This post concludes our look at the Government Accounting Standards Board (GASB) and how it has impact the reporting of LOSAP on governmental financial statements.

First, we outlined just what the GASB is, and how the Office of the State Comptroller plays a roll in this, and just how the finances of LOSAP work in New York. You can read that post HERE.

Next, we looked at GASB Statement 73. That post can be read HERE.

Then, we provided an overview of the newest Statement - GASB 84. For more on that, click HERE.

In summary, GASB Statement No. 73 is about reporting the liabilities associated with the LOSAP on the financial statement, and GASB No. 84 is about reporting the assets of the LOSAP. 

For our clients, we do not have a formal role in the financial statement reporting. For those clients that report under GAAP, we may be asked to calculate the actuarial liabilities as prescribed in GASB 73. We present those liabilities in the form of suggested footnote disclosures, but ultimately the treasurer, comptroller, or accountant decide how to properly present the information on the financial statement. For those municipalities not reporting under GAAP, our Annual Report provides the information needed to complete the note to the financials, and some clients ask us to draft that note for them. But again, ultimately the person responsible for the financial statement will have the final decision on how the information is reported.

That all said, our commitment to collaboration means we strive to understand and support our clients in all aspects of sponsoring and administering a LOSAP. This is just one area where we can provide support, and ultimately the final decision is made by someone else.

If you have questions, your accountant or auditor would be the first place to start. 

The next best options would be to:

• Contact the OSC Division of Local Government and School Accountability – Professional Standards Unit by email at LGSA_PSU@osc.ny.gov
• See the Accounting Bulletins released by the OSC: www.osc.state.ny.us/local-government/publications

We hope this overview was helpful. If you would like a copy of our newsletter/bulletin on this topic, please contact us!

Today we will take a closer look at GASB Statement 84. For the first two parts of this look at GASB & LOSAP, click here.

Here is what you need to know about GASB Statement 84:

• GASB 84 is effective for fiscal years beginning after December 15, 2019.
  
  
• The OSC has implemented GASB 84 in the AUD for all fiscal years ending on/after December 31, 2020.
  
  
• Essentially, the interpretation of GASB 84 by the OSC is that municipalities should be reporting the LOSAP assets with the governmental funds. The only exception would be reporting any LOSAP assets that have been contributed by another municipality. This exception is a rare circumstance and does not apply to the majority of municipalities.
  
  
• This change in accounting and financial reporting does not require additional actuarial calculations.
  
  
• Since LOSAP assets are generally now considered governmental funds, we expect they should be reconciled similarly. This implies balancing the LOSAP trust on a periodic basis, accounting for changes in the value of the trust. Changes include contributions, interest earned, benefits paid, and change in market value of any securities.
  
  
• The reconciliation of the LOSAP assets should likely be included on a monthly treasurer’s report to the Board.
  
  
• If a local government is not receiving period statements (preferably monthly, but minimally quarterly) or a payment register to reconcile benefits paid from the Trust, speak to your vendor(s) to ensure this information is received.
  
  
• The OSC has issued implementation guidance, but we expect more support to come as treasurers, comptrollers, and accountants wrestle with some of the intricacies of the Statement. Specifically, how to report a future LOSAP payable or future LOSAP amounts earmarked, but not yet payable.

There are currently two GASB pronouncements that have a significant bearing on the reporting of LOSAP on the municipal sponsors financial statements. In this second part of our look at GASB and LOSAP, we'll highlight GASB Statement 73.

Notes about GASB Statement 73:
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• GASB 73 is effective for fiscal years beginning after June 15, 2016.
  
  
• The statement only applies to GAAP financial statements; the OSC has not implemented GASB 73 for the AUD.
  
  
• It requires a local government to disclose on its financial statement footnotes certain liability information about the LOSAP (i.e., a value of the benefits that have been earned).
  
  
• For Defined Contribution (DC) plans, the reporting is fairly straightforward and assistance is not needed from an actuary.
  
  
• For Defined Benefit (DB) plans, an actuary must calculate the total pension liability and the pension expense using methods and assumptions prescribed in the Statement. Specifically, the entry age normal cost method is required, and the discount rate is tied to rates for 20-year, tax-exempt general obligation municipal bonds with ratings of AA/Aa or higher.
  
  
• This method and discount rate are vastly different from the method and discount rate used for calculating the contributions to the trust. Since most LOSAP trust asset allocations incorporate some equities, the discount rates used for funding will be higher than the rate required for the GASB 73 calculations. The entry age normal cost method is best utilized in traditional pension plans whereby a participant retires at a specified retirement date. Since LOSAP instead has an entitlement date, and participants can continue to accrue benefits after that date, using the entry age normal method requires some actuarial license. Naturally, different actuaries are likely to approach how to apply this method to a LOSAP differently.
  
  
• From our viewpoint, GASB 73 is simply an exercise for the purpose of standardized reporting of LOSAPs on financial statements. At this time, we aren’t aware of any significant impact this reporting has on the local government, other than additional fees to the actuary to calculate the liabilities.

Next we will highlight GASB Statement 84.

Here in New York, the implementation of GASB Statement No. 84 has created some confusion! We thought it might be helpful to unpack the relationship between LOSAP and the GASB over a series of articles. We've consolidated this information into a newsletter - if you would like a copy, please contact our office.

Since the General Municipal Law (GML) was amended to authorize local governments to spend tax dollars on a Length of Service Award Program (LOSAP), the reporting of the assets and liabilities on financial statements has been evolving. At Firefly, one of our core principles is collaboration.  We actively seek to build relationships and support all parties with responsibility for our clients’ LOSAP – board members, clerks, treasurers, and other hired professionals like attorneys, investment managers, and auditors. Through these collaborations, we learn how to improve our services to meet the needs of each party. 

The purpose of these blog posts is to provide an overview and context on this subject, with the goal of pointing the reader to the experts who can guide you further.

The Government Accounting Standards Board (GASB) 
The GASB is an organization that establishes accounting and financial reporting standards for state and local governments that follow Generally Accepted Accounting Principles (GAAP). In New York, a particular city, village, town, or fire district (the four possible local government sponsors of a LOSAP) are not statutorily required to follow GAAP. The adoption of GAAP for financial reporting depends on the facts and circumstances of that particular municipality. 

The Office of the State Comptroller (OSC) 
Cities, villages, towns, and fire districts are required to file an Annual Update Document (AUD) prescribed by the (OSC). The OSC reviews GASB pronouncements and decides which ones to incorporate into the AUD. The timing of when those changes are incorporated may be later than when the actual pronouncement is effective for GAAP-based financial statements. Therefore, these governments have two potential sources of guidance when implementing changes in financial reporting – the GASB and the OSC.

The Finances of LOSAP in New York State
We like to describe LOSAP as a sophisticated IOU – it is an unsecured promise by the sponsoring local government to pay a benefit at the entitlement age. The GML requires sponsors to reserve assets for the payment of the accrued benefits as they come due, and these assets are held in accounts owned by the local government. These assets are held in trust for the exclusive purpose of LOSAP; however, they are not secured against the creditors of the government sponsor in the case of insolvency. In other words, the LOSAP benefits are not guaranteed by the State Constitution like the Retirement System, and the LOSAP assets are not legally protected from creditors of the sponsoring municipality. That should not raise significant concern for local governments in New York, as the OSC Fiscal Stress Monitoring System and other safeguards make it very difficult for a municipality to go bankrupt. Nonetheless, it is an important distinction for the purposes of financial reporting.