HomeMy WebLinkAboutIR 9828 INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 9828
To the Mayor and Members of the City Council December 15, 2015
Page 1 of 3
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*a SUBJECT: THE IMPACT TO THE CITY OF IMPLEMENTING GASB STATEMENT
rrn NO. 68, ACCOUNTING AND FINANCIAL REPORTING FOR PENSIONS
Background:
On June 25, 2012, the Government Accounting Standards Board ("GASB") approved GASB
Statements 67 and 68, effectively replacing GASB Statements 25 and 27, respectively. These
new standards were designed to improve financial reporting and provide transparency into the
accounting of state and local government defined benefit pension plans. These new GASB
statements bring governmental accounting and reporting standards closer to those found in the
private sector.
The City implemented GASB Statement No. 67 in Fiscal Year 2014. GASB Statement No. 68
("GASB 68") is effective for fiscal years starting after June 15, 2014. Thus, the City is required to
implement the requirements of this statement in Fiscal Year 2015. GASB Statement No. 71 , a
statement clarifying the requirements of GASB 68, is required to be implemented simultaneously
with the provisions of GASB 68.
In prior years, information on the pension liabilities was disclosed in the notes to the financial
statements as well as within the required supplementary information (RSI) section of the
Comprehensive Annual Financial Report (CAFR). With the implementation of GASB 68, the total
net pension liability will be reported on the face of the Statement of Net Position (entity-wide
balance sheet), effectively reducing our overall net position. As required before GASB 68,
governments will continue to report pension obligations within the notes to the financial
statements and the required supplementary information. It is important to highlight that GASB 68
does not create a new liability; rather, it affects how this liability is calculated, reported, and
presented in the audited financial statements.
Additional highlights of key changes required as a part of GASB 68 include:
• Separating accounting for pension liabilities from the funding these liabilities
• Adding net pension liability ("NPL") and deferred outflows/inflows of resources to the
statement of net position. Deferred outflows/inflows are defined as the consumption or
acquisition of net assets that is applicable to a future reporting period
• Eliminating the annual required contribution ("ARC') concept for recognizing pension
expense; however pension expenditures will still be used as the outflows measurement for
governmental funds
• Significant increase in note disclosures and information reported in the RSI section of the
CAFR.
ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS
INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 9828
To the Mayor and Members of the City Council December 15, 2015
Page 2 of 3
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�i7 Y
*a SUBJECT: THE IMPACT TO THE CITY OF IMPLEMENTING GASB STATEMENT
rrn NO. 68, ACCOUNTING AND FINANCIAL REPORTING FOR PENSIONS
Preliminary Calculation of the Fund's Net Pension Liability for FY2015:
During the City's review of the requirements under this new GASB structure, the City requested
that Segal Consulting provide a preliminary NPL. In May of 2015, Segal provided the City with
the following estimate:
Total Pension Liability $ 3,976,000,000
Market Value of Assets 2,076,000,000
Net Pension Liability (NPL) $ 1,900,000,000
Impact on the Financial Statements:
Changes resulting from GASB 68 requirements apply only to the financial statements presented
on an accrual basis of accounting. Specifically, these statements include the: government-wide
financial statements, enterprise funds (Water and Sewer, Stormwater Utility, Municipal Airports,
Municipal Parking, and Solid Waste Funds), and the Pension Fund (which is not included in the
government-wide financial statements). GASB 68 does not apply to governmental funds. These
funds will continue to report pension expenditures based on contributions made during the year.
Implementation of the new pension standards is a change in accounting principle and will require
the recognition of a one-time prior period adjustment to restate the beginning net position.
Impact on External Audit:
The City's external auditors (Deloitte & Touche) have stated that the implementation of the new
pension standards will have a significant impact on the financial statements, and as such, GASB
68 will be an area of focus for the Fiscal Year 2015 Audit.
Significant audit focus includes:
1. Completeness of the entries to record the adjustment to beginning net position, net
pension liability and deferred inflows/outflows.
2. Completeness and accuracy of footnote disclosures.
ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS
INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 9828
To the Mayor and Members of the City Council December 15, 2015
Page 3 of 3
�i
�i7 Y
*a SUBJECT: THE IMPACT TO THE CITY OF IMPLEMENTING GASB STATEMENT
rrn NO. 68, ACCOUNTING AND FINANCIAL REPORTING FOR PENSIONS
Impact on Credit Rating:
The credit rating agencies have prepared various commentaries on the implementation of GASB
68 with consensus that implementation will have a minimal impact on municipal bond ratings
given that the rating agencies' current credit analysis methodologies already account for pension
obligations and liabilities. Specifically, the headline to Moody's special comment on this subject
dated June 30, 2014 reads "Moody's US Public Pension Analysis Largely Unchanged By New
GASB 67/68 Standards".
Similarly, on September 2, 2015, Standard & Poor's wrote "our method of analysis of local
government public pension plans is fundamentally unchanged and focuses on a local
government's near- to medium-term budgetary stress caused by payments of pension of
contributions, the likelihood of growth in these costs if liabilities are not adequately addressed,
and management's actions related to those costs" in their response to the implementation of the
GASB changes.
Fitch stated in a special comment dated February 13, 2015 that "Fitch does not expect the
transition to new pension accounting to be a significant rating driver."
While no direct rating impact is anticipated, there will be potential impacts on financial ratios and
other measures; however, the Department of Finance does not anticipate that these measures
will negatively affect the reception of the City's credit in the capital markets.
If you have any questions, please call Aaron Bovos, Chief Financial Officer, at 817-392-8517.
David Cooke
City Manager
ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS