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Glenn Hegar  ·  Texas Comptroller of Public Accounts

Reporting Requirements for Annual Financial Reports of State Agencies and Universities

Notes & Samples

NOTE 9 – Defined Benefit Pension Plans and Defined Contribution Plan
Administrators

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Highlights of Changes in New Pension Standards [+]

GASB 67 and GASB 73 supersede both GASB 25 and GASB 50 for pension plans administered through trust or equivalent arrangements. GASB 67and GASB 73 offer guidance on pension plan reporting for pension plan administrators (such as ERS, TRS, and TESRS).

Highlights of the changes in new pension standards are derived from GASB 67 (implemented in fiscal 2014) GASB 68 (implemented in fiscal 2015) and GASB 73 (implemented in fiscal 2016):

  • Net pension liability calculations changed from reporting the net pension obligation (which compares cumulative pension liability and cumulative contributions made) to:

    Net Pension Liability = Total Pension Liability – Plan’s Fiduciary Net Position

  • Significant changes in the actuarial methods and assumptions used to calculate the total pension liability:
    • The entry age actuarial cost method is the only allowable cost method
    • Discount rate — a single blended rate that reflects the:
      • Long-term expected rate of return on plan investments if the plan’s net position is sufficient to make projected benefit payments
        –AND–
      • 20-year tax exempt municipal bond rate if the condition in (a) is not met
  • Changes in net pension liability are either expensed or deferred and amortized over a defined period of time. Most pension deferrals are amortized over the average remaining service life of all active and inactive employees.
  • More robust note disclosure and required supplementary information (RSI) requirements, including a disclosure or presentation of:
    • Components of net pension liability
    • Discount rate calculated based on new criteria
    • Schedule showing assumed asset allocation of plan’s portfolio and the long-term expected rate of return for each major asset class
    • Sensitivity analysis showing the impact of changes in discount rate on net pension liability
    • 10-year schedule of changes in net pension liability and related ratios
    • 10-year schedule of money-weighted rate of return on plan investments
    • 10-year schedule of employer contributions

      Note: The schedule of employer contributions is not a new requirement. However, there are new requirements on the types and volume of information presented in the schedule.

  • The primary government and its component units are considered one employer for purposes of pension plan classification. Based on this criterion, the ERS S.E.R.S. (State Employees Retirement System) plan is classified as a single-employer defined benefit plan.

For GASB 67 reporting purposes, the pension plans administered by the state are classified as:

  • ERS plans — single-employer defined benefit plans
  • TRS plan — cost-sharing multiple-employer defined benefit plan with special funding situation
  • TESRS plan — cost-sharing multiple-employer defined benefit plan with special funding situation

Agencies that are plan administrators are required to follow the requirements of GASB 67 and GASB 73 in preparing financial statements, note disclosures and RSI for the pension funds in its CAFR or AFR. Some of this information will be used as the basis for the Comptroller’s GASB 68 statewide reporting.

Requirements for GASB 67 Information for Pension Plans [+]

Financial Statements

Present the following financial statements on an accrual basis:

  • Statement of fiduciary net position — Includes information about assets, deferred outflows of resources, liabilities, deferred inflows of resources and net position for the plan’s pension funds, as applicable.
  • Statement of changes in fiduciary net position — The investment income section of this statement includes:
    • The net increase/decrease in fair value of plan investments (including realized and unrealized gains and losses on investments bought and sold during the year)
      –AND–
    • Interest, dividend and other income not listed above

Note Disclosures — General Requirements

Disclose the following general requirements for all plans:

