GAASB has implemented changes to improve the reporting of pension funds for more transparency. Immediate recognition of more components of pension expense, effects of the pension liability, the discount rate for return on assets, and a single actuarial cost allocation method would be required. Extensive note disclosures would be required.
Pension Plan GAASB Changes
GAASB has implemented changes to Pension Plan reporting that go into effect on June 15, 2013 for Statement 67 and June 15, 2014 for Statement 68. This will affect the accounting and financial statement reporting of governmental organizations. Pension expense liability will be reported on the balance sheet to show a clearer picture of the organization's obligations, as well as more disclosure requirements and additional supplementary material.
Under Statement 67 the Net Pension Liability (NPL) is equal to the Total Pension Liability (TPL) minus the Plan Fiduciary Net Position (PFNP). The NPL must be reported on the balance sheet in the government wide financial statements (Kausch, 2012). The TPL is the liability for projected benefits attributable to post service, including automatic COLAs and substantively automatic ad hoc COLAs. It is determined on a historical pattern base, consistency of amounts, and evidence that they might not be paid in the future. TPL is also determined using a traditional entry age, normal cost method, and the single discount rate. The normal cost is expressed as a level percentage of payroll. The single discount rate is based on long-term expected return to the extent of projected plan fiduciary net position is sufficient to pay future benefits. A portion is based on a tax-exempt municipal bond rate, 20-year tax-exempt general obligation municipal bond index rate, to the extent of projected plan fiduciary net position is insufficient.
The financial statement disclosures are required to reflect the new measures of pension liability and expense. They must include a pension description, investments, receivables, as well as allocated and deferred retirement option programs. The components are stated as a percentage of TPL, significant assumptions, the date of actuarial valuation, and updates on procedures to roll forward TPL. The supplementary material must include a ten-year schedule of changes in net position liability, components as a percentage of TPL, actuarially determined employer contributions, and a schedule of money-weighted rates of return. The notes to RSI must include significant methods and assumptions.
Under Statement 68, employer pension liability is measured as of a given measurement date. Pension Expense is the employer costs of pension benefits over a given period. Both must be provided in the government wide statements. The pension expense largely represents changes to New Position Liability from the prior year with provisions for deferring certain items. Immediately recognized expense includes service cost, interest on TPL, administration costs, projected investment earnings, annual member contributions, and changes in TPL due to changes in benefits. Cost sharing employers are required to report their proportionate shares of net liability, pension expense, and deferred inflows/outflows.
Georgia State University participates in five pension plans (Comprehensive Annual Financial Report, 2011). Most are overfunded with one plan being underfunded by 126.4%. The actuarial method is the entry age and asset valuation method is a seven-year smoothed market. The expected rate of return is 7.5% with assets valued at fair value. Georgia State University will be required to perform the new measurement methods and report the liabilities and the expenses on the balance sheet, which will show a higher liability than it currently does. The new measurements could also change the amounts reported in the pension plans depending on the amount of changes in total liability and net fiduciary position. They will also be required to provide more statement disclosures with additional supplemental material of the ten-year schedule of projections as well as the significant methods and assumptions.
Economic impact that would affect future growth would include average monthly benefits increasing, credit risk, market conditions, employers not paying proportionate share, and higher retirement numbers. Risks of interest rate, credit, and overall market volatility with inflation and deflation puts fair market value of investments at risk. All of these can affect the financial position of the university.
The university does not list federal grants, such as Pell Grants, supplemental grants, and work study separately on the revenue. Although, it could be listed in the contributions or pledges receivable sections. This does not show a true picture of the various revenue sources for the university. The various contributions and pledges are not fully explained on the government wide statements or in the financial statement disclosures.
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