TGFOA Fall Conference Pensions Are We There Yet?

TGFOA Fall Conference Pensions  Are We There Yet?

TGFOA Fall Conference Pensions Are We There Yet? October 12, 2017 Jerry E. Durham, CPA, CGFM, CFE 1 THE OPINIONS EXPRESSED DURING THIS PRESENTATION ARE MY OWN. THEY DO NOT NECESSARILY REPRESENT THE VIEWS OF THE TENNESSEE COMPTROLLER OF THE

TREASURY, HIS REPRESENTATIVES, OR THE TENNESSEE DEPARTMENT OF AUDIT. 2 IMPLEMENTATION ISSUES THE REAL PROBLEM THE OTHER REAL PROBLEM INFORMATION - SHEER COMPLEXITY AND INVOLVEMENT OF OUTSIDE PARTIES ACTUARY, AUDITOR, CENSUS DATA TESTING, DEFERRALS, EMPLOYER RESPONSIBILITY, FOOTNOTES DISCOUNT RATE

MEASUREMENT DATES MULTIPLE PLANS ALLOCATIONS GASB STATEMENTS 71, 73, 78, 82, 85 GASB STATEMENT 84 UNIFORM GUIDANCE OPEB 3 The Real Problem 4

The Other Real Problem 5 EFFECTIVE DATESJUNE 30 2015 STATEMENT 68PENSIONSEMPLOYERS STATEMENT 69GOVERNMENT COMBINATIONS AND DISPOSALS OF GOVERNMENT OPERATIONS STATEMENT 71PENSION TRANSITION FOR CONTRIBUTIONS MADE SUBSEQUENT TO THE MEASUREMENT DATE 2016

STATEMENT 72FAIR VALUE MEASUREMENT AND APPLICATION STATEMENT 73PENSIONSRELATED ASSETS (OUTSIDE SCOPE OF STATEMENTS 67 AND 68) STATEMENT 76HIERARCHY OF GAAP FOR STATE/LOCAL GOVERNMENTS STATEMENT 79 CERTAIN EXTERNAL INVESTMENT POOLS AND POOL PARTICIPANTS 6 EFFECTIVE DATESJUNE 30 2017 STATEMENT 73PENSIONS AMENDMENTS TO CERTAIN PROVISIONS OF 67 & 68 STATEMENT 74FINANCIAL REPORTING OPEB PLANS STATEMENT 77TAX ABATEMENT DISCLOSURES STATEMENT 78 PENSIONS PROVIDED THROUGH CERTAIN MULTIPLE-EMPLOYER DEFINED BENEFIT

PLANS STATEMENT 79 CERTAIN EXTERNAL INVESTMENT POOLS AND POOL PARTICIPANTS STATEMENT 80 - BLENDING REQUIREMENTS FOR CERTAIN COMPONENT UNITS STATEMENT 82 PENSION ISSUES 2018 STATEMENT 75ACCOUNTING AND FINANCIAL REPORTING OPEB EMPLOYERS STATEMENT 81 IRREVOCABLE SPLIT-INTEREST AGREEMENTS STATEMENT 82 PENSION ISSUES (CERTAIN PROVISIONS RELATED TO ASSUMPTIONS) STATEMENT 85 OMNIBUS 2017 STATEMENT 86 CERTAIN DEBT EXTINGUISHMENTS

2019 STATEMENT 83 - CERTAIN ASSET RETIREMENT OBLIGATIONS 2020 STATEMENT 84 - FIDUCIARY ACTIVITIES 2021 STATEMENT 87 - LEASES 7 Mission Impossible Information

8 GASBS TOP FIVE FIVE MAIN ISSUES STANDARDS IN THE NEW 1. PLACING THE NET PENSION LIABILITY ON THE BALANCE SHEET

2. DECOUPLING EXPENSE FROM FUNDING 3.ACCOUNTING FOR COST-SHARING PLANS 4. EXPANDING DISCLOSURE INFORMATION (NOTES & RSI) 5. TIMING OF MEASUREMENTS, EFFECTIVE DATES IMPLEMENTATION GUIDE, AND AICPA WHITEPAPERS, AND 110 PAGES IN 2015 AICPA AUDIT GUIDE 9 GASB OPENING THOUGHTS FINANCIAL STATEMENT RECOGNITION AND DISCLOSURES DONT CREATE PENSION OBLIGATIONS; INSTEAD, THEY SIMPLY MAKE EXISTING OBLIGATIONS MORE TRANSPARENT.

