidelines
- Sample GASB 68 Disclosures - Attached are DRAFT reporting guidelines for Governmental Accounting Standards (GASB) Statement No. 68, Accounting and Financial Reporting for Pensions, as amended by GASB No. 71, Pension Transitions for Contributions Made Subsequent to the Measurement Date. These guidelines include only the note disclosures and required supplementary information (RSI) required by GASB Statement No.68. They are subject to change as new information becomes available.