The time is here for employers that participate in defined benefit pension plans to implement Governmental Accounting Standards Board (GASB) Statement No. 68, Accounting and Financial Reporting for Pensions, which is effective for fiscal years beginning after June 15, 2014. It comes on the heels of the GASB Statement No 67, Financial Reporting for Pension Plans, implementation, which is effective for fiscal years beginning after June 15, 2013. If you have had the opportunity to talk with the plans or their auditors, you may have heard that implementation has been a challenging experience. This article discusses some of the more significant implementation issues affecting employers, as well as some of the lessons learned by the plans in implementing GASB Statement No. 67. This information will provide some clarity and an understanding of information that employers will need to receive from the plans.
THE EMPLOYER'S STARTING POINT: SELECTING THE MEASUREMENT DATE
Selecting a measurement date should be one of the first areas that employers focus on when implementing GASB Statement No. 68. The measurement date for employers to record pension amounts remains a source of confusion and miscommunication between employers, plans, and their auditors. It may seem counterintuitive that the employer can report the pension amounts on a measurement date that falls within 12 months of the employer's year-end (as opposed to the employer's year-end date).
Since information is needed from the plan, employers can make reporting easier by aligning their measurement date with the plan's fiscal year-end--the plan year-end that falls within the previous 12 months of the employer's yearend, to comply with GASB Statement No. 68. When the employer and the plan have the same fiscal year-end, the employer may choose to use either the plan's current or prior year-end as the measurement date. The measurement date should be based on the availability of audited information from the plan.
COMPREHENSIVE ACTUARIAL VALUATIONS
What employers receive from actuaries in terms of an actuarial valuation appears to be inconsistent. Plans often have different actuarial valuations performed; one is generally prepared for accounting purposes (e.g., GASB Statement No. 68), and one is prepared for funding purposes (e.g., the actuarial determined contribution). Employers and their auditors need to receive a complete actuarial valuation report that corresponds to the measurement period and has been prepared for accounting purposes. An "accounting valuation report" usually includes the following:
* Actuarial certification.
* Total pension liability as of the valuation date.
* Roll forward of the total liability to the measurement date.
* Roll forward of components of net pension liability since prior measurement date.
* Sensitivity of net pension liability.
* Other accounting disclosures for GASB Statement No. 68.
* Discount rate calculations.
* Detailed schedules of deferred outflows/inflows of resources.
* Summary of actuarial methods and assumptions.
* Summary of plan provisions.
In implementing GASB Statement No. 67, many plans received a complete funding valuation report but were missing many of the above components that should be included in the accounting valuation report. Additionally, many actuaries did not initially provide an actuarial certification for the accounting valuation report. Such a certification is important because it is a mechanism for the actuary to communicate whether there are any known deviations from actuarial standards of practice or GASB Statement No. 68, including inappropriate methods or potentially incomplete or inaccurate data.
Another common misunderstanding is the level of responsibility that an actuary is taking with regard to the underlying assumptions. Typically, the actuary assumes responsibility for the valuation methodology and application, but not for the underlying assumptions. Actuaries do provide advice to management in considering certain assumptions (for example, mortality rates). Additionally...