GASB 68 Q&A for ASRS Employers

Q&A for Employers

  • The Governmental Accounting Standards Board (GASB) is a nongovernmental regulatory body charged with setting authoritative standards of accounting and financial reporting for state and local governments. Recently, the GASB fundamentally changed those standards as they apply to employers that offer pension benefits, which include employers participating in the Arizona State Retirement System. 

    Below is a Question & Answer compilation that applies to the GASB 68 revised requirements. The information comes specifically from the GFOA and the ASRS.

    Q:  What are the main GASB 68 requirements for me as an ASRS employer?

    A:  GASB 68 significantly changes pension accounting and financial reporting for state and local governments by separating pension accounting methodology from pension funding methodology.  GASB 68:

    • Changes the amount employers report as pension expense and deferred inflows and outflows in their financial statements.
    • Replaces most of the current note disclosures and required supplementary information with information based on new accounting measures.
    • Limits the choice of generally accepted actuarial methods that may be used to calculate the total pension liability from six to one.
    • Changes the method for determining the rate used to discount the total pension liability to its present value.
    • Changes the amortization periods that can be used for the different components that affect the pension plan’s total pension liability.

    Q:  Why is the ASRS net pension liability larger under GASB 68 than it is under the ASRS funding methodology?

    A:  The three main reasons for the difference between the two measures are:

    1. GASB 68 requires the use of market value of assets for the net pension liability calculation, which is a point-in-time measurement, and includes the total amount of the current year investment gain or loss.  A point-in-time market value measurement can be very volatile.  By contrast, the ASRS follows generally accepted actuarial funding methodology which “smooths” the value of assets by recognizing investment gains and losses over a ten year period in order to maintain reasonably stable contribution rates
    2. GASB 68 requires the use of the Entry Age Cost Actuarial (EAC) method to calculate the total pension liability, while Arizona State statute requires that the ASRS uses the Projected Unit Credit Actuarial (PUC) method for funding purposes.  Both methods are generally accepted actuarial methods.  The EAC method allocates more dollars to past service costs, which becomes part of the total pension liability, and less dollars to current service costs, which are not part of the total pension liability.  The PUC method allocates more dollars to the current service costs.    
    3. GASB 68 requires that the ASRS include the cost of a possible future permanent benefit increase (PBI) to our members in the total pension liability because a PBI is automatically triggered if certain investment return tests are met over several years.  The ASRS does not include the cost of possible future PBIs in its funding calculation because the related investment return tests are not likely to be met in the near future. 

    Q:  Will the implementation of GASB 68 cause contribution rates to increase?

    A:  No.  GASB 68 accounting andreporting changes do not alter the actual pension payments to be made.  GASB 68 amounts recorded to your financial statements are “paper” entries used for accounting purposes only.  Employer contribution requirements will continue to be based on the ASRS’s actuarial funding methodology the objective of which is to maintain reasonably stable contribution rates and to achieve an ultimate funded status of 100% over time.

    Q:  Am I really liable for the net pension liability that will be on my books under GASB 68?

    A:  The net pension liability that will be recorded in your financial statements is an accounting estimate of your proportionate share of the actuarial present value of projected long term benefits, at a point-in-time, that is attributed to past periods of ASRS member service, under the Entry Age Cost actuarial method, less the plan’s net fiduciary position.  That number is based on assumptions about the probability of the occurrence of events far into the future.  Actuarially determined amounts are subject to continual revision.  In addition, state statute requires that employees pay 50 percent of the aggregate contribution rate and consequently 50 percent of the net pension liability.

    Q:  Will GASB 68 change the amount of cash contributions I make to the ASRS?

    A:  No. While your pension expense amount will change on your financial statements, it will no longer be the same amount as the actual contributions you pay to the ASRS.  You will continue to be responsible to pay only your portion of the annual required contribution amount which is calculated using the ASRS actuarial funding methodology. 

    Q. Will this new GASB affect our bond ratings?

    A. While we cannot speak for rating agencies, it is important to note that rating agencies have been aware of the funding policies and status of governmental pension plans.  They have historically incorporated that information into their analysis of a government’s ability to meet its debt obligations.  Below are some links that provide more information on this topic directly from the rating agencies’ web sites.   The links for Standard and Poors and Fitch Ratings discuss their approach to pension liabilities in light of GASB 67 & 68.  The link for Moody’s discusses its new approach to analyzing state and local government pensions.  Moody’s approach does not take GASB 67 or 68 into account.

