GASB 67 & 68 Implementation: Frequently Asked Questions
Updated January 11, 2016
The following FAQs have been compiled from feedback and questions we received during our live webinars in November and December 2013, and through our GASB dedicated e-mail address. These presentations, both the Executive and Operations Tracks, are available in the Employer's section of OPERS.org.
In 2015, members of the Employer Advisory Council received 2014 contribution information for their entity in the Schedule of Employer Allocations to reconcile to their internal records. We incorporated the questions asked during this test reconciliation process in the FAQs.
We hope you find this information helpful as you implement these new standards. If you have any additional questions, please contact us at firstname.lastname@example.org.
Thank you – Jenny Starr, chief financial officer
Ohio Public Employees Retirement System
Download the GASB FAQ
How do I know if I prepare my financial statements in accordance with GAAP (Generally Accepted Accounting Principles)?
What is cash-basis of accounting?
What is an “Other Comprehensive Basis of Accounting (OCBOA)”?
What are some of the key changes with the new GASB rules? Why Did GASB make these changes?
With GASB 68, Accounting and Financial Reporting for Pensions, new accounting and reporting standards for state and local government employers participating in public pension plans was established. This standard replaces GASB 27 as the reporting standard for employers; and, it requires employers to recognize their proportionate share of the net pension liability (as defined in GASB 67) in their financial statements.
Employers will be required to disclose their proportionate share of pension liabilities or assets, deferred outflows or inflows, and pension expense or income. Employers will need to provide a description of the pension plans and brief summary of the benefit terms.
Unlike many other states, Ohio’s employer contribution rates are set in statute, and Ohio consistently meets its required contributions. Employers are currently paying their share of OPERS net pension liability over time by contributing the required rates. Contribution rates and funding requirements are not impacted by GASB 67 and 68. The new standards only impact financial reporting and not the amount employers are required to fund under Ohio law.
What is the Plan Fiduciary Net Position?
What is the Total Pension Liability?
What is the Net Pension Liability?
How do I know if these standards apply to my employer?
Does this standard apply to Cash-Basis employers?
Does the GASB apply to entities with budgets of less than $1 million?
Since my employer does not control any of the retirement funds, are we still required to comply with GASB 68?
OPERS calculation of the proportionate share differs from that suggested by GASB, please explain.
What liability would my employer have in the event that the Pension System went into default?
The majority of systems in the news that are facing default did not deposit the required contributions over time needed to fund their members’ pension benefits. To monitor the health of OPERS funding status, we retain an external actuary to evaluate our position annually. Should OPERS funding levels begin to trend downward, OPERS would work with the General Assembly to pass legislation increasing statutory contributions or decreasing benefits for its members. The pension legislation signed into law in 2012 is an example of the General Assembly and OPERS adjusting the cost of benefits to maintain the funding necessary to meet long-term pension obligations.
Will there be a prior year’s restatement of the financials?
Are we required to report pension assets as well?
Another footnote disclosure requirement for the employer is to include other information related to the pension system’s Plan Fiduciary Net Position, such as the basis for determination, brief descriptions and link to the OPERS’ CAFR.
Which rating agencies did you talk with to determine it should not have an impact on 98% of ratings?
OPERS staff talked with representatives of Moody’s, Standard & Poor’s (S&P) and Fitch directly to better understand how they view the state and local government employers proportionate share of the net pension liability associated with GASB 68, how this liability impacts their independent credit analyses and to explain OPERS funding strategies to these agencies.
Moody’s representatives indicated they currently use their own unique calculation to arrive at a net pension liability number for the systems that is not in line with how GASB or Ohio’s pension funds calculate the liabilities. Rather, their calculation results in a substantially higher liability since they base the calculation on a non-typical discount rate assumption, among other differences in assumptions, compared to what pension funds use in actuarial calculations. In initial discussions, Moody’s indicated that from their recent review of 19 Ohio public entities, 12 have been downgraded for a number of reasons, including pension liabilities, but that the pension aspect was not the major driving component.
S&P representatives indicated they currently focus on contributions, other post-employment benefits, actuarial valuations and other costs to independently analyze employer share of liabilities. They look at funded status of plans to evaluate if there are any risks in regards to funding and they had a good understanding of Ohio pension fund structure, including statutorily required contributions for funding the plans. They could not recall any downgraded public entities in Ohio as a result of net pension liabilities and acknowledged these liabilities would only be part of the overall score for credit ratings and not the sole cause for a downgrade. S&P did not feel that our employers would have difficulty having access to debt funding due to the implementation of GASB 68.
Fitch representatives indicated they currently focus on the pension data that Ohio pension systems disclose and disclosures included by employers in the bond documents submitted. Their approach seems most similar to S&P. They also could not recall any downgraded public entities in Ohio as a result of net pension liabilities and acknowledged these liabilities would only be part of the overall determination, evaluated alongside other factors present at the employer.
Please remember that these rating agencies, like all of us, are working through the ramifications of the statements and determining the best course to implement the standards. Therefore, these comments should be taken as preliminary and subject to change.
