Fall 2011 issue of Horizons

assets set aside to pay this “debt,” will be recorded as a liability.

Deferred inflows and outflows of resources are new financial statement elements that are described within GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position, which was issued by GASB in July 2011. The statement also mandates various disclosure requirements, including the total pension liability and net pension liability (as defined in the second statement) of employers participating in the plan, and the significant assumptions used to calculate this liability. Finally, the statement mandates that required supplementary information (RSI) be presented regarding changes in and the components of the net pension liability of participating employers and return on plan investments over the past ten years. Current reporting standards require pension-related RSI to be presented for the past six years. Accounting and Financial Reporting for Pensions The second proposed statement, Accounting and Financial Reporting for Pensions, will supersede GASB Statement No. 27, Accounting for Pensions by State and Local Government Employers , as well as GASB Statement No. 50, Pension Disclosures . This statement establishes the methodology to be used by governments to value and report the liability associated with their participation in a defined benefit pension plan. The statement defines the term “total pension liability,” which represents the present value of the government’s obligation under the plan that is attributable to past service by employees. This liability is calculated in three phases: • Projecting future benefit payments; • Discounting projected benefit payments to their actuarial present value; and • Attributing this present value to past or future years during which employees have worked or are expected to work.

Once implemented, this will likely result in governments reporting substantially larger pension liabilities in their government statements than in the past. Financial Reporting for Pension Plans The first statement, Financial Reporting For Pension Plans, supersedes GASB Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Notes Disclosures for Defined Contribution Plans , and GASB Statement No. 50, Pension Disclosures . This statement modifies the format of financial statements for plans, whether presented as stand- alone financial statements or as a pension trust fund within the financial statements of the plan sponsor. Under this proposal, plans will present two statements—a statement of plan net position and a statement of changes in plan net position. The statement of plan net position will consist of the following elements: • Assets, such as cash and cash equivalents, fair value of investments, etc. • Deferred outflows of resources • Liabilities, such as benefit payments due to plan members • Deferred inflows of resources • Net Position, which equals assets plus deferred outflows minus liabilities minus deferred inflows The statement of changes in plan net position will consist of the following elements: • Additions, including contributions and investment income • Deductions, such as benefit payments and administrative expenses • Net increase (decrease) in plan net position, which equals the difference between additions and deductions

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