Charter Schools and Pension Related Disclosures

Word Version

November 6, 2015

To the Administrator Addressed: 

Re:  Charter Schools and Pension Related Disclosures

This letter informs charter holders, charter schools and independent auditors of information and guidance regarding of additional information that is to be disclosed in the notes to the financial statements of their financial and compliance reports filed by charter holders. In a letter dated September 30, 2015 regarding Governmental Accounting Standards Board (GASB) 68 disclosures, the TEA mentioned that charter schools did not have to follow GASB 68 but that there were disclosures that needed to be included in the annual financial report. The following reporting guidance applies to Subchapter D Charter Schools only. Subchapter C and E charters are required to follow GASB 68 because they are operated by governmental entities.

Financial Accounting Standards Board (FASB) Subtopic 715-80 Compensation – Retirement Benefits – Multiemployer Plans released in September 2011 requires nonprofit entities to disclose certain information in their notes to the Financial Statements if they were in a multiemployer defined benefit plan as defined by the FASB master glossary. The Teacher Retirement System of Texas (TRS) qualifies as a multiemployer defined benefit pension plan and has reported the states portion and the district and charter school portion of the unfunded liability on its website at http://www.trs.state.tx.us/employers.jsp?submenu=gasb&page_id=/reporting/gasb_67_68

Below is a recap of the financial statement disclosures required under FASB Subtopics 715-80-50-4 through 715-80-50-9:

1.    715-80-50-4: A narrative description of both the general nature of the multiemployer plan that provides the pension benefits and how the risks of participating in these plans differ from single-employer plans.

2.    715-80-50-5: For each individually significant multiemployer plan that provides pension benefits an employer shall disclose the following in a tabular format when feasible:

a.    the legal name of the plan

b.    the plan’s Employer Identification Number and plan number if available

c.    For each statement of financial position presented, the most recently certified zone status provided by the plan. The disclosure shall specify the date of the plan’s year-end to which the zone status relates and whether the plan used any extended amortization provisions that affect the calculation of the zone status. If the zone status is not available, an employer shall disclose, as of the most recent date available and based on financial statements provided by the plan, total plan assets and accumulated benefit obligations, whether the plan was:

1.    less than 65% funded

2.    between 65% and 80% funded

3.    at least 80% funded

d.    The expiration date of the collective-bargaining agreements requiring contributions to the plan.

e.    For each period that a statement of activities is presented, the employer shall disclose:

1.    the employer contributions made to the plan

2.    whether or not the contributions represent more than 5% of the total contributions to the plan

f.     As of the end of the most recent annual periods presented, the employer shall disclose:

1.    whether a funding improvement plan or rehabilitation plan had been implemented or pending

2.    whether the employer paid a surcharge to the plan

3.    a description of any minimum contributions required for future periods by the collective-bargaining agreements, statutory obligations, and other contractual obligations, if applicable

3.   715-80-50-6: Employers shall provide a description of the nature and effect of any significant changes that affect comparability of total employer contributions from period to period

4.  715-80-50-7: For plans that do not have information available to the public as above, the employers shall disclose:

a.    a description of the nature of the plan benefits

b.    a qualitative description of the extent to which the employer could be responsible for the obligations of the plan, including benefits earned by employees during employment with another employer

c.    other quantitative information to the extent available as of the most recent date available such as plan total plan assets, actuarial present value of accumulated plan benefits, and total contributions received by the plan

5.  715-80-50-8: Disclosures about multiemployer plans that are subject to the preceding paragraph shall be included in the tabular disclosure required by paragraph 715-80-50-5.

6.  715-80-50-9: In addition to the information about the significant multiemployer plans that provide pension benefits required by paragraphs 715-80-50-5 and 715-80-50-7, an employer shall disclose in a tabular format for each annual period for which a statement of activities is presented both of the following:

a.    total contributions made to all plans that are not individually significant

b.    total contributions made to all plans

Below is information that will help you and your external auditor to provide the required note disclosures in compliance with FASB Subtopic 715-80 (the number in parenthesis corresponds with the note disclosure) for your fiscal year 2015 annual financial audit reports:

1.    (715-80-50-4) A general description of the TRS plan and how the plans are different from single-employer plans:

1.    Charters are legally separate entities from the state and each other.

2.    Assets contributed by one charter or ISD may be used for the benefit of an employee of another ISD or charter.

3.    The unfunded obligations get passed along to the other charters and ISDs.

4.    There is not a withdrawal penalty for leaving the TRS system.

2.    (715-80-50-5) For significant plans (TRS) provide the following information in a tabular format:

a. Teacher Retirement System of Texas

b. N/A

c. Zone status is unknown. Therefore, the following information has to be reported:

1.    Total Plan Assets – $157,261,707,241

2.    Accumulated Benefit Obligations – 159,496,075,886

3.    The plan is 83.25% funded

d. There is not a collective-bargaining agreement.

e. For each period a statement of activities is presented the following must be disclosed:

1.    Employer contributions to the plan – Contributions the charter sent to TRS

2.    The charter’s contributions to the plan did not represent more than 5% of the total contributions to the plan (Audited GASB 68 Allocations Schedules- TRS Website)

f. As of the end of the most recent annual periods presented:         

1.    N/A

2.    This determines whether the charter made any payments of the Non-OASDI participating surcharge or the return to work pension surcharge for retirees.

3.    Contribution Rates:

                                                                        2014                2015

Member                                                          6.4%                6.7%

Non-Employer Contributing Entity (State)      6.8%                6.8%

Employers                                                       6.8%                6.8%

3. (715-80-50-6) There have been no changes that would affect the comparison of employer contributions from year to year.

4. (715-80-50-7) Information regarding the plan may found at the TRS website. The TRS posts the Comprehensive Annual Financial Report (CAFR) every year on its website.

5. (715-80-50-8) Charter schools would use the plan information provided by the other plan(s).

6. (715-80-50-9) Charter schools would use the plan information provided by that plan and disclose the information and the contributions they made to the other plan(s).

Please note for future years the information can be found in the most recent TRS Comprehensive Annual Financial Report and the GASB 67 and 68 allocation schedules located on the TRS website.

If you have any questions please contact the Division of Financial Compliance at schoolaudits@tea.texas.gov

David Marx

Director, Division of Financial Compliance

Office of School Finance