State and local government employers who participate in multiple-employer defined benefit pension plans—and the governments’ auditors—may have difficulty obtaining data required by GASB’s new pension standards to prepare employer financial statements and auditing such information.
GASB Statement No. 67, Financial Reporting for Pension Plans, provides revised guidance for the financial reporting of most governmental pension plans and takes effect for financial statement periods beginning after June 15, 2013.
Meanwhile, new financial reporting requirements for most governments that provide their employees with pension benefits are contained in GASB Statement No. 68, Accounting and Financial Reporting for Pensions, which takes effect for financial statements for fiscal years beginning after June 15, 2014.
A new white paper prepared by the AICPA State and Local Governments Expert Panel (SLGEP) provides best-practice solutions to address accounting and auditing issues for government employers that participate in agent multiple-employer defined benefit pension plans (agent plans). These issues need to be addressed by employers sooner rather than later and will involve close coordination between employers, agent plans, and their auditors.
In an agent plan, employers’ assets are pooled for investment purposes, but separate accounts are maintained for each individual employer. Employers that participate in agent plans may face challenges obtaining all the necessary information to support the specific pension amounts they must report, including net pension liability, deferred outflows of resources, deferred inflows of resources, and pension expense. Under GASB Statement No. 67 such information is beyond what is provided in the audited financial statements of the plan.
Additionally, these specific amounts depend on records maintained by the plan, and on calculations by the plan’s actuary.
Another potential problem is related to employers’ need to discover their specific interest in the agent plan’s fiduciary net position in order for the employer to calculate its net pension liability. This information may be difficult to obtain because agent plans are only required to report fiduciary net position for the plan as a whole.
Meanwhile, auditors of these employers may face challenges obtaining sufficient appropriate audit evidence regarding the pension amounts included in employer financial statements.
The SLGEP recommends two best-practice solutions to address these difficulties. To overcome the various challenges related to obtaining sufficient appropriate evidence on the employer’s total pension liability, deferred outflows of resources, deferred inflows of resources, and pension expense, the SLGEP recommends that:
- The plan actuary should issue a separate actuarial valuation report specific to each employer that includes an actuarial certification letter addressed to employer management, and
- The plan should engage its auditor to issue either:
- Option 1: A service organization controls 1 (SOC 1) Type 2 report on controls over census data maintained by the plan, or
- Option 2: An examination engagement over selected management’s assertions related to census data maintained by the plan.
To overcome challenges relating to the fiduciary net position component of the net pension liability, the SLGEP recommends that:
- The plan should prepare a schedule of changes in fiduciary net position by employer and related notes to the schedule, and
- The plan should engage its auditor to opine on the schedule of fiduciary net position by employer through either:
- Option 1: An opinion on the schedule as a whole combined with a SOC 1 Type 2 report on the controls over the calculation and allocation of additions and deductions to employer accounts, or
- Option 2: An opinion on each employer column in the schedule.
More detailed information is contained in the white paper, and many other resources related to GASB’s new pension standards are available at the AICPA Governmental Audit Quality Center’s GASB Matters webpage.
—Ken Tysiac (firstname.lastname@example.org) is a JofA senior editor.