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PERA: State On Behalf Payment
URGENT FPP ALERT
September 6, 2019
This information impacts your FY2018-19 financial reporting and audit. School districts should ensure that their charter schools are aware of this information as well. In addition, please share this information with your external auditor.
In 2018, the Colorado General Assembly passed Senate Bill 18-200, which was intended to help reduce the Public Employee’s Retirement Association’s (PERA) unfunded actuarial accrued liability in several of its trust funds. One of the provisions of the bill directed the State of Colorado (the State) to give an annual direct distribution to PERA in the amount of $225 million beginning in July 2018. This annual payment is to be allocated to the State, School, Judicial, and DPS Division Trust Funds within Colorado PERA based on annual covered payroll. The annual payment made in July 2018 was allocated to the School Division Trust Fund in the amount of $126,504,713.25 and to the DPS Division in the amount of $18,621,906.75.
Based on the provisions of GASB Statement No. 68, the direct distribution from the State meets the definition of a special funding situation which occurs when a nonemployer entity (the State) is legally responsible for making contributions directly to a pension plan that is used to provide pensions to the employees of another entity or entities and that the amount of such contributions for which the nonemployer entity (the State) legally is responsible is not dependent upon one or more events or circumstances unrelated to the pensions.
In an effort to assist PERA affiliated employers that are outside the State reporting entity, PERA has prepared an informational publication for educational purposes to assist employers with the GASB 68 sample calculations and journal entries related to the special funding situation. In addition, PERA has provided a sample note disclosure that includes special funding situation requirements.
Full accrual accounting treatment
The accounting treatment for on-behalf payments for cost-sharing employers in a special funding situation depends on the measurement focus and basis of accounting applicable when preparing financial statements. Under GASB Statement No. 68 (paragraphs 94 and 95) which is applicable for the impacts on the economic resources measurement focus and full accrual basis of accounting statements (government-wide presentation), requires the district to recognize pension expense for the State’s proportionate share of the PERA collective pension expense associated with each respective district; and a revenue equal to the expense recognized. Please refer to PERA sample journal entry #12 in the resource document below titled ‘COCPA Presentation (journal entry examples)’.
Note: The amount calculated for full accrual purposes will not be the same amount used for modified accrual. See below for the modified accrual calculation.
Modified accrual accounting treatment
Under GASB Statement No. 85 (paragraphs 9 and 10), the on-behalf payment must also be recognized within the current financial resources measurement focus and modified accrual basis of accounting statements (for fund accounting purposes). GASB Statement No. 85 requires the district recognize an expenditure and equal revenue for the district’s proportionate share of the on-behalf payment made by the State. This is a new wrinkle for which the activities related to the pension reporting will now impact the fund statements and therefore the data pipeline reporting by districts, BOCES, and charter schools.
For fund accounting purposes, the district will need to use its proportionate share percentage of employer allocation (see Schedule of Employer and Nonemployer Allocations and Schedule of Collective Pension Amounts as provided by PERA) divided by the employer total allocation percentage, excluding the State nonemployer percentage (0.879711649050), multiplied by the State payment allocation to the School Division ($126,504,713.25). DPS will need to use the schedule related to the DPS Division.
Example: if the sample district’s employer allocation percentage is 1.5616537230%, that district would take 0.015616537230/0.879711649050 or 0.01775188182 times $126,504,713.25 equals $2,245,696.72.
This $2,245,696.72 in the above example must be reported under source code 3010 with grant code 3898. In addition, a total of $2,245,696.72 must be reported under object code 0280 with grant code 3898 by this district. We assume that object code 0280 should be reasonably allocated across program codes by the reporting entity following the normal chart of accounts guidance for reporting of program codes. Object code 0280 is a new bolded code that is being added to the chart of accounts effective July 1, 2018. NCES requires the on-behalf payment activity to be reported under the other employee benefits object code series for Federal reporting purposes.
In addition, with the use of a specific grant code (3898), we are keeping these expenditures from being reported with other state and/or Federal grants. Guidance we have received provides that these on-behalf payments are not allowable as a direct charge of a Federal grant program.
Further, if the reporting entity does not wish to code this activity down to the unique school code level (this option is NOT available to charter schools), they may use location codes in the 600 – 899 range. The central costs in these codes are allocated by CDE for ESSA and Colorado Financial Transparency purposes.
Therefore, the reporting entity may wish to keep this on-behalf payment activity within its General Fund, instead of trying to allocate it to multiple funds, if such impact on the other funds is considered to be immaterial. See also Audit materiality section below.
Data Pipeline edit
We are creating data pipeline edits that will force the use of the above two codes for FY2018-19 submissions, and that the sum of activities under the source code 3010 with grant code 3898 must equal the sum of activities under object code 0280 with grant code 3898. As these edits are being created after the opening of data pipeline submissions, we will work with individual districts as needed to ensure that their data is run against these edits prior to their finalization of the data file.
Under NCES guidance, these on-behalf payments will be a required reporting element for CDE’s reporting to the Federal government. Therefore, for data pipeline purposes (fund accounting), we will be adding an edit to ensure the reporting of the source code 3010 with grant code 3898 and the reporting of the same amount under object code 0280 with grant code 3898. The materiality must be assessed by the district and auditor at the fund level. See also the comment about using the General Fund above under the Modified accrual accounting treatment section.
As the modified accrual accounting treatment will impact the total expenditures for FY2018-19, and if the reporting entity does not have sufficient budget appropriations within such fund, an expenditure in excess of budgeted appropriations violation may be triggered. Given that the FY2018-19 budget year is over, explaining the handling of the on-behalf payment within the audit will be acceptable to CDE. In some cases, districts are looking to treat this on-behalf payment activity under a budgetary basis of accounting, in which such activity is isolated within the budget to actual schedule. If so, a reconciliation is required to tie out the expenditures on a budgetary basis of accounting with the actual expenditures on the modified accrual basis of accounting.
As a similar payment was made in July 2019 and will likely continue into the future, for FY2019-20 and beyond, the inclusion of this on-behalf payment activity and/or the use of a budgetary basis of accounting for this activity should be explained in the budget documents as well as the audit. Revisions to the FY2019-20 budget may be made up to January 31, 2020. §22-44-105 (1.5)(b) explains the required reconciliations when the budgetary basis of accounting is used.
We are seeking guidance on the possible impacts this on-behalf payment activity may have on the required 3% TABOR emergency reserve or for other TABOR considerations.
Resources Available From Colorado PERA
Other GASB 68 Resources
The District/BOCES percentage to populate the Calculation Worksheet is available on the School Division Trust Fund report accessed through the PERA STARS portal.