COLLECTIVELY, THE CHANGES IN STATEMENTS 67, 68, AND 71, REPRESENT MAJOR IMPROVEMENTS IN PUBLIC PENSION REPORTING, AND WILL MAKE PENSIONS MORE UNDERSTANDABLE AND COMPARABLE. THEORETICALLY SPEAKING THEN, 73, 78, 82, 84, AND 85 DO THE SAME THING! 10

INFORMATION TYPES OF PLANS CENSUS DATA, TESTING CONTRIBUTIONS MEASUREMENT DATE DISCOUNT RATE ALLOCATIONS (SPECIAL FUNDING SITUATIONS, CONTRIBUTIONS ON BEHALF OF EMPLOYEES, FUNDS, COMPONENT UNITS, COST-SHARING PLANS, ETC.) DEFERRALS, AMORTIZATION SCHEDULES ACTUARIAL REPORT (ACTUARY COMPETENCE) VALUE OF PLAN ASSETS 11

ACTUARY AND TCRS PROVIDED INFORMATION ACTUARIAL CERTIFICATION LETTER ACTUARIAL REPORT JOURNAL ENTRIES FOOTNOTES TO FINANCIAL STATEMENTS, RSI SCHEDULES, RSI FOOTNOTES CENSUS DATA STATE AUDIT PROVIDED INFORMATION WILL BE PROVIDED ON LGA WEBSITE WORKPAPERS FOR USE OF SPECIALIST

EXAMINATION ENGAGEMENT REPORT FOR INACTIVE AND RETIREE CENSUS DATA OPINION REPORT ON TWO COST SHARING SCHEDULES OPINION REPORT ON CHANGES IN PLAN NET POSITION COST-SHARING CENSUS DATA TESTING PLAN OTHER INFORMATION EMPLOYER RESPONSIBILITY MEMO OR SOMETHING SIMILAR FOR EACH EMPLOYER COST SHARING TESTWORK FROM CPA

FIRMS HTTPS://PUBLICREPORTS.TREASURY.TN.G OV/ Discount Rate 15 THE BASIC THREE-STEP APPROACH FOR DEFINED BENEFIT PENSIONS For Active and Inactive Employees 1) Project Benefit Payments

25 40 62 80 2) Discount Future Payments Present Value of Payments TP L

3) Attribute to Employee Service Periods How much money would I need to invest today to cover all the expected Retirement Benefits for this employee? 16 PENSION PLAN DISCOUNT RATE ASSUMPTIONS MOST STATES STILL USE 7.5 TO 8%, IS THIS

REALISTIC? CALPERS (THE LARGEST PUBLIC FUND): CURRENT ASSUMPTION 7% ACTUAL RESULTS: .6% IN 2016 6.9% LAST THREE YEARS 5.1% LAST TEN YEARS 7% LAST 20 YEARS ARE PLANS TAKING ON MORE RISK TO ACHIEVE TARGETS? TOO MUCH RISK?

WHAT RESPONSIBILITY DOES THE AUDITOR HAVE? 17 Measurement Date 18 TIMING AND FREQUENCYGASB 68 (EMPLOYER) Possible Approach RD

Each dot is one year VD Possible Approach MD RD RD = reporting

date VD = actuarial valuation date MD = measureme nt date MD VD Possible Approach

VD RD MD 19 DIVERSE YEAR END DATES COMPONENT UNITS UTILITY DISTRICTS SCHOOL DISTRICTS AUTHORITIES

CHARTER SCHOOLS ETC. 20 HOUSING AUTHORITY LETTER XXXXXXXX, THANK YOU FOR YOUR ASSISTANCE. I LOCATED THE EMAIL YOU REFERENCED AND OUR AUDITOR HAS THIS INFORMATION. OUR AUDITOR IS TELLING US BECAUSE THE TCRS DATA CURRENTLY AVAILABLE IS UNAUDITED HE HAS TO GIVE US A QUALIFIED OPINION ON OUR 2016 AUDIT. ACCORDING TO OUR AUDITOR THIS IS TRUE FOR ALL HOUSING AUTHORITIES WITH A YEAR-END DATE OF SEPTEMBER 30 OR DECEMBER 31 BECAUSE THERE IS A 12 MONTH CAP ON THE AGE OF THE DATA AND APPARENTLY TCRS

