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Joint Presentation of the Auditor of Public Accounts and the Virginia Retirement System GASB 68 Implementation Virginia Association of School Business Officials Fall Conference October 16, 2015 Zachary L. Borgerding, CPA APA Audit Director, Reporting and Standards Barry C. Faison, CPA VRS Chief Financial Officer Slide 2 Overview of New Pension Standards Overview of the Cost Sharing vs Agent Plans VRS Approach to GASB 68 Implementation GASB 68 Reports, Guidance and Other Resources APA Approach to GASB 68 Audit and Resulting Opinions Questions Agenda Slide 3 Overview of New Pension Standards Slide 4 GASB 67 Impacted the Pension Plans Effective for VRS for FY 2014 GASB 68 Impacted Employers in Pension Plans Effective for VRS Employers in FY 2015 Significant liability moved to the face of the financial statements for employers Market value is used to measure plan assets Overview of New Standards Slide 5 GASB 68 Impact Moved Actuarial Valuation data from Notes to Financial Statements Increased complexity in presentations Additional data elements Amortization of deferred outflows/inflows of resources Increased note disclosures Information being subjected to additional audit work More emphasis placed on census data Foundation for liability calculations Responsibility for data accuracy shifted to employers Increased audit work at employers Slide 6 Characteristics of Cost-Sharing and Agent Plans Slide 7 Cost-Sharing Plans Multiple employers participating in an unallocated collective pool All assets are legally available to pay benefits for any employers members An employers cost is not related to the employers impact on the plans liability Assets are comingled for investment purposes, and income is earned by the collective pool All employers share a common employer contribution rate Example - VRS Teacher Retirement Plan Slide 8 Agent Multiple Employer Plans Separate employers participating in a collective pool, allocated by employer Contributions from each employer and assets are allocated and available for benefits of only that employers members Assets are comingled for investment purposes, but income is allocated to each employer Each employer has a unique employer contribution rate Example - VRS Political Subdivision Retirement Plans Slide 9 VRS Approach to GASB 68 Implementation Slide 10 GASB 68 Implementation Centralize GASB 68 data process Engage VRS actuary to create plan-wide data Prepare comprehensive report including GASB 68 data for all covered employers Compute allocation percentages for cost-sharing plans Prepare separate GASB 68 reports for each political subdivision Expand VRS webpage for information Prepare implementation guidance, sample journal entries, and sample note disclosures with RSI Slide 11 GASB 68 Implementation Expand availability of data in VNAV system Developed report for employer to extract VNAV data changes (hires, terminations, job changes, status changes, salary changes, etc.) Supplements monthly Snapshot reports Prepare supplemental information for Actuary Analysis of annual employer contribution revenue to identify variances from current contributions due Detailed report identifying components of change in plan assets between periods Report of employer contributions using current year creditable compensation for employer allocations Slide 12 GASB 68 Reports, Guidance, and Resources Slide 13 GASB Resources GASB 67 and GASB 68 standards GASB 67 and GASB 68 Implementation guides Complete GASB 67 report from VRS Actuary for the VRS plans Complete GASB 68 report from VRS Actuary for all covered employer groups Selected presentations on GASB 67 and GASB 68 Slide 14 GASB Resources Sample journal entries for each employer group Set-up opening balance Record first-year activity Sample note disclosures for each employer group GASB 68 Reports from VRS with Audit Opinion from the Auditor of Public Accounts Selected state agencies (6/30/2013 & 6/30/2014) Teacher cost-sharing pool (6/30/2013 & 6/30/2014) Political subdivision plans (FY 2014) Slide 15 APA Approach to GASB 68 Audit and Opinions Slide 16 Proper accumulation of census data by the Plan Agent Multiple Audit Assurances Fair presentation of changes in FNP by employer NPL is the difference between TPL and FNP Slide 17 In our opinion, the Schedule referred to above presents fairly, in all material respects, the total fiduciary net position of the Virginia Retirement System Political Subdivision Retirement Plans as of June 30, 2014, and the changes in fiduciary net position for the year then ended Agent Multiple Audit Opinion Slide 18 Also, in our opinion, the Schedule referred to above presents fairly, in all material respects, the fiduciary net position of each individual employer as of June 30, 2014, and the changes in fiduciary net position for each individual employer for the year then ended Agent Multiple Audit Opinion Slide 19 Provides assurance that VRS has: Provided complete and accurate census data reported by participating employers to the actuary Provided census data which properly reflects current benefit provisions Properly excluded deceased members Agent Multiple Examination Opinion Slide 20 In our opinion, managements assertion that the Virginia Retirement System complied with the aforementioned requirements based on the criteria set forth in the accompanying letter from management during the year ended June 30, 2014, is fairly stated, in all material respects. Agent Multiple Examination Opinion Slide 21 Defining Roles for Agent Multiple Plan Auditors Provide an audit opinion on the Schedule of Changes in FNP by employer and related notes Provide an examination opinion on the plans accumulation of census data Employers Submit accurate census data in VNAV Evaluate assumptions in actuarial valuation Compare FNP in valuation to audited schedule Employer Auditors Test census data for active employees Review audited Schedule of Changes in FNP and census opinion Evaluate competence and independence of plan auditor Evaluate competence and independence of actuary Slide 22 Provide opinion on pension amounts at the plan level Cost Sharing Audit Assurances Provide opinion on employer allocation percentages Slide 23 In our opinion, the schedules referred to above present fairly, in all material respects, the employer allocations and net pension liability, total pension expense, total deferred outflows of resources, and total deferred inflows of resources, for the total of all of the participating teacher employers Cost Sharing Audit Opinion Slide 24 Defining Roles for Cost Sharing Plan Auditors Provide opinions on 2014 Schedule of Allocations and Pension Amounts and related notes Provide opinions on 2013 Schedule of Allocations and NPL and related notes Employers Evaluate information provided for recognition and disclosure Recalculate allocation percentage and pension amounts Employer Auditors Test census data for active employees Evaluate competence and independence of plan auditor Recalculate allocation percentage and pension amounts Slide 25 APA issues audit specifications for local government auditors Specifications require employer auditors to provide APA examination reports on census data Examinations for cities, towns, and counties are due October 1 st Examinations for authorities, boards, and commissions are due November 1 st APA Audit Specifications Slide 26 APA Pension Questions: Contact VRS Project Manager, Zach Borgerding 804-225-3350 (303) Zach.Borgerding@apa.virginia.gov Zach.Borgerding@apa.virginia.gov APAVRSSupport@apa.virginia.gov APA General Questions: Contact Local Government Manager, Rachel Reamy LocalGovernment@apa.virginia.gov Slide 27 Lessons Learned and Future Changes Slide 28 Will perform some GASB 67 and 68 procedures concurrently No longer will have to obtain evidence over initial opening balances May eventually elect to issue a service organization controls report instead of opining at the employer level for agent multiple plans Opportunities for Audit Efficiency Slide 29 Opportunities For Improvement VRS will begin process earlier VRS will prepare standard calculations and allocations Develop additional reports, as needed Modify disclosure information and guidance using input from employers and their auditors Evaluate use of SOC-1, Type 2 Report Coordinate decision with APA Engage consultant to assist in development May facilitate work when similar reporting is required for OPEB plans Slide 30 Questions? Thank You