Focus Area: Accounting and Financial Reporting for Pensions
GASB 68 Effective for FY 2015
December 12, 2013
Update: March 19, 2014 – Added links to GASB toolkit, AICPA guidance (including whitepapers relevant to cost-sharing plans, participating employers, and auditors), and KPMG critical issues webcast
Update: June 29, 2015 – Added implementation guidance and appendices and links to OSA’s audit report on the pension schedules for TSERS and OSC’s GASB 68 Template (component units); added link to State Treasurer’s pension standards website; deleted links to KPMG pension webcasts (no longer available)
Update: August 4, 2015 – Updated the implementation guidance for Appendix C-Proprietary fund entry instructions.
Update: August 18, 2015 – Added Appendix D-CAFR package worksheet examples
Update: August 16, 2018 – Added implementation guidance on note disclosure for GASB Codification Section 2300.131 requirement related to the significant impact on net position
In June 2012, the Governmental Accounting Standards Board (GASB) issued GASB Statement No. 68, Accounting and Financial Reporting for Pensions (GASB 68). This statement replaces the requirements of GASB Statement No. 27, Accounting for Pensions by State and Local Governmental Employers as well as the requirements of Statement No. 50, Pension Disclosures, as they relate to pensions that are provided through pension plans administered as trusts or equivalent arrangements that meet certain criteria.
GASB 68 is effective for the fiscal year ending June 30, 2015. The objective of this statement is to improve accounting and financial reporting by state and local governments for pensions. It also improves information provided by state and local governmental employers about financial support for pensions that is provided by other entities.
A major change is the reporting of the net pension liability on the statement of net position (i.e., total pension liability for the pension plan, which is actuarially based, less the plan’s fiduciary net position). Under previous pension standards, this liability was reflected only in the note disclosures. Employers that participate in a cost-sharing multiple-employer defined benefit pension plan, such as the Teachers’ and State Employees’ Retirement System (TSERS), are required to recognize liabilities for their proportionate share of the collective net pension liability. Also, the auditors of participating employers will require assurances that the pension amounts reported on the statement of net assets are accurate and supported by verifiable audit evidence.
This statement establishes standards for measuring and recognizing liabilities, deferred outflows of resources, deferred inflows of resources, and expense/expenditures. For defined benefit pensions, the statement identifies the methods and assumptions that should be used to project benefit payments, discount projected benefit payments to their actuarial present value, and attribute that present value to periods of employee service. This statement also establishes requirements related to special funding situations for defined contribution pensions. Note disclosures and RSI requirements about pensions are also addressed.
The provisions of this statement apply to the financial statements of all state and local governmental employers whose employees are provided with pensions through pension plans that are administered through trusts. The requirements apply whether the government’s financial statements are presented in stand-alone financial reports or are included in the financial reports of another government.
To gain additional understanding of GASB 68, please refer to the following resources:
- GASB Plain-Language Article – New GASB Pension Statements to Bring about Major Improvements in Financial Reporting
- GASB Toolkit – Pension Implementation Toolkit for Governments (Link to GASB 68 implementation guide,
videos, fact sheets, articles, podcasts, and links to download the full text of GASB 68 and GASB 71) - Article on NACUBO Website – GASB Releases New Pension Guidance
- AICPA Government Audit Quality Center (GAQC) Guidance – GAQC Alert #244 (Background/high level summary; whitepapers released relevant to cost-sharing plans, participating employers, and auditors; and other guidance)
- Department of State Treasurer website – Pension Standards - GASB 67 and GASB 68
GASB 68 Implementation
As part of the GASB 68 implementation, component units (University of North Carolina System, community colleges, N.C. Housing Finance Agency, State Education Assistance Authority, N.C. State Ports Authority, N.C. Global TransPark Authority, and State Health Plan) and proprietary funds of the State primary government (enterprise funds and internal service funds) will be required to make year-end entries to record their proportionate share of the TSERS net pension liability, pension expense, deferred outflows of resources, and deferred inflows of resources. The net pension liability for TSERS was measured as of June 30, 2014 (Note: GASB 68 requires the net pension liability to be measured as of a date no earlier than the end of the employer’s prior fiscal year). Additionally, net position will need to be restated to record the beginning balance of the net pension liability and the deferred outflow of resources for employer contributions made subsequent to the measurement date of the beginning net pension liability but before the start of the government’s fiscal year (e.g., GASB 71 transition adjustment). Pension entries for governmental funds of the State primary government will be made at a statewide level by OSC and will be recorded at the government-wide functional level.
The TSERS entries referenced in the preceding paragraph will impact unrestricted net position because the TSERS is in a liability position. GASB Codification Section 2300.131 requires that a government should provide an explanation of the impact on its net position in the notes to the financial statements when a component of net position (net investment in capital assets, restricted, unrestricted) is significantly impacted by a transaction resulting in recognition of a deferred outflow or inflow of resources.
The impact of GASB 68 is deemed to have a significant impact on the financial statements of the State of North Carolina as well as certain other entities within the State of North Carolina’s reporting entity, including but not limited to, universities and community colleges. If an entity determines that the transactions to record the TSERS liability and associated deferrals have a significant effect on unrestricted net position, the entity should disclose the impact in its standalone note disclosures. The North Carolina Office of the State Auditor (OSA) has included a note disclosure in its university and community college proformas for the component units to follow for the impact of the TSERS liability on the unrestricted net position.
The N.C. Office of the State Auditor (OSA) has completed a financial audit of the TSERS Schedule of Employer Allocations for the year ended June 30, 2014 and June 30, 2013 and the Schedule of Pension Amounts by Employer for the year ended June 30, 2014. Here is a link to OSA’s audit report, Teachers and State Employees Retirement System - Financial Audit of Schedules.
OSC has created a GASB 68 Template for component units that incorporates the data from the audited pension schedules for TSERS. This template generates, for each component unit, the GASB 68 year-end entries and information to assist component units with required GASB 68 note disclosures. Each component unit should verify that the pension amounts provided by this template agree with the audited pension schedules. Below is a link to the GASB 68 Template for component units that participate in TSERS: GASB 68 Template for Component Units (TSERS).
At year-end, OSC will provide State agencies that have proprietary funds with a PDF file of the summarized year-end entries (13th period) they will need to make for their enterprise funds and/or internal service funds and information they will need to complete CAFR worksheet 310.
For additional information regarding the GASB 68 implementation, please refer to the following resources:
- Appendix A: Chart of account changes for GASB 68 – See Attachment below.
- Appendix B: Component unit entry instructions – See Attachment below.
- Appendix C: Proprietary fund entry instructions – See Attachment below.
- Appendix D: CAFR package worksheet examples – See Attachment below.
Thank you for your time and attention to this important change. Questions regarding this specific update should be directed to Virginia Sisson at 919-707-0530 or virginia.sisson@ncosc.gov.