WILL NOT HAVE AUDITED DATA UNTIL AFTER OUR AUDIT DEADLINE OF 9/30/2017. HOUSING AUTHORITIES ARE SCORED THROUGH A PUBLIC HOUSING ASSESSMENT SYSTEM AND HAVING A QUALIFIED OPINION ON OUR AUDIT WILL CAUSE US TO AUTOMATICALLY LOSE A POINT AND COULD LOWER THE SCORE FROM HIGH PERFORMER STATUS (90-100) TO A STANDARD STATUS (70-89) AND WOULD CAUSE THE AUTHORITY TO LOSE A HIGH PERFORMER FUNDING BONUS. WHILE IT PROBABLY WILL NOT AFFECT OUR PHAS STATUS THIS YEAR IT COULD IN FUTURE YEARS AND MAY HAVE THIS EFFECT ON OTHER HOUSING AUTHORITIES NOW. ALSO WE WOULD LIKE TO HAVE A CLEAN AUDIT WITH NO FINDINGS AND THIS FINDING IS BEYOND OUR CONTROL.

I JUST WANT TO NOTIFY TCRS AND THE STATE OF TENNESSEE OF THE NEGATIVE AFFECT THIS IS CAUSING FOR SEVERAL IF NOT MOST HOUSING AUTHORITIES IN TENNESSEE. 21 Multiple Plans 22 Allocations and More Allocations 23

ALLOCATIONS FUNDS ENTERPRISE FUNDS COMPONENT UNITS CHARTER SCHOOLS SPECIAL FUNDING SITUATIONS SEPARATELY FINANCED SPECIFIC LIABILITIES CONTRIBUTIONS MADE ON BEHALF OF EMPLOYEES ON-BEHALF PAYMENTS 24 Recalculating 25

GASB RECALCULATING 73, 78, 82 26 ACCOUNTING AND FINANCIAL REPORTING FOR PENSIONS AND RELATED ASSETS THAT ARE NOT WITHIN THE SCOPE OF GASB STATEMENT 68, AND AMENDMENTS TO CERTAIN PROVISIONS OF GASB STATEMENTS 67 AND 68 73

27 PENSIONS NOT IN SCOPE OF 68 DO YOU PARTICIPATE IN A PENSION PLAN OTHER THAN TCRS? YES ____ NO __X__ ? DO YOU MAKE PENSION CONTRIBUTIONS ON BEHALF OF DIFFERENT FUNDS (E.G. GENERAL FUND FOR UTILITY FUND) OR OTHER GOVERNMENTS! YES ____ NO __X__ ? IF NO, GASB 73 DOES NOT APPLY TO YOU.

28 PENSIONS NOT ADMINISTERED THROUGH TRUSTS SUMMARY 6/30/17 SAME PURPOSE AS IF THERE WERE A TRUST ARRANGEMENT ONLY DIFFERENCE IS, YOU DONT HAVE FIDUCIARY NET POSITION BECAUSE YOU CANT NET THE PLAN ASSETS AGAINST THE PLAN PENSION LIABILITY APPLY PROVISIONS OF 67 AND 68 IN TERMS OF CALCULATIONS JUST DONT NET ASSETS AND LIABILITIES, AND USE A DISCOUNT RATE FOR A HIGH-GRADE MUNICIPAL RATE 29

PENSIONS NOT ADMINISTERED THROUGH TRUSTS SUMMARY 6/30/17 SAME PURPOSE AS IF THERE WERE A TRUST ARRANGEMENT ONLY DIFFERENCE IS, YOU DONT HAVE FIDUCIARY NET POSITION BECAUSE YOU CANT NET THE PLAN ASSETS AGAINST THE PLAN PENSION LIABILITY APPLY PROVISIONS OF 67 AND 68 IN TERMS OF CALCULATIONS JUST DONT NET ASSETS AND LIABILITIES, AND USE A DISCOUNT RATE FOR A HIGH-GRADE MUNICIPAL RATE 30

