ACC 410 – Government and Not-for-Profit Accounting
August 31, 2014
Identify and analyze the employee pension plan disclosures in the financial statements. Evaluate the impact of the GAASB proposed changes to the pension liabilities on the financial statements of the institution. The following analysis will concentrate on the University of Missouri System, and the employee pension plan provided. The University of Missouri System offers the Retirement, Disability, and Death Benefits Plan, also known as the Retirement Plan, and the Other Post-employment Benefits Plant, also known as the OPEB Plan. Collectively, the Retirement Plan and the OPEB Plan represent the System’s Pension Trust Funds. The Pension Trust Funds are single employer defined benefits plans, and the assets of the Retirement Plan and OPEB are held in the Retirement Trust and OPEB Trust, respectively (Office of Finance, 2013). As of the October 1, 2012 actuarial valuation date, the Retirement plan was 84.3% funded. The actuarial accrued liability for benefits was $3,308,967,000, and the actuarial value of the plan’s assets was $2,790,622,000. This resulted in $518,345,000 in unfunded actuarial accrued liability. The ratio of unfunded actuarial accrued liability was 49.6% to the $1,046,075,000 of covered payroll (Office of Finance, 2013). As of the date of the last valuation, July 1, 2011, the OPEB plan was 8.4% funded. The actuarial accrued liability for post-employment benefits was $542,844,000, with $45,745,000 in actuarial value of assets, which resulted in an unfunded actuarial accrued liability of $497,099,000. The ratio of unfunded actuarial accrued liability was 47.7% to the $1,041,413,000 covered payroll (Office of Finance, 2013). As of the October 1, 2012 actuarial valuation date, the entry age actuarial cost method was used. The actuarial assumptions included an 8% rate of investment return net of administrative expenses and 4.5% to 5.3% projected salary increases per year. Post-retirement benefits increases were not included in the assumptions. Actuarial value of assets was determined using techniques that spread effects of short-term volatility in the market value of investments over a 5-year period. The underfunded actuarial accrued liability is being amortized as a level dollar amount on an open basis over 20 years from the valuation date (Office of Finance, 2013). In June 2012, the Governmental Accounting Standards Board (GASB) issued two exposure drafts concerning changes in local and state government’s reporting and accountability of pension benefits. The changes are to enhance accounting and financial reporting by state and local governments for pensions and improve information provided by state and local governmental employers about financial support for pensions (Governmental Accounting Standards Board, 2012). The implementation of Statements No. 67 and No. 68 will require the University of Missouri to record a Net Pension Liability on its Statement of Net Position. Adoption of the procedures will have a significant impact on the University’s financial statements and reduce its unrestricted net position when implemented.
Identify and analyze the economic conditions that will affect the future growth and success of the institution. The University of Missouri is a very important force of the state’s economic health. Although the University has had to deal with flat state funding and limited tuition increases, it has been able to maintain its strong financial position. This is due to the diversification of revenue sources, low borrowing costs, and system-wide cost containment measures. Despite uncertain state funding and limited tuition increases, the University has experienced an increase of 23% in enrollment over the last ten years. In fiscal year 2013, operating revenue exceeded operating expenses for the first time since 2010. This is a clear