  • Plan description:
    • Name, administrator and type of plan
    • Number of participating employers (if multiple-employer plan) and non-employer contributing entities if any
    • Information regarding plan’s board and its composition
    • Classes and number of plan members — Separately identify active members, inactive members (or their beneficiaries) receiving benefits, inactive members entitled to but not yet receiving benefits
    • Types of benefits provided and benefit terms:
      • Authority under which benefit terms are established or may be amended
      • Description of benefit terms including key elements of the pension formulas, policies regarding automatic and ad hoc postemployment benefit changes
    • Contribution requirements:
      • Authority under which contribution requirements for employers, non-employer contributing entities and plan members are established or may be amended
      • Contribution rates in dollars or as a percentage of covered payroll for members, employers and non-employer contributing entities (such as state-level contributions to local level)
      • Basis for determining contributions (such as statue, contract or actuarial basis)
  • Pension plan investments:
    • Investment policies:
      • Procedures and authority for establishing and amending investment policies
      • Policies regarding asset allocation
      • Significant investment policy changes during the reporting period
    • Description of how the fair value of investments is determined. Include methods and significant assumptions used if the fair value is based on other than quoted market prices
    • Concentration of investments — Identify investments in any organization (except those issued and guaranteed by the U.S. government) that represents 5 percent or more of the plan’s net position
    • The annual money-weighted rate of return on plan investments:
      • Calculated as the internal rate of return on plan investments net of investment expenses
      • Inputs to internal rate of return calculation are determined at least monthly
  • Receivables:
    • Terms of any long-term contracts for contributions between an employer or non-employer contributor and the plan
    • Outstanding contract balances at the end of the fiscal year
  • Allocated insurance contracts if applicable
  • Reserves:
    • Description of policy relating to the reserves
    • Authority under which the policy was established and may be amended
    • Purposes for the reserves and conditions under which the reserves are required or permitted to be used
    • The balances of the reserves
  • Deferred retirement option program (DROP) if applicable

Note Disclosures — Specific Requirements

Disclose the following information for all plans — measured as of the plan’s most recent fiscal year-end.

Note: TRS and TESRS plans disclose the following information — measured for the pension plan as a whole.

  • The components of net pension liability:
    • Total pension liability
    • Plan’s fiduciary net position
    • Net pension liability
    • Plan’s fiduciary net position as a percentage of the total pension liability
  • Significant assumptions and other inputs used to measure the total pension liability:
    • Inflation, salary changes and ad hoc postemployment benefit changes
    • Mortality — Disclose the source of the assumptions (such as published tables or experience studies — including date, if used)
    • Discount rate:
      • The discount rate applied in the total pension liability calculation and the change in the discount rate since the plan’s prior fiscal year-end (if applicable)
      • Assumptions made about projected cash flows into and out of the pension plan
      • The long-term expected rate of return on plan investments:
        • How the long-term expected rate of return was determined
        • Significant methods and assumptions used
      • Municipal bond rate and source (if the rate was incorporated into the discount rate calculation)
      • The periods of projected benefit payments where the long-term expected rate of return and municipal bond rate applied. For example: fiscal year 2014 to 2038 the long-term expected rate of return was used; and fiscal year 2039 (and years thereafter) the municipal bond rate was used.
      • The assumed asset allocation of the plan’s portfolio, the long-term expected real rate of return for each major asset class and if the expected rates of return are presented as arithmetic or geometric means.
      • Sensitivity analysis — Disclose the impact on the net pension liability using the discount rate that is 1 percent higher and 1 percent lower than the discount rate used
  • The date of actuarial valuation the total pension liability is based on. If update procedures were used to roll forward the total pension liability from the actuarial valuation date to the plan’s most recent fiscal year-end, disclose that fact.

Required Supplementary Information

Present the following required supplementary information (RSI) schedules for all plans. Measure the information for each year as of the plan’s most recent fiscal year-end.

Note: TRS and TESRS plans present the information — measured for the pension plan as a whole.

