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Business Officer Magazine

Business Intel

A roundup of short news articles and useful resources for business officers

GASB Statement Has Significant Implications for Pension Reporting

By The NumbersGASB Statement No. 68, "Accounting and Financial Reporting for Pensions," was the subject of  NACUBO's November 13 webcast that examined the multiple issues and requirements created by the statement. The GASB took on the pension project to improve the usefulness of information about the promise of pension benefits by governmental employers to their employees.

The new standard's objectives are to quantify the promise of pension benefits, shine a light on resources needed to pay promised benefits, and enhance the public's understanding about the true cost of future pension benefit payments.

Statement No. 68 covers three types of defined benefit pension plans:

1. Single-employer plans are those with one employer and one set of employees.  The actuarial valuations and assumptions are based entirely on one set of employees.

2. Agent multiple-employer plans base actuarial valuations and assumptions on the unique characteristics of each employer's employees. The funds of the plan are in one pool for administrative and investment activities but are legally segregated to pay the pensions of each employer's employees.

3. Multiple-employer cost-sharing plans include all employees from all the plan's governmental employers in one large pool. Funding and payouts come from the same pool for all employees-no matter which governmental employer the employees worked for. Participating employers share their mutual obligation to provide pensions to their employees. Consequently, plan assets are used to pay the pensions of any participating employer's employees.

The standard makes provisions for "special funding situations," that can decrease the pension obligation for a cost-sharing employer. In a special funding situation:

  • A nonemployer entity (e.g., a public institution's state or county government) makes contributions directly to fund the pension plan. The nonemployer does not need to make 100 percent of the total funding contribution for a given employer.
  • The employer and the nonemployer may share funding responsibility; however, the funding contributions from the nonemployer entity must be based upon a compensation formula and not some other type of funding arrangement that has no relationship to compensation. 

Statement No. 68's Big Changes

The following points highlight several significant differences from the former pension standard (GASB No. 27), which Statement 68 replaces.

  • For unfunded situations, where the actuarially accrued liability is greater than the funds in the plan, employers will have to report a liability for the difference.
  • In the actuarial valuation, the new standard requires only one actuarial assumption—"entry age normal." Formerly, several assumption methods were used.
  • The new requirements affect the timing of actuarial valuations and calculation methods for expenses, deferrals, and liabilities that will appear in the employer's financial statements.
  • Statement No. 68 introduces the construct of a proportionate share of a collective liability that has an impact on expense, deferral, and liability recognition for each employer in the plan's cost-sharing pool. Multiple cost-sharing employers were previously not considered to have a liability.
  • Employers must evaluate and choose a single (rate of return) discount rate that produces a total actuarially determined projected benefit payment for all eligible employees and retirees. (Many states have historically used an 8 percent rate of return, but a survey of webcast participants places the estimated discount rate at 6.5 percent. This is significant, because the lower the discount rate, the larger the pension liability.)

Audit Issues

The overwhelming majority of higher education institutions are part of either agent employer plans or multiple-employer cost-sharing plans. With respect to these types of plans, auditors and higher education institutions must be able to track employee and retiree additions, terminations, and employee movement among employers.

Concerning pension plan assets, each employer needs to be able to determine that employer contributions, investment growth, and benefit payments are properly allocated to each employer in a state. This is especially important with multiple-employer cost-sharing plans, because all of the plan's assets are commingled.

The American Institute of Certified Professional Accountants (AICPA) is advocating that the plan produce a schedule that shows the contributions, growth, earnings, and withdrawals by employer. Such a schedule can be based on proportions for each multiple employer in a cost-sharing plan.

Further, and most importantly, the schedule should be audited—by the plan's auditors—at a level of materiality that is relevant for employers, rather than using planwide materiality thresholds. This would result in an employer's auditors having information that they can rely on. Auditors will also need reliable census data for both active and inactive employees. 

The AICPA will be rewriting the state and local government audit guide to address the various challenges of auditing cost-sharing pension plans. The new guidance should be ready by 2014.

Disclosure Changes

A number of footnote disclosures will be required. While many are similar to current disclosures, the statement calls for additional details on discount rate selection and related assumptions, the type of investments that comprise the pension plan's assets, and the unamortized deferred inflows and outflows, including when expenses are expected to be recognized. Such required supplemental information (RSI) will need to reflect enhanced analysis of drivers behind projected changes to the net pension liability. There will also be more detail on actuarially determined contributions, deferrals, and expense projections over a 10-year period.

