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GASB 68 and 71 fundamentally change defined benefit public pension reporting, but many schools are still confused. Here is a basic overview to help clarify the rules.


Colleges and Universities: Get the Lowdown on GASB 68 and 71 Public Pension Plan Rules

  • Christopher Knopik
  • 3/16/2016

When the Governmental Accounting Standards Board (GASB) released Statements Number 68 and Number 71 (effective for fiscal year-ends beginning after June 15, 2014), it fundamentally changed the way higher education institutions report defined benefit public pension liabilities and expenses. 

Many public colleges and universities are still confused about the changes, what some of the statements’ terms mean, what they must do to comply, and how they will fund the liabilities. Here is a primer with basic information that may lend some clarity and help schools make better sense of the new standards. 

Three major reporting changes 

For public colleges and universities that prepare financial statements in accordance with generally accepted accounting principles, GASB Statements 68 and 71 make three significant changes: 

  • First, and most notable, is the new requirement for public higher education schools to record their proportionate share of any net pension liabilities (or assets, if any). 
  • Next, pension expense is no longer equal to the pension contributions made by member institutions. It is now equal to the change in net pension liability from year to year, with adjustments for deferred amounts. 
  • Finally, public colleges and universities are now required to include fairly extensive footnote disclosures and even more supplementary schedules related to each of their defined benefit pension plans. 

New pension reporting requirements more accurately reflect liabilities 

GASB Statements 68 and 71 arose from a need for clearer financial information. Based on feedback GASB received from users of public institution financial statements (such as taxpayers and bond rating agencies) it concluded that if public institutions like colleges and universities were to report and disclose their shares of unfunded defined benefit pension plans, the statements would more accurately reflect their true net positions. 

GASB also concluded it would be more appropriate to account for pension liabilities the same way other liabilities are accounted for and recognized when goods or services are received, as opposed to paid by a public institution. In the case of pensions, the underlying service is rendered when employees are actually paid, thus creating a liability at the time of service. The GASB statements are intended to make the reports better reflect these actualities. 

Glossary of terms 

GASB Statements 68 and 71 created some new terminology and concepts. When you know their meanings, the standards will make more sense. 

  • Net pension liability — This is determined by the plan itself and is the difference between the present value of future pension benefit payments to members and the fair market value of the plan’s investments. The plan will use an actuary to determine the present value of future pension benefit payments. 
  • Net pension asset — Similar to net pension liability, but in this case the fair market value of the plan’s assets exceed the present value of future pension benefit payments. 
  • Deferred outflows of resources — This is the public college or university’s consumption of net position that is applicable to a future period. It is similar to a prepaid asset. The most typically deferred outflow is related to pension contributions made to the plan after the net pension liability’s measurement date and prior to the institution’s fiscal year-end. 
  • Deferred inflows of resources — This term means the school’s acquisition of net position that is applicable to a future period — similar to a liability. Under Statements 68 and 71, the most common deferred inflows are related to the difference between projected and actual investment earnings, changes in proportionate share of the net pension liability, changes in actuarial assumptions, and differences between expected and actual economic experiences for the plan as a whole. It is typically amortized over a certain number of years to smooth year-to-year fluctuations. It should be noted that these could also be deferred outflows if they are negative amounts. 
  • Pension expense — This is the college or university’s change in net pension liability between fiscal years, adjusted for the effects of certain other changes in the net pension liability (the amortization of deferred inflows and outflows of resources). The amount attributable to a school is actuarially determined similarly to an institution’s proportionate share of the net pension liability. 
  • Special funding situation — This term is defined as a circumstance in which a non-employer entity is legally responsible for some pension contributions. Although this results in additional revenues and pension-related expenses the public college or university must record, it does not result in additional liabilities being recorded and thus has no effect on net position. 

Calculating pension expenses 

The pension expense is no longer simply the current-year contributions to the pension plans. Now it is the change in the net pension liability adjusted for amortization of various deferred inflows and outflows. GASB allows this to help smooth out annual fluctuations in plan investment returns and proportionate shares of the liability, i.e., changes in actuarial assumptions. 

Funding liabilities and effects on bond ratings 

One of the biggest questions public colleges and universities have is, “How are we going to pay for this liability?” Currently schools aren’t expected to make lump-sum payments to help fund pensions. Statewide pension plans have strategies to fully fund the liabilities that range from a few years to more than 50 years, based on their current funding status. Member institutions will continue to make their required contributions, as set by the plans themselves. 

Another question a lot of schools have is, “How will my bond rating be affected?” Rating agencies have been aware of institutional pensions and have historically incorporated pensions into their ratings, even when there was not a number included on a college or university’s financial statements.Standard & Poor’s and Moody’s have indicated, for the most part, that they don’t anticipate significant revisions to ratings because of these GASB statements. 

Likely increase in public scrutiny

As public institutions across the country begin implementing the new GASB requirements, the majority will record a new liability, and a few will add a new asset to the statement of net position. No matter what your college or university’s records, you can probably expect scrutiny from the general public. Schools that belong to public pensions have very little control over how they are funded. Your best response to aggrieved taxpayers is to share accurate information about how contributions are determined, how well the plans are funded, and whether funding is increasing or decreasing.

How we can help

CLA’s higher education practitioners have extensive knowledge and understanding of GASB Statements 68 and 71 and can help your public college or university incorporate the related changes into your financial statements and reporting practices.