Module 10: Fiduciary Funds & Permanent Funds Flashcards
Actuarial cost method
a means of allocating the total cost of expected pension benefits over the total years of employee service
agency funds
a fund used to account for assets that a government holds temporarily for other parties
agent
a party that acts on behalf of another
defined benefit pension plan
a pension plan that specifies the pension benefits to be paid to retirees, usually as a function of factors such as age, years of service, and compenstation
defined contribution plan
a pension plan that specifies the amount of contribution to an individual’s retirement account instead of the amount of benefits to receive
endowment
a sum of cash, investments, or other assets, generally received as a gift, of which only the income, not the principal may be expended
escheat property
a fiduciary fund used to account for escheat property (private property that has reverted to a government due to lack of heirs or claiments)
fiduciary funds
the trust and agency funds used to account for assets held by a government unit in a trustee capacity or as an agent for individuals, private organizations, other governmental units, or other funds
investment trust fund
funds maintained by government to account for investment pools maintained for other governments
pension contribution
the amount paid into a pension plan by an employer (or employee), pursuant to the terms of the plan, state law, actuarial calculations, or some other basis for determination
pension obligation
the portion of the actuarial present value of total projected benefits estimated to be payable in the future as a result of employee service to date
pension trust fund
a trust fund used to account for the assets accumulated by a pension plan. Pension trust funds, like nonexpendable trust funds, are account for on an accrual basis.
permanent funds
Per GASB stmt #34, trust funds in which the beneficiary is the government itself rather than outside parties. Permanent funds are categorized and accounted for as governmental funds
private purpose trust fund
a fund maintained by the government to account for assets held for the benefit of outside parties
Public Employee Retirement Systems (PERS)
A pension plan maintained for govt employees
temporarily restricted net assets
resources that must be used either for a specified purpose or when specified events have occurred. In the context of NFP FS, one of the three main categories into which resources have to be categorized
Nonexpendable
A donation with a stipulation that only earnings can be used, not the principal/corpus
An endowment requires that the principal is preserved for ______.
EVER
A ____ endowment is one that the principal can be expended after a certain number of years
Term
_________ trust funds can spend the principal and the interest earnings.
Expendable
Fiduciary funds account for both __________ and _________ resources.
Nonexpendable & Expendable
Are fiduciary funds included in the GW FS?
No
What are the four types of Fiduciary Funds?
1) Private Purpose Trust Funds
2) Investment Trust Funds
3) Pension Trust Funds
4) Agency Funds
What are the required financial statements for fiduciary funds?
1) Statement of Fiduciary Assets
2) Statement of changes in Fiduciary Assets
Where are endowments accounted for?
Nonexpendable fiduciary fund (or trust) - potentially a permanent fund if for the government itself
What fund was created by GASB stmt #31?
Investment Trust Fund
Pension Trust funds are:
1) Independent Entity
2) Legal Entity
3) Financial Entity
4) Accounting entity
Liabilities of the Pension Trust Fund are the responsibility of the _______.
Employer
The authoritative guidance for pension accounting and reporting is provided by GASB Statements
- Accounting for Pensions by State & Local Govt (27)
- Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans (25)
- Financial Reporting for Postemployment Healthcare plans Adm. by Defined Benefit Plans (26)
- Pension Disclosures - an amendment of Stmts 25 & 27 (50)
GASB standards require note disclosures relating to (pension funds)
1) Plan description and funding policy (including annual pension cost and the components of annual pension cost)
2) Trends in annual pension cost and NPO
3) Add’l data that must be provided as part of the supplemental disclosures
GASB standards distinguish between what two categories for pension information?
1) Current Financial Information about plan assets and activities
2) Actuarially determined information about plan assets and activities and progress in accumulating assets
Annual Pension Cost
A calculated amount of the employers periodic cost
Annual Required Contributions
Employers required contribution to a defined benefit pension plan, calculated in accordance with certain parameters
Actuarial Deficincies
Difference between the annual required contributions and the actual contributions
Net Pension Obligation
Cumulative difference measured from the effective date of the new statement between:
- The annual pension cost & the employer’s contributions plus any transition pension liability (excluding short-term diff & unpd cont that have been converted to pension related debt)
Annual Required Contribution is calculated each period and consists of the following 2 components:
- Actuarial present value of total projected benefits - normal costs
- Amortization of Unfunded Actuarial Accrued Liability
Employer pension expenditures/expenses may include one or both of the:
1) ARC contributions AND/OR
2) Payments of pension-related debt (not included in ARC or NPO)
What statements are required for Other Post-Employment Benefits (OPEB)?
1) Statement of plan net assets
2) Statement of changes in plan net assets
If the OPEB is administered by a defined benefit pension plan, it follows the standards set forth in ______.
GASB Stmt No 26
Use an agency fund if:
1) Dollar amount of transactions dictate use of agency fund for accountability reasons
2) Its use will improve financial management or accounting
3) Mandated by law, regulation or GASB standards
Describe the difference between permanent funds and fiduciary funds?
Permanent funds are governmental funds (unique to govts) and accounted on a mod accrual basis for nonexpendable resources - these resources are for the benefit of the govt itself; Fiduciary funds are either nonexpendable or expendable funds, used to account for resources in trust for other parties and are recorded on a full accrual basis
In absence of specific donor or legal stipulations, the investment gains on endowment principal should be reported as what?
GASB - unrestricted net asset (expendable)
FASB - increases/decreases in unrestricted net assets unless their use is temporarily or permanently restricted
Per FASB, unless a NFP is required by a donor or legal stipulation to do otherwise, it should first charge investment losses (both realized and unrealized) to what?
Temporarily restricted net assets to the extent that donor restrictions on previously recognized net appreciation have not yet been met (equivalent of special revenue fund)
What is the fixed rate of return approach to the distribution of income?
the institution makes available for current expenditure a fixed % of its endowment portfolio, irrespective of actual interest and dividends (based on LT estimates of anticipated appreciation, inflation, dividends & interest) - however, all of it will be recognized as “expendable” and “revenue” within the funds financial statements
How do NFP accounts for their activities?
All on the FULL accrual basis
Even if a government has consistently contributed to its pension fund the amounts that were actuarially required, it may still face an unfunded actuarial liability due to what circumstances:
1) Transition Losses
2) Actuarial Losses (change in Act methods)
3) Improvements in pension benefits (increases % of salary)
4) Special termination benefits (i.e. early retirement)
What are required disclosures regarding pension costs and obligations:
1) Detailed description of pension plan, including types of benefits provided
2) Employer’s funding policy, including employer and employee contribution rates for the current and past two years
3) The components of pension costs and the changes in the net pension obligations
4) Key assumptions used in determining the pension costs, including actuarial method, inflation
What is reported for plan net assets?
Receivables, Investments, Assets used in plan operations
