In June 2012, the Governmental Accounting Standards Board (GASB) issued two new statements impacting how state and local governments report their participation in pension plans. Statement Number 67, Financial Reporting for Pension Plans (an amendment to Statement Number 25) provides guidance on how to account for and report on pension plans, whether the plan issues its own financial statements or is included in the employer’s report as a pension trust fund.
GASB Statement 67 took effect beginning with the June 30, 2014 financial statements. Here are three factors employers should consider as they start implementing Statement Number 67:
Impacts to the employer’s report
The biggest change to the employer’s report is the expansion of notes to financial statements to include disclosure requirements for the employer. Having the pension plan issue a separate report, which includes detailed information, can reduce disclosures needed in the employer’s report. Then, the employer can refer to the separate report and not have to include it in the employer’s report. However, most multiple employer plan reports generally do not contain information by individual employer; instead, they report on the plan as a whole.
In addition, the required supplementary information (RSI) has greatly expanded and now requires employers participating in single-employer, agent and cost-sharing pension plans to present 10 years of data in three different tables.
Two financial statements for defined pension plans
Statement 67 requires defined benefit pension plans to present two financial statements―a statement of fiduciary net position and a statement of changes in fiduciary net position. In addition, following the accounting and financial reporting requirements of other standards is a best practice.
The statement of fiduciary net position presents assets such as receivables from employers and plan members, deferred inflows and outflows resources, liabilities to benefit payments due to plan members and fiduciary net positon. The statement of changes in fiduciary net position presents additions to contributions from employers and non-employers, deductions to benefit payments and administrative expenses, and net increase or decrease in fiduciary net position.
Measurement of the net pension liability
Changes to measurement in liability now require the net pension liability to be measured as the total pension liability and less of the pension plan’s fiduciary net position. In addition, the actuarial valuation of the total pension liability are required to be performed at least every two years, but more frequent valuations are encouraged. If a valuation is not performed in the fiscal year-end, the total pension liability is required to be based on update procedures to roll forward amounts from an earlier actuarial valuation.
Pension plan employers are encouraged to communicate with their actuaries coordinate all requirements to support the implementation.