Moody’s is increasing pension obligations to 35% of their evaluations and lowering economic factors. Is this because of the GASB changes?
What is the effective date of the pension standard for employers? Will the impact be the change from one year to the next year or from zero net pension liability?
What is the measurement date?
If your fiscal year-end is March 31, the initial implementation date for the new GASB standards is the fiscal year ending March 31, 2016. These employers need to use the valuation for the measurement date as of December 31, 2015. If your fiscal year-end is June 30 or September 30, the initial implementation dates for the new GASB standards are the fiscal years ended June 30, 2015 and September 30, 2015, respectively. These employers need to use the valuation for the measurement date as of December 31, 2014.
Will I get a separate report from OP&F?
What are pension expense and deferred inflows and outflows?
What are the rules related to netting deferred inflows and outflows?
Deferred inflows and outflows can’t be netted (can’t net together an asset and a liability). If an activity results in a deferred inflow in one year and then a deferred outflow in the following year, the activity has to be reported separately as an inflow and outflow in each year and can’t be netted together. However, if an activity remains the same as a deferred inflow or outflow in both years, then that activity can be netted together to be reported as a total asset or liability since the same classification in both years. We recommend you work closely with your external auditors or AOS to ensure the appropriate classification of deferred inflows and outflows within your company’s financial statements.
Will calculating pension expense result in an additional cash outlay or impact my operating budget?
The employers’ financial commitment to OPERS is limited to the Ohio statutorily determined contributions. Therefore, the changes in calculating the employer’s pension expense will have no impact on the cash remitted to OPERS.
The budgeting practices and processes used by an employer may or may not result in the need to increase the entity’s operating budget to reflect the change in the calculation method of pension expenses. After GASB 68 implementation, pension expense will equal the change in net pension liability from year to year adjusted by the amortization rules for certain elements impacting the net pension liability. Depending on if employers budget for cash outlay or on how pension expense is reported to an employer’s governing body will determine if changes in the employer’s operating budget are required.
How will OPERS communicate required financial information to employers?
What will the information look like that OPERS will provide?
When will OPERS provide the information that we need, is it available now?
Will OPERS provide pension information for three fiscal years to meet the reporting requirements in the MD&A?
Do we need to restate prior years for comparative statements or Management’s Discussion and Analysis (MD&A)?
Employers should look for guidance from the Auditor of State, external auditors, the GFOA via checklists, and/or other sources to evaluate the impact of GASB 68 on the MD&A.
How do I access the OPERS Employer GASB Forum?
What impact does GASB 71 have on the information communicated so far?
GASB 68 was written with the understanding that retirement plans would be responsible for providing key informational items to participating employer to include in their financial statements. Among these elements are deferred inflows and outflows of resources.
GASB realized that employers participating in a retirement system may not receive beginning balances for deferred inflows and outflows of resources. Therefore, the statement provided that in the year of implementation, employers participating in a retirement system may forgo reporting beginning balances for deferred inflows and outflows of resources. Statement number 68 states, however, that the employers cannot pick and choose which beginning balances they wish to record…in other words they can’t decide to record only those beginning balances that improve the net position on their financial statement.
GASB realized, however, that deferred pension contributions (a deferred outflow) are contained in the records of the employer. Therefore, GASB issued Statement No. 71, which is an amendment to Statement No. 68, to say that employers may forgo recording beginning balances for deferred inflows and outflows with the exception of deferred pension contributions.
The full text to GASB 71 can be found on www.gasb.org or via our link on www.opers.org.
What impact does GASB 68 have on the Alternative Retirement Plan (ARP) sponsored by colleges and universities?
What member and employer contributions are included in the proportionate share schedule or Schedule of Employer Allocations?
The proportionate share schedule includes Regular Contributions, ARP Unauthorized Refunds, Reinstated Refunds, Supplemental Contributions, Unauthorized Contributions, Year-End (YE) Contribution Accruals and Prior YE Contribution Accrual Reversals.
Regular ContributionsMember contributions represent the 10% of pensionable wages withheld from members’ pay for the State and Local divisions, the 13% withheld for members in the Law Enforcement division and the 12% withheld for the Public Safety division. This number does not include deductions for the purchase of service or ARP contributions.
Employer contributions represent the 14% of pensionable wages submitted by employers on behalf of members in the State and Local divisions and the 18.1% submitted on behalf of members in the Law Enforcement and Public Safety divisions. This number does not include the mitigating rate on ARP contributions, applicable to colleges and universities only, or delinquent contributions (483 billings).
ARP Unauthorized Refunds and Unauthorized RefundsThese transactions represent refund transactions for contributions received before members elect to participate in an ARP, applicable to colleges and universities only, or the refund of a contribution remitted to OPERS in error.
Reinstated RefundsThese transactions represent the payment received from a member to restore service previously refunded. These transactions represent the only “purchase of service” included in the proportionate share schedule, or Schedule of Employer Allocations.
