Get in alignment: GASB 50 reconciles Pension Disclosures for government entities

California CPA, March-April, 2008 by Linda McCrone

financial statement note disclosures for pension plans of government entities have been expanded under GASB 50, Pension Disclosures, effective generally for years ending June 30, 2008, or later. The methods of measurement and recognition have not changed, however, and remain defined by GASB 25 and 27.

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The changes in disclosures were made to align the financial reporting requirements for pension plans with the disclosure requirements for other post-employment benefits (OPEB) under GASB 45. The largest government entities are accruing and disclosing OPEB benefits in financial statements and the other government entities will follow during the next two years.

GASB 27, Accounting for Pensions by State and Local Governmental Employers, applies to all government employers that have pension plans. GASB 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans is applicable only to government entities that administer their own defined benefit pension plans or defined contribution plans.

There are three types of defined benefit plans: single-employer, agent multiple-employer or cost-sharing multiple-employer. In California, many government employers are members of the California Public Employees Retirement System. Those government entities with more than 100 participants in their plan make use of the CalPERS agency multiple-employer plan; those with fewer than 100 make use of the CalPERS cost-sharing multiple-employer plan.

Government entities that use CalPERS would not have to be concerned with GASB 25. However, inquiry must be made into whether there are any group of employees, such as managers or part-time workers, who are not covered under CalPERS, but are entitled to a similar defined benefit pension plan. For simplicity, the focus of this article will be on the additional requirements for plans under GASB 27.

Employers participating in single employer or agent multiple-employer benefit pension plans report an annual pension cost equal to the annual required contribution, plus an adjustment for the cumulative difference between the annual pension cost and the employer's actual plan contribution. The cumulative difference is the net pension obligation that would be in the statement of net assets.

For employers with cost-sharing multiple employer defined benefit plans, the annual pension cost is equal to their contractually required contributions that are paid and any unpaid contractually required contributions related to pay periods with the current year. Cumulative unpaid balances would be reported in the statement of net assets.

Under GASB 27, all employers participating in defined benefit pension plans must disclose extensive information about the plan description and the funding policy. However, if there is a publicly available stand-alone pension plan, then there is a substantial reduction in the disclosures required and the governmental entity financial statement simply explains the availability of this financial statement in the notes to its financial statement. This is done to avoid unnecessary duplication of information.

GASB 50 adds a specific disclosure for every defined benefit pension plan: there should be additional disclosure concerning the legal or contractual maximum contribution rates, if applicable.

The other additional disclosures depend on the employer's plan. For employers with cost-sharing multiple-employer defined benefit plans, GASB 50 requires that information about the amount contributed for the current and two preceding years should include a description of how the required contribution rate is determined or that the plan is financed on a pay-as-you-go basis.

In addition, if the government entity's cost-sharing plan does not issue and make public a stand-alone plan financial report or is not included in the financial report of a public employee retirement system or another entity, the cost-sharing employer must present required supplementary information in its own financial report showing funding progress.

For employers participating in single-employer or agent multiple-employer plans, GASB 50 requires that information about the funded status of the plan as of the most recent valuation date be included in the notes, where it was previously only included in the required supplementary information. There is a specific additional note disclosure information required, including referring to the multiyear trend information in the required supplementary information.

It is also important to note footnote two in the statement: "The required reference to the schedule of funding progress presented as Required Supplementary Information does not represent or imply incorporation of the schedule of funding progress into notes to the basic financial statement."

This is an important distinction because information in RSI is not covered by the auditor's opinion and is not subject to the auditing procedures performed for an audit of the governmental financial statements. Only limited procedures are required as detailed in AICPA statement on Auditing Standards No. 52, Required Supplementary Information.