GASB 68 General FAQS

What is GASB 68?

GASB Statement No. 68 is a financial reporting standard that replaces the requirements of Statement No. 27, Accounting for Pensions by State and Local Governmental Employers. It requires participants in a multiple employer cost-sharing plan to:

  • Record a proportionate share of the net pension liability on their balance sheet.
  • Record a proportionate share of pension expense as defined by GASB on their income statement.
  • Include additional note disclosures and required supplementary information.

When did GASB 68 go into effect?

GASB 68 applies to the financial statements of all employers and is effective for fiscal years beginning after June 15, 2014. For Michigan Public School Employees Retirement System (MPSERS) employers, you were required to implement these changes in the financial statements for your fiscal year ending June 30, 2015. The figures were based on the plan fiscal year 2014 (Oct. 1, 2013 - Sept. 30, 2014).

What is the net pension liability?

The net pension liability is the amount of the total pension benefit that is not funded by investment assets. This net unfunded pension benefit will be a line item in your balance sheet. As a MPSERS participating employer you are required to record your proportionate share of the net pension liability. This liability is not new; it exists as a normal part of pension funding. A pension plan can have a net asset or net liability depending on whether it is overfunded or underfunded based on the value of its investments.

MPSERS has had a net pension liability since the early 2000s, worsened by the market losses in 2008 and 2009. While the goal of prefunding the pension is to be 100% funded, funding a pension benefit is very long term in nature. During this time span, it is normal for the retirement plan to be either overfunded or underfunded at any given point in time.

How does ORS calculate the net pension liability of the pension plan?

Each year, the pension plan's actuary calculates the amount of money needed to fund the accrued benefits of both active and retired members. This liability is compared to the market value of current assets. The net pension liability is the difference between the assets and the liability. The actuarial calculation is based on assumptions such as how long people work, how much they are paid, when they will retire, life expectancy, etc.

Where do I find my reporting unit's proportionate share of the net pension liability?

Table 1: Schedule of Pension Amounts by Employer provides the net pension liability (non-university or university employers) and the proportionate share of the net pension liability as of the measurement date (Sept. 30) for all employers. These tables are found on the GASB 68 Pension Data Tables page.

Is the net pension liability the same as the Unfunded Actuarial Accrued Liability (UAAL)?

No. The UAAL is calculated based on the actuarial value of assets, while the net pension liability is calculated on the market value of assets. GASB 68 is concerned only with net pension liability. The net pension liability and the unfunded accrued actuarial liability numbers may look very similar but the difference is important in relation to GASB 68.

Are UAAL Rate Stabilization payments included as statutorily required pension contributions?

Beginning with the fiscal year ending Sept. 30, 2018, 100% of the UAAL rate stabilization payment is included in the statutorily required pension contribution. The payments are no longer part of the required OPEB contribution.

How does ORS determine my reporting unit's proportionate share?

For each MPSERS fiscal year (Oct. 1 - Sept. 30), ORS determines the total pension contributions required of all employers and each employer's required pension contributions for that plan year. ORS and its actuary calculate each employer's proportionate share percent by dividing the employer's contributions by the total contributions to MPSERS (calculated separately for universities and non-universities) for that fiscal year.  The actuary determines the net pension liability for universities and for non-universities as of the measurement date (Sept. 30) and multiplies the total net pension liability or pension expense by the employer's proportionate share percent. The proportionate share for a given year is based on the prior year's contributions.

How can my reporting unit reduce its liability?

The liability is reduced over time through the contribution rates. The pension plan is designed to eliminate the liability over time, like paying off a mortgage on a house. No additional action is required of the employers.

How can my reporting unit pay off this liability?

The liability will be paid off according to the amortization of the unfunded liability over time, consistent with past practice. Since the liability itself is a shared liability, individual employers can't "pay off" their proportionate share.

Why isn't the State of Michigan required to record this liability on their financial statements?

