Project Pages

Pension Issues

Project Description: The objective of this project is to consider the need for revisions to certain of the requirements in Statements No. 67, Financial Reporting for Pension Plans, and No. 68, Accounting and Financial Reporting for Pensions, as a result of issues raised by stakeholders.

Status:
Statement No. 82, Pension Issues, was approved in March 2016.

Pension Issues—PROJECT PLAN

Background:

Statements 67 and 68 were approved in June 2012. Statement 67 became effective for fiscal years beginning after June 15, 2013, and Statement 68 became effective for fiscal years beginning after June 15, 2014. During the implementation period, issues have been raised including (1) governments whose employees are provided with pensions through federally sponsored or private multiple-employer pension plans (such as Taft-Hartley plans); (2) the timing of the measurement of the net pension liability; (3) disclosure of information about the annual required contribution as a potential funding benchmark; (4) the definition of covered-employee payroll; (5) the application of administrative costs as a reduction to the discount rate; (6) treatment of employer-paid member contributions; and (7) deviations from Actuarial Standards of Practice. Several of these topics were specifically considered by the Board before the pension standards were issued and therefore may not be included in the project when the project scope is finalized.

The Board concluded that the scope of this project should include issues 4, 6, and 7, above. The Board decided that issues regarding governments whose employees are provided with pensions through federally sponsored or private multiple-employer pension plans (issue 1) should be considered on an accelerated timeline and in a separate project. With respect to issues 2, 3, and 5, the Board concluded that those issues were adequately considered in the deliberations preceding Statements 67 and 68 and that no new information was provided by stakeholders to warrant reconsideration.

Accounting and Financial Reporting Issues:

This project considers issues that were raised during the implementation of Statements 67 and 68 regarding (1) the presentation of payroll-related measures in required supplementary information, (2) selection of assumptions and the treatment of deviations from the guidance in Actuarial Standards of Practice for financial reporting purposes, and (3) classification of payments made by employers to satisfy employee contribution requirements.
 
Project History:
  • Added to current technical agenda: July 2015
  • Deliberations began: September 2015
  • Exposure Draft issued: December 2015
  • Comment period: December 2015–February 2016
  • Redeliberations began: March 2016
  • Final Statement issued: March 2016

Pension Issues—RECENT MINUTES


Minutes of Meetings, March 29-31, 2016

The Board reviewed a ballot draft of a final statement, Pension Issues. After making minor clarifying changes to the ballot draft, six Board members voted to approve the issuance of the final Statement. One Board member dissented.

Minutes of Teleconference, March 7, 2016

The Board considered feedback from stakeholders on the Exposure Draft, Pension Issues, which proposed addressing certain issues that were raised during the implementation of Statements No. 67, Financial Reporting for Pension Plans, and No. 68, Accounting and Financial Reporting for Pensions.

First, the Board discussed issues raised about the scope of the proposed Statement. Some respondents requested that the scope of the final Statement be expanded to include issues addressed in the Exposure Draft as they relate to postemployment benefits other than pensions. Other respondents requested that the final Statement include additional guidance or requirements related to the following:
  • Discount rate requirements
  • Frozen plans
  • Social Security coverage disclosure
  • Contribution in excess of plan terms
  • Payments from employees that “pick up” employer contributions
  • Presentation of a funding benchmark
  • Deferred outflows and deferred inflows of resources related to pensions
  • Changes in proportion between funds.
The Board tentatively decided not to expand the scope of the final Statement to address (1) issues included in the Exposure Draft as they relate to postemployment benefits other than pensions or (2) other additional issues not addressed in the Exposure Draft.

Next, the Board discussed respondent comments regarding the presentation of payroll-related measures in required supplementary information. The Board tentatively decided that the definition of covered payroll as proposed in the Exposure Draft should be modified to exclude reference to active employees. The Board tentatively decided to define covered payroll in the final Statement as the payroll on which contributions to a pension plan are based.

The Board then discussed respondent comments concerning the clarification proposed in the Exposure Draft regarding the treatment of deviations from the guidance in Actuarial Standards of Practice for purposes of selecting assumptions to determine the total pension liability and considered whether the term deviation should be defined in the Glossary of the final Statement. The Board tentatively decided that no modifications should be made to the proposed requirements and that deviation should not be defined in the Glossary of the final Statement.