  • A 10-year schedule of changes in the net pension liability and related ratios:
    1. Present beginning and ending balances of the total pension liability, plan’s fiduciary net position and the net pension liability for each year.
    2. The effect on #1 of the following during the year:
      1. Service cost
      2. Interest on the total pension liability
      3. Changes of benefit terms
      4. Difference between expected and actual experience regarding economic or demographic factors in the calculation of total pension liability
      5. Changes of assumptions about future economic or demographic factors or of other inputs
      6. Contributions from employers
      7. Contributions from non-employer contributing entities
      8. Contributions from plan members
      9. Pension plan net investment income
      10. Benefit payments — Including refunds of plan member contributions
      11. Plan administrative expenses
      12. Other changes — Individually identify them (if significant)
    3. Plan’s fiduciary net position as a percentage of the total pension liability
    4. Covered payroll
    5. Net pension liability as a percentage of covered payroll

    Note: If the information for all 10 years is not available or practical to obtain, present only the years the information is available and, in each subsequent year, gradually build the schedule up to 10 years.

  • A 10-year schedule of employer contributions presenting the following information for each year:
    1. Actuarially determined contributions for employers and non-employer contributing entities
    2. Contractually required or statutorily determined contributions for employers and non-employer contributing entities in cost-sharing multiple employer plans (if it is different from actuarially determined contributions)
    3. Amount of contribution recognized by the plan in relation to #1 or #2
    4. Difference between #1 and #3 or #2 and #3
    5. Covered payroll
    6. Amount of contribution recognized by the plan in #3 as a percentage of the covered payroll in #5

    A full 10-year schedule of employer contributions is required in the implementation year.

    Note: For ERS, all the above are required except #2.

    Note: For TRS and TESRS, all the above are required in two schedules of employer contributions:
    1. Includes all the above except #2
    2. Includes all the above except #1
  • A 10-year schedule of investment returns presenting the annual money-weighted rate of return on plan investments for each year.

    Note: If the information for all 10 years is not available or practical to obtain, present only the years the information is available and, in each subsequent year, gradually build the schedule up to 10 years.

Notes to the RSI Schedules

Disclose the following in the notes to the RSI schedules:

  • Schedule of employer contributions — Significant methods and assumptions used in the calculation of actuarially determined contributions
  • All schedules — Factors that significantly affect trends in the amounts reported, such as:
    • Changes of benefit terms
    • Changes in the size or composition of the population covered by the benefit terms
    • Use of different assumptions
    • Change in investment policies

      Note: For investment related factors, disclose those which the pension plan or employer(s) have influence over. Do not disclose external, economic factors such as changes in market prices.

Do not restate the amounts presented on the schedules in prior years for the effects of the changes.

Examples of GASB 67 Information for Pension Plans [+]

Examples of some required note disclosures and required supplementary information schedules are presented below.

Investment Policy

The Sample board establishes (and may amend) the pension plan’s policy regarding asset allocation. Plan assets are managed with a long-term objective of achieving a fully funded status for the benefit provided through the plan. The Sample board’s asset allocation policy as of Aug. 31, 20X1:

Asset Class Target Allocation
Domestic Equity 40%
International Equity 13%
Fixed Income 28%
Externally Managed Investments 14%
Other 5%
Total 100%

The preceding target allocation was amended at the beginning of 20X1 to reduce the previous allocation to international equity and increase the allocation to domestic equity. The allocation in 20X0 was 15 percent to international equity and 38 percent to domestic equity.

Components of Net Pension Liability

Components of the net pension liability of the Sample employer (or participating Sample employers) as of Aug. 31, 20X1:

Pension Liability Amount
Total Pension Liability $ 30,000,000,000.00
Plan Fiduciary Net Position (25,000,000,000.00)
Sample Employer’s Net Pension Liability $ 5,000,000,000.00
Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 83.33%

Actuarial Assumptions

The Long-term Expected Rate of Return

The long-term expected rate of return was determined using a sample method in which the best estimate ranges of expected real rate of return (net of investment expenses and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighing the expected rates of return by target allocation percentage and adding expected inflation. The best estimates of arithmetic real rates of return by each major asset class are presented below:

Asset Class Long-Term Expected Real Rate of Return
Domestic Equity 5.7%
International Equity 5.5%
Fixed Income 1.5%
Externally Managed Investments 6.0%
Other 2.3%