MPSERS is a multiple employer cost-sharing plan. The State of Michigan has no employees in this plan and is not a participating employer in the MPSERS plan. The pension liability and pension expense are required to be recorded by each participating employer in the MPSERS plan. The State of Michigan offers retirement benefits for its employees as well and has its own reporting requirements for that plan as a result of GASB 67 and 68, which is reflected in its comprehensive annual financial report. The Office of Retirement Services administers several retirement systems, but each is distinct.

What is pension expense, and what does GASB 68 require regarding it?

The pension expense represents the annual cost of the retirement benefit. Each MPSERS employer is required by GASB to record its proportionate share of the pension expense. GASB 68 requires that pension expense be reported using a new method that presents service (normal) cost and other basic expenses (for example the cost of administering the pension plan), as well as amounts recognized each year for deferred inflows of resources (which reduce the pension expense) and deferred outflows of resources (which increase the pension expense).

Examples of deferred inflows and outflows include differences between projected and actual investment returns and differences between expected and actual actuarial experience. Deferred inflows and outflows are recognized over a period of years specified by GASB 68, depending on a variety of factors. GASB 68 also requires MPSERS employers to record their proportionate share of the pension expense. See the Glossary for a complete list of pension expense items.

Do GASB 68 and 75 establish requirements for how governments should fund their pension other postemployment benefit plans?

No, the GASB 68 and 75 reporting standards break the link between actuarial funding and financial accounting for pensions and other postemployment benefits (OPEB). Previous GASB standards required pension and OPEB plans to calculate the annual required contribution (ARC) and report payments toward the ARC. This measured the plan's funding of the annual pension and OPEB obligations. GASB standards consider only how pension and OPEB plans account for and report net pension and OPEB liabilities and pension and OPEB expenses. For GASB 68 and 75, ARC is no longer a relevant term.

Does my reporting unit need this information for budgeting purposes?

GASB 68 and 75 are for financial reporting purposes only and do not affect or change funding of retirement costs for reporting units. In addition, the liability and the associated expenses will be reported only on your government-wide financial statements (Statement of Net Position and Statement of Activities) and as any full accrual funds that also include payroll costs, and not your modified accrual fund level statements.  Note: Public Act 92 of 2017 changed future pension funding methodologies. However, those changes are unrelated to the adoption of GASB 68 or 75.

How do GASB 68 and 75 affect my reporting unit's retirement costs?

GASB 68 and 75 are for financial reporting purposes only and do not affect or change funding of retirement costs for reporting units. In addition, the liability and the associated expenses will be reported only on your government-wide financial statements (Statement of Net Position and Statement of Activities) and as any full accrual funds that also include payroll costs, and not your modified accrual fund level statements.  Note: Public Act 92 of 2017 changed future pension funding methodologies. However, those changes are unrelated to the adoption of GASB 68 or 75.

How do GASB 68 and 75 affect my reporting unit's regular payroll reporting?

Regular payroll reporting has not changed due to GASB 68 or 75.

Do GASB 68 and 75 affect my reporting unit's ability to get loans or bonds?

Rating agencies have been aware of the funding policies and status of governmental pension plans for years. Historically, agencies have incorporated that information into their analysis of an organization's ability to meet its debt obligations.

Are GASB 68 and 75 related to the rate stabilization we already are doing? 

No. Rate stabilization is related to funding the pension system. GASB 68 and 75 reporting requirements are related to preparing and reporting financial statements.

How can I get more information on how to record these liabilities?

Discuss this issue with your certified public accountant (CPA) and professional auditor.  The full GASB Statements No. 68 and 75, and their accompanying Implementation Guides are available at GASB.org under Standards & Guidance. Statements are also known as "Pronouncements."

How do I report this information to my reporting unit's administrative board?

Discuss this issue with your CPA and professional auditor.

Why must my reporting unit record this information in its books?

GASB sets rules on how accounting must be done. GASB 68 requires recording net pension liability and pension expense.

Who can I contact with questions about GASB 68 and 75 or the ORS GASB website?

If you have questions not answered here, or would like help understanding this FAQ better, you may contact ORS Employer Reporting at ORS_Web_Reporting@michigan.gov.

(Last updated: July 6, 2020)