Employee Relations 06/22/2012
GASB to Decide Fate of New Pension Accounting Standards
The Governmental Accounting Standards Board (GASB) will vote
Monday on whether to finalize new public pension accounting
GASB first issued drafts of proposed new pension accounting rules in July 2011, citing its broad effort to improve accountability and transparency of financial reporting in regard to the financial effects of employers’ commitments and actions related to pension benefits; it then conducted a comment period through September 2010, after which public hearings on the views were held nationwide. Technical issues associated with employer and pension plan reporting were discussed in May 2011. GASB held public hearings on the drafts in October 2011 and the final statements, if approved on Monday, will be issued in the next two months.
The proposals, (which would apply to all state and local governments that sponsor defined benefit pension plans) in the drafts include the following:
- The requirement that state and local governments recognize net pension liability (NPL) in their financial documents (currently only provided as supplemental information). Currently, state and local governments must recognize their annual required contribution (the employer’s periodic required annual contributions to a defined benefit pension plan, calculated in accordance with the plan assumptions) as an expense on financial reports. The new rule would require governments to also include NPL (the market value of assets subtracted from the total pension liability) which will then be used as the measure of the employer’s pension liability. Accordingly, GASB rejected the current concept of Net Pension Obligation, which is the difference between the employer’s actual and required contributions.
- The use of a single discount rate to value future projected benefit payments. The discount rate used to place a value on a plan’s total pension liability will, under the proposed GASB rule, be an average of the following: 1) the current long-term investment rate of return for future and current assets, and 2) the risk-free, high quality municipal bond index rate.
- Accomplishing the attribution of the actuarial present value of benefit payments by using the employee’s entry age normal actuarial cost method as a level percentage of pay. Under this method, projected benefits are discounted to their present value when employees first begin earning benefits and attributed to employees’ expected periods of employment until they leave.
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CalPERS Implements Late/Missing Payroll Administrative Fees
The California Public Employees’ Retirement System (CalPERS) announced this week that it will begin implementing administrative fees on incomplete and erroneous payroll and interest on contributions underpayments on July 1, 2012, nine months after the institution of the my|CalPERS system. According to CalPERS, the purpose of the fees is to ensure that member accounts are accurate and whole and in compliance with the law. The following is a breakdown of fees:
- $200 will be assessed on all Earned Period Payroll Reports not completely posted or submitted in a timely manner; that fee will continue to be assessed each month until the report is submitted. Employers that submit an incorrect report will have 60 days to remedy the situation before a $200 administrative fee will be imposed for incomplete payroll and assessed monthly until all records are corrected.
- If employers pay less than 90 percent of the total member contributions (due on or before 15 calendar days from the last pay period end date), the contracting agency will be billed for the underpaid amount; if that underpayment is not paid within 30 calendar days, interest will be assessed until paid (that interest rate will be the Actuarial Interest Rate defined in the Public Employees’ Retirement Law (PERL)). That same fee structure would apply to employers that pay less than 99 percent of the total amount of member contributions due at the end of the fiscal year (June 30).
Employers may request administrative fee waivers (which must be requested 10 or more business days before the due date of the Earned Period Report) if a legitimate reason exists for such a waiver to be approved. For more information, visit the my|CalPERS website.