Begin Estimating Now

Although Statement No. 68 requirements are not effective until FY15, colleges and universities should consider analyzing the financial statement impact. During the webcast, the Ohio State University helped participants understand how to begin estimating their institution's share of pension expense, deferred inflows and outflows, and the net pension liability.

Because pension plans will not have to comply until FY14 with the new GASB Standard No. 67, "Financial Reporting for Pension Plans," estimated calculations will need to begin with the pension plan's most recent financial statements. To calculate estimates, some plan financial statement information will be audited; other information will come from unaudited RSI.


Universities and their investors earned more than $1.8 billion from commercializing their academic research in FY11. Northwestern University, Chicago, was the highest earner, reporting approximately $190 million in licensing income. Responding to the annual survey were 157 universities which collectively reported completing 5,398 licenses and filing 12,090 patents.

-The Association of University Technology Managers

Pension-related estimates for the Ohio State University and others in the Ohio University Group had an impact on key balance sheet ratios. Therefore, it's important for senior management, governing boards, rating agencies, underwriters, bondholders, state administrators, and other stakeholders to have significant information about estimates on these pension plans.

This is a major new accounting standard with implications for all public colleges and universities with defined-benefit pension plans. In addition, senior management or governing boards will want state legislators to hear about estimated financial consequences.

Other advice for institutions in preparing themselves for compliance: Contact retirement plan administrators, become familiar with their compliance plans, and identify their key contacts. Institutions will also need a contingency strategy should they determine that their plan administrators are behind in implementation. For contingency planning, work in partnership with external auditors. Planning cannot start too soon.  

RESOURCE LINKS For details on the GASB statements, go to The November 13 webcast is available on demand at under the Distance Learning tab.

NACUBO CONTACT Sue Menditto, director, accounting policy, 202.861.2542 

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An Online Degree Students Can Afford?

The University of South Carolina recently started its new Palmetto College, an online degree-completion option for adults who are 25 and older and have previously earned a minimum of 60 academic credits at the university. The college's pilot program, Back to Carolina, is the first initiative of a much broader distance-learning effort scheduled for fall 2013.

At Your Service

If this month's cover story "Crafting a Career Curriculum," inspires you to take another look at your institution's career services department, turn to the National Association of Colleges and Employers for some tools. NACE connects campus recruiting and career services professionals in the context of its "Professional Standards for College and University Career Services." Professionally derived standards provide the foundation for effective assessment of career services. Vetted, experienced external reviewers can be part of the review.

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Higher Ed Innovations a Must, Say Millennials

A national opinion poll conducted by Northeastern University, Boston, confirms that a shift in values, especially in the younger generation, poses challenges for higher education. The survey, "Innovation Imperative: The Future of Higher Education," provides insights on Americans' views defining the value, benefits, and obstacles institutions have ahead of them. 

Responses to the study, conducted by landline and cell phone in mid-October, were presented by Joseph Aoun, Northeastern's president, at a late-November meeting at the Brookings Institution, Washington, D.C. In his remarks at the panel discussion hosted by the two institutions, Aoun said that the survey serves as a "wake-up call" for higher education to become more aware of students' evolving needs.

Findings, which included responses from a nationally representative sample of American adults—with an oversample of young adults ages 18 to 30 (Millennials, reaching adulthood at the start of the new millennium)—shine a light on online education and practical real-world experience as keys to the change. The survey indicated that 9 out of 10 Millennials think these and other changes are necessary to develop the innovative education needed in such a competitive world.

While 75 percent of the national participant group and 73 percent of the younger contingent agreed that the U.S. ranks ahead of all or most other countries in the quality of education, other findings showed that much work must be done going forward.

Education's future growth is online. The value of online and hybrid learning models is gaining traction with all Americans.

  • Fifty-three percent of participants as a whole predicted that within five to seven years online degrees will be recognized and accepted among employers just as much as a traditional degree is today; 68 percent of younger adults agreed.
  • As for hybrid learning models, 87 percent of younger adults consider a mix of online and traditional classroom learning a good option for working people interested in returning to school for further training.

Adding a reality check to learning. Based on the survey results, nearly 7 in 10 Americans said an important part of the curriculum should be entrepreneurship, including how to open a business.

In response to a related question, 72 percent of younger adults noted that they would have opted to spend a year or two working in public service in exchange for reduced college tuition.

A full 94 percent of younger adults said that a learning experience integrating semesters of academic study with full-time employment helps prepare students to find the career that's right for them and develop skills required in the real world.  

RESOURCE LINK  For details, see

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