In June 2012, the Governmental Accounting Standards Board (GASB) issued two new statements which will change the way a state and local government retirement systems disclose pension information.
Harlan County Treasurer Ryan Creech said, “According to the Kentucky Retirement System (KRS) website, ‘all financial disclosures made by KRS are contained in its audited financial statements and the KRS Comprehensive Annual Financial Report (CAFR) that is published annually. Statement No. 67, Financial Reporting for Pension Plans, affects the financial statements for KRS. Statement No. 68, Accounting and Financial Reporting for Pensions, affects the financial statements of employers.”
Creech said there is no county pension plan. Their employees fall under the Kentucky Retirement System.
The Kentucky Retirement System administers both cost-sharing multiple-employer defined benefit pension plans (KERS and CERS), which provide pension benefits to the employees of more than one employer, and a single employer defined benefit pension plan (SPRS), which provides pension benefits to the employees of only one employer.
KERS, CERS and SPRS serve as the retirement plans for more than 1,450 public employers in Kentucky. Both of these type plans are impacted by the new statements.
The KRS website reports, “Statement No. 67 replaces the requirements of Statement No.25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, and is effective for fiscal years beginning after June 15, 2013. KRS will comply with these new requirements in its 2013-14 financial statements and its CAFR.
“Statement No. 68 replaces the requirements of Statement No. 27, Accounting for Pensions by State and Local Governmental Employers. This reporting requirement applies to KRS participating employers and is effective for fiscal years beginning after June 15, 2014.”
KRS reports Statements 67 and 68 will significantly change current pension accounting and reporting standards in the following ways:
• Pension accounting and reporting will be divorced from pension funding. Under current standards, pension accounting and pension funding are closely connected. The Actuarially Required Contribution (ARC) is a part of the required information under Statements 25 and 27 and has been the ad hoc funding standard for many public pension plans. Under the new statements, there is no required ARC. Plans will have to adopt a funding policy that is separate from accounting and reporting requirements. KRS adopted a funding policy in 2013. The KRS Funding Policy can be read at this link.
• Employers will have to recognize and report on financial statement balance sheets their proportionate share of the plan’s Net Pension Liability (NPL), which is the plan’s Total Pension Liability (TPL) (now the actuarial accrued liability) less the plan’s Fiduciary Net Position (FNP), which is the market value of plan assets.
• Employers will be required to recognize and report on their financial statements an annual “Pension Expense” (PE), which will have no direct relationship to the ARC. The annual Pension Expense will be the Normal Cost, calculated using the Entry Age Normal actuarial method, plus interest on the employer’s proportionate share of the Net Pension Liability (NPL). In addition, the calculation of the Pension Expense will include immediate recognition of changes in active and inactive liability due to plan amendments; deferred recognition (over average remaining service life) of changes due to assumption changes and actual experience; and, deferred recognition of investment gains and losses over five years.
Speaking to a local government entity, the city of Evarts, City Clerk Kristi Lamb said “the city of Evarts doesn’t offer a pension plan because of its size.”
When asked whether these statements will affect borrowing and credit ratings, Ron Frazier, assistant vice president and office manager for Home Federal Bank, in Harlan, said, “I don’t think this is going to affect the individual borrower as far as their credit or their debts. The way I read it, it’s just going to affect larger state and government agencies and towns as a whole and not necessarily individuals.”
Nola Sizemore may be reached at 606-573-4510 or on Twitter @Nola_hde