On April 11th, the Governmental Accounting Standards Board (GASB) issued a new standard designed to address practice issues raised during implementation of the GASB’s pension accounting and financial reporting standards for state and local governments:
- GASB Statement 67, Financial Reporting for Pension Plans
- GASB Statement 68, Accounting and Financial Reporting for Pensions
- GASB Statement 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68
Specifically, GASB Statement 82, Pension Issues, addresses issues regarding (1) the presentation of payroll-related measures in required supplementary information, (2) the selection of assumptions and the treatment of deviations from the guidance in an Actuarial Standard of Practice for financial reporting purposes, and (3) the classification of payments made by employers to satisfy employee (plan member) contribution requirements.
Prior to the issuance of Statement 82, Statements 67 and 68 required presentation in required supplementary information of a common-size measure—covered-employee payroll, which was defined in Statements 67 and 68 as the payroll of employees that are provided with pensions through the pension plan. During the implementation of Statements 67 and 68, concerns were raised about the practical barriers to pension plans obtaining that measure. As a result, Statement 82 amends Statements 67 and 68 to instead require the presentation of covered payroll, defined as the payroll on which contributions to a pension plan are based, and ratios that use that measure.
Selection of Assumptions
In feedback received during the due process on the proposals that led to Statement 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, and Statement 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, the GASB discovered that certain language used in those exposure drafts might be read as implying that deviations from the guidance in Actuarial Standards of Practice related to the selection of assumptions would be considered to be in conformity with the requirements of the GASB Statements. Therefore, in Statements 74 and 75, it was clarified that deviations from the guidance in an Actuarial Standard of Practice would not be acceptable for purposes of selecting assumptions to be used in the measurement of the total liability and related measures for postemployment benefits other than pensions. Consistent with the provisions that were included in Statements 74 and 75, Statement 82 clarifies that for purposes of determining the total pension liability and related measures in conformity with the requirements of Statement 67, Statement 68, or Statement 73, the use of assumptions that are selected in a manner that deviates from the guidance in an Actuarial Standard of Practice is not considered to be in conformity with the requirements of those Statements.
Classification of Employer-Paid Member Contributions
During the implementation of Statements 67 and 68, concerns were raised about the treatment of payments made by employers to satisfy employee contribution requirements. Specifically, Statements 67 and 68 required that those payments be classified as employee contributions if they are recognized by the employer as salary expense; otherwise, those payments were required to be classified as employer contributions. With respect to Statement 68, concerns focused on whether those payments should be classified as employee or employer contributions for purposes of determining a cost-sharing employer’s proportion and proportionate share of the collective net pension liability. With respect to pension plan reporting under Statement 67, concerns focused on challenges in obtaining information about whether the employer is including the amount in salary expense.
Statement 82 clarifies that payments that are made by an employer to satisfy contribution requirements that are identified by the pension plan terms as plan member contribution requirements should be classified as plan member contributions for purposes of Statement 67 and as employee contributions for purposes of Statement 68. It also requires that an employer’s expense and expenditures for those amounts be recognized in the period for which the contribution is assessed and classified in the same manner as the employer classifies similar compensation other than pensions (e.g., as salaries and wages or as fringe benefits).
Effective Date and Transition
The requirements of Statement 82 are effective for reporting periods beginning after June 15, 2016, except for the requirements for the selection of assumptions in a circumstance in which an employer’s pension liability is measured as of a date other than the employer’s most recent fiscal year-end. In that circumstance, the requirements for the selection of assumptions are effective for that employer in the first reporting period in which the measurement date of the pension liability is on or after June 15, 2017. Earlier application is encouraged.
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