The Board continued its redeliberations with a discussion about the classification of payments made by employers to satisfy contribution requirements identified by the pension plan terms as plan member (employee) contribution requirements. The Board tentatively decided to carry forward the proposed requirement to classify those types of contributions as plan member contributions for purposes of Statement 67 and employee contributions for purposes of Statement 68. The Board then discussed feedback from respondents regarding the requirement proposed in the Exposure Draft that an employer’s expense and expenditures for amounts related to employer-paid member contributions be included in salaries and wages of the period in which the contribution is assessed. The Board concluded that the final Statement should require that an employer’s expense and expenditures for amounts related to employer-paid member contributions be classified in the same manner as the employer classifies similar compensation other than pensions (for example, as salaries and wages or as fringe benefits), rather than specifically as salaries and wages as proposed in the Exposure Draft.

The Board also discussed concerns raised by respondents concerning the disclosure requirement proposed in the Exposure Draft regarding arrangements under which an employer makes payments to satisfy contribution requirements identified by the pension plan terms as plan member (employee) contribution requirements. The Board tentatively decided that the disclosure requirement proposed in the Exposure Draft should not be carried forward to the final Statement.

In relation to the requirements for employer-paid member contributions, the Board also discussed whether a reference should be made to (1) Internal Revenue Code (IRC) Section 414(h)(2) or (2) the requirements in Statement 68 regarding the determination of a cost-sharing employer’s proportion. The Board tentatively decided that those references should not be included in the final Statement.

The Board completed its redeliberations of the Exposure Draft with a discussion of the proposed effective date and transition provisions. The Board tentatively decided to carry forward the effective date for periods beginning after June 15, 2016, with earlier application encouraged, except for the requirements related to the selection of assumptions in a circumstance in which an employer’s net pension liability is measured as of a date other than the employer’s most recent fiscal year-end. In that circumstance, the requirements related to the selection of assumptions should be effective for that employer in the first reporting period in which the measurement date of the net pension liability is on or after June 15, 2017. The Board also tentatively decided to carry forward the transition provisions proposed in the Exposure Draft but clarify that transition provisions for the requirements regarding presentation of payroll-related measures should be included only in the transition provisions related to the 10-year schedules of required supplementary information.

The Board also reviewed a preballot draft of the final Statement, Pension Issues, and provided clarifying edits on the draft document.

Minutes of Teleconference, December 7, 2015

The Board reviewed a ballot draft of a proposed Statement, Pension Issues, and provided clarifying edits on the document. The Board then voted unanimously to approve the issuance of the Exposure Draft.

Minutes of Meetings, November 18-20, 2015

The Board continued deliberations beginning with considerations related to benefits and costs. The Board tentatively agreed that the expected benefits of the proposed Statement will outweigh the perceived costs of implementation.

Next, the Board discussed effective date and transition provisions for the proposed requirements resulting from the Pension Benefit Issues project. The Board expressed its belief that the requirements should be effective as soon as possible in order to address stakeholder concerns in a timely manner and therefore tentatively agreed to propose that the Statement be effective for reporting periods beginning after June 15, 2016, with earlier application encouraged. With respect to transition provisions, the Board tentatively agreed that the requirements for presentation of covered payroll and the requirements for the treatment of employer-paid member contributions should be applied retroactively by restating financial statements, if practical, for all prior periods presented. The Board also tentatively decided that the requirements for the treatment of deviations from the guidance in Actuarial Standards of Practice should be applied on a prospective basis. For those requirements that are applied retroactively, the Board tentatively decided that the proposed Statement should include specific transition provisions for the 10-year schedules of required supplementary information.

The Board reviewed a preballot draft of the proposed Exposure Draft, Pension Issues, and provided clarifying edits on the draft document. The Board then agreed to move forward with a ballot draft of a proposed Statement.

Minutes of Teleconference, October 26, 2015

The Board discussed issues related to the treatment of employer-paid member contributions. The Board tentatively agreed that contributions should be classified by pension plans in a manner consistent with the designation as an employee or employer contribution pursuant to the pension plan terms. That is, for employer-paid member contributions, pension plans would classify those amounts as employee contributions.

The Board then reconsidered its tentative decision made in September 2015 regarding an employer’s expense classification of employer-paid member contributions. The Board had previously agreed that, if the employer-paid member contribution is not included in salary expense, an employer that makes payments to satisfy employee contribution requirements should recognize additional pension expense for the amount of the payment. After considering the other decisions made by the Board in recent deliberations, the Board tentatively agreed that expense for amounts paid by the employer to satisfy employee contribution requirements should be included in salaries. In addition, the Board tentatively agreed to consider a related employer note disclosure in circumstances in which contributions are “picked up” by the employer.

