Pension Accounting Changes Presented to the Virginia Association - PowerPoint PPT Presentation

Pension Accounting Changes Presented to the Virginia Association of Counties November 12, 2012 Robert P. Schultze, Director

Let’s Review Moody’s VRS GASB Discount Rate 7% Blended 5.5% Amortization 30 years decreasing Some expensed 17 years to 20 immediately, some Period over future working lifetimes, investment returns over 5 years Asset Value 5-year smoothing FMV FMV Annual Cost Normal Cost + Normal Cost + Normal Cost at new amortization of interest on pension discount rate plus unfunded over 30 liability + 17-year years (decreasing to amortization with amortization of 20) varying periods unfunded liability 2

Upcoming GASB Standards Change  Governmental Accounting Standards Board (GASB):  Effective dates:  Plan Administrators – Plan years 2013 and beyond  Employers – Plan years 2014 and beyond  GASB implementation guide under development  GASB standards extend only to financial reporting and not to funding  Funding guidelines being developed by professional associations:  “Big Seven” – National Governors Association, National League of Cities, National Association of Counties, U. S. Conference of Mayors, International City/County Management Association, National Council on State Legislatures, Council of State Governments 3  Conference of Consulting Actuaries

Other Changes Coming  Fitch  Adjust liabilities to a common 7% interest rate  Use five-year average of Market Value of Assets (MVA)  Moody’s (Proposed)  Adjust liabilities using a bond index rate (currently 5.50%) which would increase the VRS accrued liabilities about 20%  Use Market Value of Assets (MVA)  Calculate a required contribution using 5.5% discount rate and a 17- year amortization 4

Impact on Pension Liabilities

VA Retirement System Liabilities Unfunded Liabilities by Plan Plan 6/30/2011 6/30/2012 * 6/30/2012 6/30/2012 Moody’s ** Funding Funding GASB ** (in billions) (in billions) (in billions) (in billions) State Employees $7.33 $8.70 $9.00 $13.90 (includes SPORS, JRS, VaLORS) Teachers $12.60 $14.70 $15.16 $23.03 Local Political $4.02 $4.75 $4.96 $8.55 Subdivisions Total $23.95 $28.15 $29.12 $45.48 * 2012 unfunded liability for Local Political Subdivisions is preliminary. ** GASB and Moody’s unfunded liabilities are estimates based on guidance provided to date. 6

GASB Net Pension Liability (NPL) School Board Total Estimated Percent of Total FY 2012 Creditable NPL Payroll Compensation Fairfax County 17.52% $ 2,658,222,600 $ 1,227,329,600 Prince William County 6.37% 967,109,900 446,524,900 Loudoun County 5.83% 885,260,500 408,734,200 Virginia Beach 5.37% 816,243,600 376,868,300 Chesterfield 3.59% 543,905,600 251,127,000 Henrico County 3.35% 507,381,000 234,263,200 Arlington County 3.23% 490,038,900 226,256,200 Chesapeake 2.97% 450,935,900 208,201,900 Norfolk 2.84% 431,111,600 199,048,800 Newport News 2.17% 328,252,800 151,557,800 Total Teachers Plan $ 15,160,259,000 $ 6,999,652,800 7

GASB Accounting Expense School Board 2012 Pension 2012 Pension 2012 Pension Expense Expense Expense Based on 6.33% of Payroll Based on 12.91% of Payroll Based on GASB 68 Fairfax County $ 79,100,000 $ 161,400,000 $ 255,800,000 Prince William County 28,500,000 58,000,000 92,000,000 Loudoun County 26,300,000 53,700,000 85,100,000 Virginia Beach 24,300,000 49,500,000 78,500,000 Chesterfield 16,100,000 32,800,000 52,000,000 Henrico County 15,100,000 30,800,000 48,800,000 Arlington County 14,500,000 29,600,000 46,900,000 Chesapeake 13,300,000 27,200,000 43,100,000 Norfolk 12,900,000 26,200,000 41,600,000 Newport News 9,700,000 19,800,000 31,300,000 Total Teachers Plan $ 450,434,000 $ 918,658,000 $ 1,456,377,000 8

Impact of Changes  Significant liability will be brought onto the face of the financial statements Funded ratios will be impacted, particularly by Moody’s proposed  changes  Marked-to-market will increase volatility of accounting expense and liabilities  Impact to local governments:  Higher unfunded liabilities will be added to “long - term debt”  Apportionment of teacher cost-sharing plan liabilities will add even more to local liabilities  Accrued pension expenses will increase significantly due to shorter amortization and unfunded liabilities  GASB changes will become effective for local governments for fiscal year 2015 9  Moody’s changes may be effective sooner

Thank you!