PENSIONS PROVIDED THROUGH CERTAIN MULTIPLEEMPLOYER DEFINED BENEFIT PENSION PLANS 78 31 PENSIONS NOT IN SCOPE OF 68 DO YOU PARTICIPATE IN A PENSION PLAN OTHER THAN TCRS? YES ____ NO __X__ ? IF NO, YOU. GASB 78 DOES NOT APPLY TO

32 PENSIONS NOT IN SCOPE OF 68 DO YOU PARTICIPATE IN A PENSION PLAN THAT IS A UNION PENSION PLAN RATHER THAN A GOVERNMENT SPONSORED PENSION PLAN? YES __X__ NO ____ ? IF YES, GASB 78 DOES APPLY TO YOU. THIS SHOULD HAVE A EFFECT ON VERY

FEW IN THE AUDIENCE. 33 EXCEPTION - CERTAIN PENSION PLANS DURING THE IMPLEMENTATION OF STATEMENT 68 AN ISSUE AROSE REGARDING THE ABILITY OF STATE AND LOCAL GOVERNMENTAL EMPLOYERS TO OBTAIN NECESSARY INFORMATION RELATED TO PENSIONS THAT ARE PROVIDED THROUGH CERTAIN MULTIPLE-EMPLOYER DEFINED

BENEFIT PENSION PLANS. THE OBJECTIVE OF THIS STATEMENT IS TO ADDRESS THAT ISSUE. DIFFICULT OR IMPOSSIBLE TO GET INFORMATION 34 EXCEPTION - CERTAIN PENSION PLANS GASBS SOLUTION: REMOVE THESE PLANS FROM THE SCOPE OF GASB 68. GASB 68 NO LONGER APPLIES TO THESE PLANS. UTILIZE AN OLD APPROACH

35 EXCEPTION - CERTAIN PENSION PLANS CERTAIN PENSION PLANS - CRITERIA: PROVIDED TO EMPLOYEES OF STATE OR LOCAL GOVERNMENTAL EMPLOYERS THROUGH A COST-SHARING MULTIPLE-EMPLOYER DEFINED BENEFIT PENSION PLAN. THAT IS NOT A STATE OR LOCAL GOVERNMENTAL PENSION PLAN THAT IS USED TO PROVIDE DEFINED BENEFIT PENSIONS BOTH TO EMPLOYEES OF STATE AND LOCAL GOVERNMENTAL EMPLOYERS AND TO EMPLOYEES OF EMPLOYERS THAT ARE NOT STATE AND LOCAL GOVERNMENTAL EMPLOYERS THAT HAS NO PREDOMINANT STATE OR LOCAL GOVERNMENTAL (EITHER

INDIVIDUALLY OR COLLECTIVELY WITH OTHER STATE OR LOCAL GOVERNMENTAL EMPLOYERS THAT PROVIDE PENSIONS THROUGH THE PENSION PLAN 36 EXCEPTION - CERTAIN PENSION PLANS CERTAIN PENSION PLANS - SOLUTION: REQUIREMENTS APPLY WHETHER THE GOVERNMENTS FINANCIAL STATEMENTS ARE PRESENTED IN STAND-ALONE FINANCIAL REPORTS OR ARE INCLUDED IN THE FINANCIAL REPORTS OF ANOTHER GOVERNMENT PENSION EXPENSE SHOULD BE RECOGNIZED EQUAL TO THE EMPLOYERS REQUIRED CONTRIBUTIONS TO THE PENSION PLAN FOR THE REPORTING

PERIOD, AND A PAYABLE SHOULD BE REPORTED FOR UNPAID REQUIRED CONTRIBUTIONS AT THE END OF THE REPORTING PERIOD THE ONLY PENSION LIABILITY THAT WILL BE PRESENTED IS THE AMOUNT OF ANY UNPAID REQUIRED CONTRIBUTIONS 37 PENSION ISSUES 82 38 PENSION ISSUES

