Transparency is increasing in state and local government employee pension reporting, and financial statement preparers and auditors need to be ready for the changes new GASB pension standards will bring.
GASB Statement No. 67, Financial Reporting for Pension Plans, and GASB Statement No. 68, Accounting and Financial Reporting for Pensions, were issued in June 2012. The new standards will substantially change the accounting and financial reporting for public employee pension plans and the state and local governments that participate in such plans.
GASB Statement No. 67 takes effect for financial statements for periods beginning after June 15, 2013, and GASB Statement No. 68 takes effect for financial statements for fiscal years beginning after June 15, 2014.
Employers that participate in cost-sharing multiple-employer pension plans will face challenges as the accounting and financial reporting will no longer be based on funding. Upon implementation of GASB Statement No. 68, employers in cost-sharing plans will recognize their proportionate share of the collective pension amounts for benefits the plan provides.
If the obligation to provide pension benefits exceeds the assets available for those benefits, the participating employers will need to report their share of that net pension liability in their financial statements. The AICPA Governmental Audit Quality Center (GAQC) produced a white paper describing some of the difficulties the new reporting requirements may create for employers who participate in cost-sharing plans—and how they can be overcome.
To determine their share of the pension amounts, participating employers will need information beyond what is provided in the plan’s audited financial statements. The AICPA State and Local Government Expert Panel (SLGEP) recommends that cost-sharing plans prepare two schedules and have them audited.
First, the SLGEP recommends the plan prepare a schedule of employer allocations that would display the proportionate relationship of each employer to all employers, and each employer’s allocation percentage. Second, the SLGEP recommends the plan prepare a schedule of pension amounts by employer, on which the plans engage their auditors to obtain reasonable assurance and report. Such a schedule would include:
- Net pension liability.
- Deferred outflows of resources by category.
- Deferred inflows of resources by category.
- Pension expense.
The white paper provides more detailed SLGEP recommendations for items to be included in the schedule of pension amounts by employer, including a sample schedule as well as an alternative.
A separate SLGEP white paper also has been issued that includes guidance to the plan with regard to testing employer census data in an audit of financial statements of single-employer and cost-sharing multiple-employer plans.
Census data may include date of birth; date of hire or years of service; marital status; eligible compensation; class of employee; gender; date of termination or retirement; spouse date of birth; and employment status.
The cost-sharing plan is responsible for obtaining all necessary information, and the plan auditors are responsible for obtaining sufficient appropriate evidence regarding the completeness and accuracy of all census data underlying certain elements of the plan’s financial statements, according to the white paper.
More information on the SLGEP is available at the AICPA’s “GASB Matters” webpage.
—Ken Tysiac (firstname.lastname@example.org) is a JofA senior editor.