Compliance December 7, 2015

Items Coming from the GASB in December

The Governmental Accounting Standards Board has announced a number of projects it will complete before the end of 2015 that will affect government pensions.
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The Governmental Accounting Standards Board (GASB) plans to issue guidance related to pensions through two separate standard-setting projects: Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans, and Pension Issues.

In December, the Board plans to issue guidance to assist governments participating in certain private-sector or federally sponsored multiple-employer defined benefit pension plans that do not have access to information required by the new GASB pension standards, which took effect this summer. Plans envisioned to be addressed by the guidance include Taft-Hartley plans and plans with similar characteristics.

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Stakeholders alerted the Board that a small number of governments do not have access to the information required to comply with the new pension standards when they participate in certain private-sector or federally sponsored multiple-employer plans. To address this issue, the Board proposed in October to scope these governments out of GASB Statement 68 (Accounting and Financial Reporting for Pensions) requirements and to provide them with alternative guidance.

The forthcoming Statement will set separate standards for employers participating in certain multiple-employer pension plans that have specific characteristics. These standards will address recognition and measurement of pension expense and liabilities, note disclosures, and required supplementary information.

More information about the project can be found here.  

NEXT: Pension standards and fiduciary activities

This month, the GASB expects to issue an Exposure Draft containing proposed guidance to address certain issues raised by stakeholders during the implementation of the new GASB pension standards.

The proposal addresses:

  • Issues related to presentation of payroll-related measures;
  • Issues related to employer-paid member contributions; and
  • Issues related to deviations from the guidance in Actuarial Standards of Practice.

The Board plans to issue a final Statement in early 2016. More information about the project can be found here. 

The GASB is also expected to issue an Exposure Draft in December about accounting and financial reporting for fiduciary activities.

Currently, governments are required to present financial statements regarding their fiduciary activities in their fiduciary fund financial statements. However, the concept of what constitutes fiduciary activity is not clearly defined. GASB research and inquiries from stakeholders have indicated there is diversity in practice in the current reporting of various types of fiduciary activities.

In the Board’s forthcoming Exposure Draft, it will propose specific criteria for when and how a government would report a fiduciary activity. The proposal will also address classification of fiduciary funds and recognition of fiduciary fund liabilities.

The Board is scheduled to issue a final Statement in late 2016. More information about the project can be found here.

Data and Research December 7, 2015

Experts Predict a New Standard for DC Plan Design

More plan sponsors will use automatic enrollment, and at a higher default rate.
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Ninety-five percent of retirement plan experts foresee 55% of plan sponsors automatically enrolling participants by 2019, according to Transamerica Retirement Solutions’ “Prescience 2019: Expert Opinions of the Future of Retirement Plans.” The report is based on the opinions of 62 experts, including Quinn Keeler, senior vice president, research and surveys, Asset International.

Seventy-four percent say that 45% of sponsors will default participants into their plans at 6% or higher, 79% believe nearly all retirement plan providers will send participants alerts about their state of retirement readiness, and 92% anticipate that providers will show participants whether they are on course to reach a funded retirement.

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“While plan sponsors are still focused on increasing participation in retirement plans by their employees, they are also looking for ways to increase contribution rates participants need to achieve a successful retirement,” says Wendy Daniels, senior vice president of retirement marketing for Transamerica Retirement Solutions. “And an expanded and more sophisticated use of mobile applications will help overcome communications challenges brought on by an increasingly dispersed workplace, and also help participants manage their retirement funds more effectively.”

NEXT: Mobile technology

Eighty-six percent of the experts think the number of home-based and mobile employees will rise 20% to 18 million by 2019, prompting 86% of the experts to believe nearly all retirement plan providers will offer apps and increased functionality for mobile devices.

The experts also foresee total retirement assets growing 40% to $35 trillion over the next four years, and 75% of small employers, i.e. those with 50 to 100 employees, will offer retirement plans.

As the report says, “Retirement plan industry experts point out that plan sponsors are increasingly going beyond the call of duty when evaluating their advisers and service providers—switching from satisfactory service to plan-level success metrics now and participants-level retirement outcomes by 2019. Prompted by plan-level retirement readiness reports, by 2019, more than half of plan sponsors will have taken meaningful action to alter plan design in order to improve the retirement readiness of participants. But perhaps the most impactful action plan sponsors will take is altering plan design to automatically enroll participants into the plan at higher contribution rates and higher automatic deferral increases.”

The full report can be downloaded here.

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