PRACTICE ISSUE PENSION ISSUES THREE ISSUES THERAPY: COVERED ITEMS COVERED THE

PRESENTATION OF PAYROLL-RELATED REQUIRED SUPPLEMENTARY INFORMATION IN ACCOUNTANT MEASURES IN

DEVIATIONS FROM ACTUARIAL STANDARDS OF PRACTICE FOR FINANCIAL REPORTING PURPOSES CLASSIFICATION OF PAYMENTS MADE TO EMPLOYERS TO SATISFY EMPLOYEE CONTRIBUTION REQUIREMENTS 39 PENSION ISSUES PRACTICE ISSUE PENSION ISSUES THE PRESENTATION OF PAYROLL-RELATED MEASURES IN REQUIRED SUPPLEMENTARY INFORMATION COVERED PAYROLL IS THE PORTION OF COMPENSATION PAID TO ACTIVE EMPLOYEES ON WHICH CONTRIBUTIONS TO A

PENSION PLAN ARE BASED, AND UPON WHICH CERTAIN RSI RATIOS CALCULATED (OFTEN REFERRED TO PENSIONABLE PAYROLL) COVERED EMPLOYEE PAYROLL IS THE PAYROLL OF EMPLOYEES THAT ARE PROVIDED WITH PENSIONS THROUGH THE PENSION PLAN (TOTAL PAYROLL) 40 REQUIRED SUPPLEMENTARY INFORMATION Net Pension Liability Covered

Payroll Note: Only 5 years are presented here; 10 years of information would be required 41 41 REQUIRED SUPPLEMENTARY INFORMATION Employer Contributions

Covered Payroll Note: Only 5 years are presented here; 10 years of information would be required 42 42 PENSION ISSUES PRACTICE ISSUE PENSION ISSUES

#2 DEVIATIONS FROM ACTUARIAL STANDARDS OF PRACTICE FOR FINANCIAL REPORTING PURPOSES: THE STATEMENT WOULD CLARIFY THAT A DEVIATION, AS THE TERM IS USED IN ACTUARIAL STANDARDS OF PRACTICE, IS NOT CONSIDERED TO BE IN CONFORMITY WITH THE REQUIREMENTS OF STATEMENTS 67, 68, AND 73 FOR THE SELECTION OF ASSUMPTIONS IN DETERMINING THE TOTAL PENSION LIABILITY 43 PENSION ISSUES PRACTICE ISSUE PENSION ISSUES

#3 DOES THE GOVERNMENT PICK-UP ANY PAYMENTS THAT THE PLAN OFFICIALLY DESIGNATES AS EMPLOYEE CONTRIBUTIONS. YES ____ NO __X__ ? IF NO, THIS PART OF GASB 82 WILL NOT APPLY TO YOU. DO WE HAVE ANYONE HERE THAT DOES PICK-UP EMPLOYEE CONTRIBUTIONS?? 44 EMPLOYER-PAID MEMBER CONTRIBUTIONS GASBS 67, FOOTNOTE 2IN SOME CIRCUMSTANCES,

CONTRIBUTIONS ARE MADE BY THE EMPLOYER TO SATISFY PLAN MEMBER CONTRIBUTION REQUIREMENTS. IF THE CONTRIBUTION AMOUNTS ARE RECOGNIZED BY THE EMPLOYER AS SALARY EXPENSE, THOSE CONTRIBUTIONS SHOULD BE CLASSIFIED AS PLAN MEMBER CONTRIBUTIONS FOR PURPOSES OF THIS STATEMENT. OTHERWISE, THOSE CONTRIBUTIONS SHOULD BE CLASSIFIED AS EMPLOYER CONTRIBUTIONS. (SAME DESCRIPTION IN 68 & 73 CONSIDERED EMPLOYER CONTRIBUTIONS) PENSION EXPENSE DEFINITION USING FOOTNOTE 2 WOULD RESULT IN A CHANGE IN PENSION EXPENSE. CONSIDERATION FOR COST-SHARING PLANS IN DETERMINATION OF ALLOCATION OF NPL, DEFERRED OUTFLOWS/INFLOWS, & PENSION

EXPENSE. 45 GASB 84 Fiduciary Activities 46 Questions? Jerry E. Durham, CPA, CGFM, CFE 47

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