Fall 2011 issue of Horizons

Public Sector – continued

The portion of the present value attributable to past years of service is the total pension liability. As in the past, this pension calculation will be prepared for the government by an actuary. The statement requires that such a valuation be obtained at least once every two years. Additionally, under existing guidance, governments may choose from several different actuarial methods for calculating this liability. However, the proposed statement requires that all governments use the same method (the entry age normal method using a level percentage of payroll) in order to promote consistency. Finally, the statement outlines how the discount rate to be used in this calculation is determined, and requires that automatic cost of living adjustments (COLA’s), including ad-hoc COLA’s that occur frequently enough to be considered effectively automatic, be incorporated into the projection of future benefit payments. calculated, the net position of the plan (as defined in the first statement) is subtracted from the total pension liability to arrive at the net pension liability for the plan. The net pension liability is the amount that the government must report as a liability within its government-wide financial statements and proprietary fund financial statements, as applicable. Governmental fund financial statements will only report a net pension liability to the extent this liability is expected to be liquidated with current financial resources. Additionally, under existing guidance, governments participating in cost-sharing plans are not required to present employer-specific actuarial data. Instead, they present actuarial data related to the plan in total. Net Pension Liability Once the total pension liability has been

Under the proposed statement, however, governments participating in cost-sharing plans will be required to report a net pension liability representing the government’s proportional share of the plan’s net pension liability. The statement also specifies the portion of the net pension liability that will be reported as pension expense immediately and the portion that will be reported as a deferred inflow or outflow of financial resources and recognized as pension expense in future years. In summary: • Changes in the total pension liability relating to current-period service cost, interest on the beginning total pension liability and benefit changes will be incorporated into the calculation of pension expense immediately. • Changes in economic and demographic assumptions and differences between assumptions and actual experience will be recognized immediately for inactive employees, and recognized as deferred pension outflows or inflows and expensed over an average remaining life for active employees. • Changes resulting from expected earnings on the plan’s investments will be recognized immediately. • The effect of differences between the expected rate of return and actual rate will be recognized as deferred pension outflows or inflows and expensed over five years. • All other changes will be recognized as pension expense as incurred. Disclosure Requirements The statement also specifies a number of disclosure requirements, including a description of the plan, the number of participants, the assumptions utilized to calculate the net pension liability, a rollforward of the net pension liability, the components of pension expense, and a rollfoward of deferred inflows and outflows. Additionally, the statement requires that RSI be presented displaying a rollforward of the net pension liability and a comparison of the required

Raise Your Expectations

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