Sensitivity of the Net Pension Liability to Changes in the Discount Rate

The Sample employer’s net pension liability as of Aug. 31, 20X1 is calculated using the discount rate of 7.5 percent, as well as the Sample employer’s net pension liability if it were calculated using a discount rate that is 1 percent lower (6.5 percent) or 1 percent higher (8.5 percent) than the current rate:

  1% Decrease (6.5%) Current Discount Rate (7.5%) 1% Increase (8.5%)
Sample Employer’s Net Pension Liability $ 6,000,000,000.00 $ 5,000,000,000.00 $ 4,000,000,000.00

Required Supplementary Information

Schedule of Changes in Net Pension Liability and Related Ratios

Last 10 Fiscal Years

  20X9 20X8 20X1-7* 20X0

Notes to Schedule:

Benefit changes — In 20X8, benefit terms were modified for the basis of the calculation of employee pensions from the average of highest 3 years of salary to the average of highest 4 years of salary.

Changes of assumptions — In 20X8, amounts reported as changes of assumptions resulted primarily from adjustments to retirement ages of general employees.

*Present information for 20X1 through 20X7 in a separate column for each year on this schedule.

Total Pension Liability        
Service cost $xx,xxx,xxx.xx $xx,xxx,xxx.xx $ xx,xxx,xxx.xx $ xx,xxx,xxx.xx
Interest xxx,xxx,xxx.xx xxx,xxx,xxx.xx xxx,xxx,xxx.xx xxx,xxx,xxx.xx
Changes of benefit terms 0.00 xxx,xxx,xxx.xx 0.00 0.00
Differences between expected and actual experience xx,xxx,xxx.xx xx,xxx,xxx.xx xx,xxx,xxx.xx (xx,xxx,xxx.xx)
Change of assumptions 0.00 xx,xxx,xxx.xx 0.00 0.00
Benefit payments, including refunds of employee contributions (xxx,xxx,xxx.xx) (xxx,xxx,xxx.xx) (xxx,xxx,xxx.xx) (xxx,xxx,xxx.xx)
Net Change in Total Pension Liability xxx,xxx,xxx.xx xxx,xxx,xxx.xx xxx,xxx,xxx.xx xxx,xxx,xxx.xx
Total Pension Liability – Beginning x,xxx,xxx,xxx.xx x,xxx,xxx,xxx.xx x,xxx,xxx,xxx.xx x,xxx,xxx,xxx.xx
Total Pension Liability – Ending (a) $ x,xxx,xxx,xxx.xx $ x,xxx,xxx,xxx.xx $ x,xxx,xxx,xxx.xx $ x,xxx,xxx,xxx.xx
Plan Fiduciary Net Position        
Contributions – employer $ xx,xxx,xxx.xx $ xx,xxx,xxx.xx $ xx,xxx,xxx.xx $ xx,xxx,xxx.xx
Contributions – employees xx,xxx,xxx.xx xx,xxx,xxx.xx xx,xxx,xxx.xx xx,xxx,xxx.xx
Net investment income xxx,xxx,xxx.xx (xx,xxx,xxx.xx) (xx,xxx,xxx.xx) xxx,xxx,xxx.xx
Benefit payments, including refunds of employee contributions (xxx,xxx,xxx.xx) (xxx,xxx,xxx.xx) (xxx,xxx,xxx.xx) (xx,xxx,xxx.xx)
Administrative expense (x,xxx,xxx.xx) (x,xxx,xxx.xx) (x,xxx,xxx.xx) (x,xxx,xxx.xx)
Other x,xxx.xx (xx,xxx.xx) xxx,xxx.xx (xxx,xxx.xx)
Net Changes in Plan Fiduciary Net Position xxx,xxx,xxx.xx (xx,xxx,xxx.xx) (x,xxx,xxx.xx) xxx,xxx,xxx.xx
Plan Fiduciary Net Position – Beginning x,xxx,xxx,xxx.xx x,xxx,xxx,xxx.xx x,xxx,xxx,xxx.xx x,xxx,xxx,xxx.xx
Plan Fiduciary Net Position – Ending (b) $ x,xxx,xxx,xxx.xx $ x,xxx,xxx,xxx.xx $ x,xxx,xxx,xxx.xx $ x,xxx,xxx,xxx.xx
XXXX’s Net Pension Liability – Ending (a)–(b) $ xxx,xxx,xxx.xx $ xxx,xxx,xxx.xx $ xxx,xxx,xxx.xx $ xxx,xxx,xxx.xx
Plan Fiduciary Net Position as a percentage of the Total Pension Liability xx.xx% xx.xx% xx.xx% xx.xx%
Covered Payroll $ xxx,xxx,xxx.xx $ xxx,xxx,xxx.xx $ xxx,xxx,xxx.xx $ xxx,xxx,xxx.xx
XXXX’s Net Pension Liability as a percentage of Covered Payroll xxx.xx% xxx.xx% xxx.xx% xxx.xx%

