Numbered Letter 2024-02

Effective Date: December 12, 2024

Summary

This letter provides accounting guidance for recording and reporting state pension and OPEB grants received by local units of governments under Public Act 119 of 2023.

Accounting for State Pension and OPEB Grants - Public Act 119 of 2023

Section 990 of PA 119 of 2023 allows for local units of government to apply for a grant to provide funding directly to their underfunded defined benefit pension plan. Since this is an appropriation by the state and the local unit must apply for the grant, there is not a legal requirement to provide funding. In cases where there is no legal requirement to make payments, a special funding situation under GASB Statements 68 or 75 does not exist. Therefore, this grant cannot be used in place of the local unit’s constitutional obligation to make the required Actuarial Determined Contribution (ADC) payments to the pension plan. The following information provides the accounting treatment for the grant payment.

Employer reporting of the State Pension and OPEB Grant

Even though, in almost all cases, the grant proceeds went directly to the pension or OPEB system, the employer should still recognize the grant award in their financial statements. However, the timing of the revenue recognition is dependent on both the measurement focus and basis of accounting of the related fund/statement and the measurement date of the net pension liability (NPL) or net OPEB liability (NOL) as adopted by the employer.

Modified Accrual Funds

The employer for whose benefit the grant was allocated should report revenue and expenditures equal to the payment received by the pension plan in the fund financial statements. The revenue and expenditures should be recognized in the year the payment from Treasury was paid to the pension plan.

569-Other State Grants should be used as the revenue account for this transaction. It is recommended to spread these expenditures across activities in relation to the benefiting department(s) or funds. The following provides an example entry for a transaction when a local unit decides to spread these expenditures across separate activities within the General Fund.

Government-wide Statements and Other Full Accrual Funds

The government-wide statements and other full accrual funds should recognize revenue from the state pension or OPEB grant only in the year that the grant impacts the change in the NPL or NOL. This is a significant exception to the way most grants are recorded and is different than the revenue recognition concepts in the modified accrual statements. For entities that have adopted a lag in the measurement of the NPL or NOL, this may result in recognition of revenue on the modified accrual statements in a year earlier than the revenue recognized in the full accrual statements. A deferral should not be recorded within the government-wide statements and other full accrual funds if the measurement period precedes the fiscal year of the local unit. The GASB has excluded contributions subsequent to the measurement period from nonemployer entities that are not in special funding situations from deferral.

For example, if you are an employer with a 9/30/2024 year-end that has adopted a one-year lag in the measurement date of the NPL (e.g., the measurement date of the NPL is 9/30/2023), even though the grant contributed to the plan in August 2024, the full accrual statements would NOT recognize the revenue until 9/30/2025 fiscal year. On the contrary, the modified accrual statements would show the revenue during the 9/30/2024 fiscal year.

Pension and OPEB Plan Reporting of The Grant

The pension or OPEB plan that received the payment as a result of the grant funding should record the contribution as a contribution from a nonemployer contributing entity. The contribution should be recognized as revenue when received.

Note Disclosure and Required Supplementary Information Reporting – Employer and Pension and OPEB Plans Other Than Agent Plans

In the year in which the NPL is reduced by the support provided by the state (the nonemployer contributing entity, in this case), the footnotes should include disclosure of the amount of revenue recognized for that support in accordance with GASB Codification P20.145(j) for pensions and GASB codification P50.153(j) for OPEB.

For purposes of the required supplementary information (RSI) schedules, since the ADC was calculated for the employer (not contemplating any amounts from nonemployer contribution entities), for both plan and employer reporting, the contribution to the plan as a result of the grant would not be included in the Schedule of Contributions as a contribution in relation to the ADC of the employer.

Budgeting

Revenue and expenditures associated with these payments and recorded in a governmental fund should be budgeted for accordingly.

If you have any questions, please call (517) 335-7469 or write our office: Michigan Department of Treasury, LAFD, P.O. Box 30728, Lansing, Michigan 48909-8228 or email our office at TreasLocalGov@michigan.gov.