Minutes of Teleconference, September 21, 2015

The Board discussed an issue related to deviations from Actuarial Standards of Practice for purposes of selecting assumptions to determine the total pension liability. The Board tentatively agreed to propose that the requirements of Statements No. 67, Financial Reporting for Pension Plans; No. 68, Accounting and Financial Reporting for Pensions; and No. 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, be amended to clarify that a deviation from the guidance in Actuarial Standards of Practice is not considered to be in conformity with the requirements for selection of assumptions for purposes of determining the total pension liability.

Minutes of Meetings, September 1-3, 2015

The Board discussed the proposed scope of the Pension Benefit Issues project. Specifically, the Board considered certain issues raised during the implementation of Statements No. 67, Financial Reporting for Pension Plans, and No. 68, Accounting and Financial Reporting for Pensions, and whether those issues should be included in the scope of the Pension Benefit Issues project, which the Board added to its current technical agenda in July 2015.

The Board tentatively agreed to not include issues related to the treatment of administrative expense for purposes of determining the long-term expected rate of return (and by extension the discount rate) in this project. The Board believes that issue was adequately addressed in the deliberations leading up to Statements 67 and 68 and continues to believe that administrative expense is a period cost. Next, the Board tentatively agreed to include issues related to employer-paid member contributions in this project. The Board also tentatively agreed to consider a clarification relative to deviations from Actuarial Standards of Practice in this project. The Board reviewed four issues previously discussed at the July Board meeting, including (a) the presentation of covered-employee payroll and related ratios in required supplementary information, (b) governments whose employees are provided with pensions through certain private-sector multiple-employer pension plans (such as Taft-Hartley plans), (c) the timing of measurement of the net pension liability, and (d) disclosure of information about the annual required contribution as a potential funding benchmark. The Board tentatively agreed to affirm its tentative decisions from the July Board meeting to (1) include issues related to covered-employee payroll and governmental employers whose employees are provided with pensions through certain private-sector multiple-employer plans in this project and (2) not include issues related to the timing of the measurement of the net pension liability and presentation of a funding benchmark in this project.

The Board then considered issues raised during the implementation of Statements 67 and 68 regarding covered-employee payroll and the presentation of payroll-related measures. The Board tentatively agreed that the requirements of Statements 67 and 68 related to the presentation of payroll and related measures should be proposed to be amended to replace measures of covered-employee payroll with measures of covered payroll. The Board also discussed the implications of this decision on Statements No. 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; No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans; and No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, and tentatively agreed to not address these issues as part of this project.

Finally, the Board considered issues raised during the implementation of Statements 67 and 68 regarding employer-paid member contributions. The Board tentatively decided that a clarification should be proposed relative to the treatment of employer-paid member contributions for purposes of determining a cost-sharing employer’s proportion (and proportionate share of the collective net pension liability) and pension expense under the requirements of Statement 68. The substance of the proposed clarification should indicate that (a) employer-paid member contributions should not be considered in the determination of a cost-sharing employer’s proportion and (b) if the employer-paid member contribution is not included in salary expense, an employer that makes payments to satisfy employee contribution requirements should recognize additional pension expense for the amount of the payment. A discussion of the classification of these types of contributions in pension plans’ financial statements is scheduled for a future meeting.

Minutes of Meetings, July 21-23, 2015

The staff presented a project prospectus on issues that have been brought to the Board’s attention since the issuance of the pension standards, including (1) governments that participate in federally sponsored or private multiple-employer pension plans (such as Taft-Hartley plans); (2) the timing of measurement of the net pension liability; (3) disclosure of information about the annual required contribution as a potential funding benchmark; (4) the definition of covered-employee payroll. The staff also raised issues related to (1) the application of administrative costs as a reduction to the discount rate; (2) employers that pick up a share of employee contributions; and (3) deviations from Actuarial Standards of Practice. Several of these topics were specifically considered by the Board before the pension standards were issued and therefore may not be included in the project when the project scope is finalized. After discussion of the project scope and the potential need to consider additional issues at the September meeting, the Board agreed to add a project to the practice issue section of its current technical agenda.


Pension Issues—TENTATIVE BOARD DECISIONS TO DATE


Statement No. 82, Pension Issues, was approved in March 2016.