GASB 78 Update: Pensions Provided Through Certain Multi-Employer Defined Benefit Pension Plans

The Governmental Accounting Standards Board (GASB) has issued GASB Statement 78, Pensions Provided Through Certain Multiple Defined Benefit Pension Plans. This guidance has been issued to assist governments that participate in certain private or federally sponsored multiple-employer defined benefit pension plans by focusing on employer accounting and financial reporting requirements for those pension plans on obtainable information.

GASB 78: Key Highlights

GASB 78 applies specifically to state and local governmental employers that provide defined benefit pensions to their employees through a cost-sharing multi-employer defined benefit pension plan that is:

• Not a state or local government pension plan
• Used to provide defined benefit pensions to employees of state or local governments and to employees of employers that are not state or local governments and
• Has no predominant state or local government employer

GASB 78 sets the following criteria:

• Identifying the applicable pension plans
• Addressing of measurement and recognition of pension liabilities, expenses, and expenditures
• Notating disclosures of descriptive information about the plan benefit terms and contribution terms and
• Requiring supplementary information including contribution amounts for the past 10 fiscal years

When Is GASB 78 Effective?

The requirements of this Standard became effective for reporting periods beginning after December 15, 2015. For governments with December 31^st year ends, this means the standard is effective beginning January 1, 2016. For governments with June 30^th year ends, this means the standard is effective July 1, 2016.

How to Prepare?

• If your department uses the economic resources measurement focus in preparing financial statements, you will need to recognize pension expense equal to the amount the employer is required to contribute to the pension plan for the reporting period. Pension expense should also be recognized for separate liabilities to the pension plan that arise in the reporting period. You should also report a payable for unpaid required contributions and unpaid separate liabilities at the end of the reporting period.
• If your department prepares financial statements using the current financial resources measurement focus, you will need to recognize pension expenditures equal to the amount the employer is required to contribute to the pension plan associated with pay periods within the reporting period. For separate liabilities to the pension plan, you should recognize pension expenditures equal to the total of the following:

1. Amounts paid by the employer in relation to the payable
2. The change between the beginning and ending balances of amounts the entity normally expects to be
   liquidated with expendable financial resources.
3. Payables should be recognized for unpaid required contributions that are associated with pay periods within the reporting period to the extent that they are to be liquidated with expendable available
   resources and for separate liabilities to the extent they are due and payable.

• For the Notes to Financial Statements, include a description of the benefit terms and contribution requirements, a description of any minimum contributions required for future periods by collective bargaining agreements, statutory obligations, or other contractual obligations, if applicable. The footnotes should also include information about the employer’s payables and whether the pension plan issues a publicly available financial report and, if so, how to obtain the report.
• For Required Supplementary Information, include a schedule of the employer’s required contributions for each of the 10 most recent fiscal years. The schedule should provide separate amounts associated with each pension plan. As notes to the required schedule, you should also include information about factors that significantly affect trends in the amounts reported. If, during the transition period, you do not present information for the 10 most recent fiscal years, you should provide a reason for not including all required years in the notes to the schedule.
• If practical, you should restate financial statements for all prior periods.
• If not practical, you should report any cumulative effect of applying GASB 78 as a restatement of beginning net position (or fund balance or fund net position, as applicable) for the earliest period restated. Then in the 1st period that GASB 78 is applied, the notes to the financial statements should disclose the nature of the restatement and its effect. In addition, then you should disclose the reason for not restating prior periods presented.

Do you have questions regarding the new standard? Contact us to explore the implications for your organization.

Please note this summary update of GASB 78 is not meant to substitute for reading the Statement in its entirety.