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GASB Updates Related to Pensions: What Employers Should Know

February 18, 2015

Recent changes to GASB statements Nos. 68 and 71 will affect the way employers recognize pensions. These changes are effective for periods beginning June 15, 2014 (i.e., for year-ends June 30, 2015, and later).

What has changed?
Previously, employers participating in an agent or cost-sharing multiple-employer plan recognized annual pension cost under a funding approach. Pension expense was derived from a measure of an annual required contribution to the plan. Pension liabilities resulted from the difference between contributions required and contributions made.

Once the changes go into effect, employers will be required to recognize a liability as employees earn their pension benefits (that is, as they provide services to the government). For the first time ever, employees participating in agent and cost-sharing multiple-employer plans will recognize their specific pension amounts, which include net pension liability, deferred outflows and inflows of resources, and pension expense (i.e., specific pension amounts).

Why are these updates significant?
If the employer’s long-term obligation to provide pension benefits (i.e., total pension liability) is larger than the value of the assets available in the plan to pay pension benefits (i.e., fiduciary net position), there is a net pension liability (NPL). The changes to GASB 68 and GASB 71 are significant because the NPL will now appear on the face of employers’ accrual-based financial statements, along with other long-term liabilities and deferred outflows.

Your questions answered:

Q: Will these changes impact how contributions are made to pension plans, or how to budget contribution expenditures?
A: No.

Q: Will contribution rates increase as a result of these updates?
A: At the moment, an increase in contribution rates has not been identified by the Minnesota’s Public Employee Retirement Association (PERA) or the Teacher Retirement Association (TRA).

Q: On what is allocation of the NPL based?
A: Employer contributions from the most recent fiscal year of the pension plan.

Q: Does the liability for the employer portion of the NPL impact governmental fund financial statements?
A: No; however, allocation of the NPL among enterprise funds, as well as governmental activities, should be considered.

Q: How do we get the information needed to report the NPL?
A: This data will be provided from PERA and TRA directly to your government, as well as information needed to report related deferred inflows, deferred outflows, and footnote disclosures.

Q: Does any information need to be tracked internally?
A: Yes. The deferrals from PERA and TRA will need to be tracked internally over a number of years. Additionally, employers will need to determine deferred outflow for contributions made subsequent to the measurement date of the actuarial plan.

Q: Does the Fire Relief Association NPL need to be included on the city’s financial statement?
A: Yes; however, there may be exceptions if the firefighters are not considered employees of the city. For example: A city contracts for fire services through a jointly governed fire district. In this situation, the NPL is reported on the face of the financial statements of the fire district.

What actions should employers take?
To start, employers should work with their auditors to verify their count of employees participating and not participating in PERA and TRA is accurate. (This count will affect the amount contributed to PERA and TRA.) Employers should also contact their Fire Relief Association to obtain their NPL information and their plan for having an actuarial completed.

For more information:
Footnote examples and other information regarding these changes are available on the PERA and TRA websites. Employers can also contact their audit professionals for further clarification.

Andy Berg, CPA, is AEM’s Government Segment Leader. When he’s not fishing for ways to help governments boost efficiency, he’s casting lines for whopper muskies. You can reach Andy at 952.715.3003 or at

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