Schedule of Employer Contributions (I)

Last 10 Fiscal Years

  20X9 20X8 20X1-7* 20X0
*Present information for 20X1 through 20X7 in a separate column for each year on this schedule
Actuarially determined contribution $ 764,000,000.00 $ 720,000,000.00 $xxx,xxx,xxx.xx $ 716,000,000.00
Contribution in relation to the Actuarially determined contribution 376,000,000.00 340,000,000.00 xxx,xxx,xxx.xx 414,000,000.00
Contribution deficiency (excess) $ 388,000,000.00 $ 380,000,000.00 $xxx,xxx,xxx.xx $ 302,000,000.00
Covered payroll $ 6,000,000,000.00 $ 5,700,000,000.00 $xxx,xxx,xxx.xx $ 5,800,000,000.00
Contribution as a percentage of covered payroll 6.27% 5.96% x.xx% 7.14%

Notes to Schedule of Employer Contributions (I)

Valuation date — Actuarially determined contribution rates are calculated as of Aug. 31, 20XX (one year prior to the end of the fiscal year in which the contributions are reported).

The following are methods and assumptions used to determine contribution rates:

  • Actuarial cost method — Entry age
  • Amortization method — Level percentage of payroll, closed
  • Remaining amortization period — 15 years
  • Asset valuation method — 5-year smoothed market
  • Inflation — 3.5%
  • Salary increase — 4%, including inflation
  • Investment rate of return — 7.5%, net of pension plan investment expense, including inflation
  • Retirement age — In 20X8 valuation, expected retirement ages of general employees were adjusted to more closely reflect actual experience.
  • Mortality — RP-2000 Healthy Annuitant Mortality Table

Schedule of Employer Contributions (II)

Last 10 Fiscal Years

  20X9 20X8 20X1-7* 20X0
*Present information for 20x1 through 20x7 in a separate column for each year on this schedule.
Statutorily determined contribution $376,000,000.00 $340,000,000.00 $xxx,xxx,xxx.xx $414,000,000.00
Contribution in relation to the Statutorily determined contribution 376,000,000.00 340,000,000.00 xxx,xxx,xxx.xx 414,000,000.00
Contribution deficiency (excess) $0.00 $0.00 $0.00 $0.00
Covered payroll $6,000,000,000.00 $5,700,000,000.00 $xxx,xxx,xxx.xx $5,800,000,000.00
Contribution as a percentage of covered payroll 6.27% 5.96% x.xx% 7.14%

Schedule of Investment Returns

Last 10 Fiscal Years

  20X9 20X8 20X1-7* 20X0
*Present information for 20X1 through 20X7 in a separate column for each year on this schedule.
Annual money-weighted rate of return, net of investment expense 8.50% 7.80% x.xx% 6.30%
Glenn Hegar
Texas Comptroller of Public Accounts
Questions? Contact statewide.accounting@cpa.texas.gov
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