    GASB 68 & 71 Implementation Tool kit for Governments
    Interpreting Pension Information:

    It is important to remember that pension funding and pension accounting have two different objectives.  The funding objective of the ASRS is to maintain reasonably stable contribution rates and to achieve an ultimate funded status of 100 percent over time.  To achieve stable contribution rates, our actuarial funding methodology “smooths” out the effects of market fluctuations and amortizes the resulting unfunded pension liability over a 30 year time horizon.  The objective of pension accounting is to record the financial events that affect the total pension liability when they occur.  Thus pension accounting calculates the total pension liability using the fair value of investments at a point-in-time and uses a short term amortization period for components of the total pension liability. 

    In An Elected Official’s Guide the New Pension Accounting, the Government Finance Officers Association advises that it is more important to focus on plan funding.  Stakeholders should ask: Does the pension plan have a reasonable funding approach to pay future earned pension benefits and do employers contribute the actuarially determined contribution amount? 

    It should be noted that all ASRS employers are required by state statute to pay their share of the annual actuarially determined contributions.  

Frequently Asked Questions

Q:  The payments we remitted do not agree to the contributions per the GASB 68 Schedule of Employer Allocations. How are contributions determined? New!

A:  The GASB 68 Schedule of Employer Allocations reflects the EMPLOYER portion of retirement contributions, including employer ACR retirement contributions. EMPLOYEE contributions are excluded, as are employer contributions for long-term disability and health benefit supplement.

The employer retirement contribution rates for fiscal year end 2014 and 2013 were:

    • ER Retirement Contribution Rate for Active Employers 10.7 for 2014 and 10.25 for 2013
    • ER Alternate Contribution Rate 8.82 for 2014 and 8.23 for 2013

Q:  Where do I get the information to split the amounts in the GASB 68 report by fund?

A:  The ASRS only has information by employer. The allocation between funds will be determined by the individual employers.

Q:  Regarding the general ledger transactions at the employer level: Under GASB 68, when is pension expense recorded? Do employers expense the payments throughout the year or wait until the actuarial figures come through?

A:  Pension expense will be recorded from the Schedule of Pension Amounts by Employer which the ASRS will issue in the Spring of 2015.

Q:   Will pension expense be a very large amount in the first year of implementation?

A:  No, the substantial entry in the first year of implementation will be your prior period adjustment. 

Q:  Will sample financial statement and disclosures be provided?

A:  The state auditor general’s office has been working closely with the state pension plans and are planning on drafting pro forma statements and footnotes for certain employer types, like counties and universities. These templates can be used as a template for other employers looking for examples. The actual numbers and other disclosures that will be reported by each employer will come from the ASRS’ June 30, 2014 Financial Statements or from the Schedule of Pension Amounts by Employer. 

Q:  For those deferred contributions which we will need to track between July 1, 2014 and June 30, 2015, what is the determining factor with which we will use to identify those contributions?  The pay period end date?  Actual date that the contribution is made to ASRS?

EXAMPLE:  Payroll with a pay period end date of June 22, 2014.  Actual date of contribution to ASRS was July 2, 2014.  Is this considered a prior year, FY2014, and not FY15, for GASB68?   Or FY2015?  (it is a June 2014 contribution for the EE contribution).

EXAMPLE:  Payroll with a pay period end date of July 06, 2014.  Actual date of contribution to ASRS July 16, 2014.  Pay period crosses the fiscal year end and 6 days (60%) expense are reported on FY14 financials, 4 days (40%) expense are FY15 expense.  Will 100% of this payroll ASRS retirement ERE contribution be considered deferred contribution for GASB68?   (it’s a July 2014 contribution for the EE).

Adjustments made against prior year contributions on payrolls between July 1, 2014 and June 30, 2015.  Are these considered FY 2015?

A:  To determine the year in which contributions are reported, you will use the accrual basis of accounting.

Timeline for December Year End

GASB 68 effective for fiscal years beginning after June 15, 2014

    • For a December year end, January 1, 2015-December 31, 2015 is the first fiscal year that begins after June 15, 2014.


    • Valuation date to be June 30, 2014
    • Measurement date to be June 30, 2015
    • Reporting date is December 31, 2015

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