Supplemental ContributionsThese transactions represent reports submitted by employers to remit contributions incorrectly omitted from their regular monthly reporting. These contributions are segregated from regular contributions to assist employers in their reconciliation process.
Year-End (YE) Contribution Accruals and Prior YE Contribution Accrual ReversalsThe contributions included in the proportionate share schedule, or Schedule of Employer Allocations, agree to the member and employer contributions included in the combining financial statements of the System’s Comprehensive Annual Financial Report (CAFR). OPERS reports on an accrual basis of accounting. Therefore, transactions processed at the beginning of one year (2014) that related to pay period end dates in the previous year (2013) were recognized in the financial statements of the previous year (2013). The YE contribution accrual reversals eliminate the contribution reports processed in 2014 but recognized in the 2013 combining financial statements.
You will also see transactions processed in 2015 for pay periods ending in 2014 with a transaction type of regular contributions. These transactions represent the YE contribution accruals included in the 2014 combining financial statements.
What are the negative contributions included in the proportionate share schedule, or Schedule of Employer Allocations, labeled “Unauthorized”?
Employers can request a refund of such contributions on an OPERS Form F-103 or OPERS staff may discover the unauthorized contributions in the course of its processes and procedures and alert the employers. Contributions that have been assigned an unauthorized status are returned to employers via an unauthorized refund check.
OPERS includes unauthorized refund checks in its records as a correction to the amount of current year’s contributions remitted by employers. These transactions are included in the proportionate share schedule, or Schedule of Employer Allocations, as negative amounts and the transaction type abbreviated to Unauthorized.
What are the contributions added at the bottom of the Schedule of Employer Allocations for employer code 690300? Why are they excluded from the proportionate share calculation?
OPERS identified this circular logic during our mock implementation using 2012 year-end information. Discussions with GASB and our external auditors determined that the correct course of action was to exclude OPERS from the population of contributing employers included in the proportionate share calculations.
Employer code 690300 is the employer code assigned to OPERS. As the proportionate share schedule, or Schedule of Employer Allocations, indicates, we have removed our contributions from the calculation of employer proportionate share to be consistent with our discussions with GASB and our external auditors. We have, however, included our contributions on the schedule as a reconciling item at the bottom so that the total member and employer contributions in the schedule will agree to the audited combining financial statements found in our Comprehensive Annual Financial Report (CAFR).
What does “transaction date” reference in the proportionate share schedule, or Schedule of Employer Allocations?
The dates that should be used for reconciliation purposes by the employers should be either reporting date (as included in the pivot table tab of the Excel file) or pay period ending date.
Since OPERS Traditional Pension Plan has a Net Pension Liability and OPERS Combined Plan has a Net Pension Asset, can these amounts be netted together for reporting?
We strongly recommend you discuss questions with your external auditors or your Auditor of State contact as they should review your implementation decisions since they issue an opinion on your financial statements. They will be able to assist you as you work through the journal entries associated with the implementation of GASB 68.
From GASB 68 Implementation Guide:
43. Q - Should a net pension liability (or aggregation of net pension liabilities) be displayed on a separate line on the face of the financial statements?
A - The net pension liability is not required to be displayed separately on the face of the financial statements. However, for some governments, it will be a significant balance, which may be displayed separately on the face of the financial statements. Liabilities for net pension liabilities associated with different pension plans may be aggregated for display, and pension assets for net pension assets associated with different plans may be aggregated for display. However, aggregated pension assets and aggregated pension liabilities should be separately displayed.
How do I calculate my employer share of the Net Pension Liability?
Employers’ proportionate share percentages are included by employer code within the Schedule of Employer Allocations. If an employer has employees that participate in both the Traditional Pension Plan and Combined Plan, they will have two proportionate share percentages on this schedule. If an employer has more than one employer code, they will need the proportionate share percentages for each employer code to aggregate the information as needed for employer financial reporting.
The employer proportionate share percentages found in the Schedule of Employer Allocations should then be applied to the totals found on the Schedule of Collective Pension Amounts for the Traditional Pension Plan and Combined Plan, as applicable. The Schedule of Collective Pension Amounts includes the collective totals of the beginning and ending Net Pension Liability for the Traditional Pension Plan and the beginning and ending Net Pension Asset for the Combined Plan. The schedule also includes the Deferred Outflows and Inflows of Resources applicable to each plan, as well as Pension Expense. Employer proportionate share percentages should also be applied to these other collective totals included on the schedule in order for employers to calculate all numbers they will need for financial reporting to comply with GASB 68.
We strongly recommend discussing detail questions with your external auditors or your Auditor of State contact as they should review your implementation decisions since they issue an opinion on your financial statements. They will be able to assist you as you work through the calculations and journal entries associated with the implementation of GASB 68.
Has OPERS prepared any example calculations and journal entries for employers?
OPERS has compiled the following example calculations and journal entries for a 1% proportionate share employer in the Traditional Pension Plan (if an employer has employees that pay into the Combined Plan also, these procedures would need repeated for that information).