Auditor general examines accounting treatment of two shared risk pension plans05 December 2013
FREDERICTON (GNB) – The accounting treatment by the provincial government of two shared risk provincial pension plans as defined contribution plans is appropriate at this time, according to the latest annual report of the auditor general, released in the legislative assembly today.
The report reflects audited financial statements for the fiscal year ending March 31, 2013.
"A significant question in the accounting analysis pertained to which party bears the risk in the pension arrangement: the employer or employee," said auditor general Kim MacPherson. "The province's position was that the shared risk plans should be accounted for as defined contribution plans given the risks inherent in the plans are largely borne by the employees.
"The accounting decision is significant, as a defined contribution treatment generally involves recording no employer obligation on the financial statements, whereas a defined benefit plan generally involves recording an obligation on the statement of financial position for the pension liability," she added.
MacPherson's assessment involved a complex evaluation of the two plans.
"We agreed with the province's accounting position that, due to plan provisions where the employer has a defined level of contribution with limited variability, there is a legal separation of the province from the assets and liabilities of the plans and the fact that benefits, including base benefits, indexing and other ancillary benefits, are not guaranteed under the terms of the plans," she said.
MacPherson noted the Public Sector Accounting Standard on retirement benefits does not contemplate unique arrangements such as shared risk pension plans. She cautioned that each plan must be assessed on its own merit.
"An assessment on a plan-by-plan basis is required to determine the appropriate accounting treatment of any pension plan conversion," said MacPherson.
MacPherson added that, with the announced intention of the provincial government to convert more pension plans to the shared risk model, the issue of the appropriate accounting treatment will be the subject of further examination in future audits.
The auditor general also conducted a general review of the provincial government's pension plans and historical funding trends.
Today's report contains two volumes. Volume I focuses on matters arising from the annual financial audit of the provincial government and Crown agencies. Volume II reports the results of Value for Money projects completed during 2013. Both volumes are on the Office of the Auditor General website.
● Office of the Auditor General