New EDD Reporting Requirements for Employers

A new law that takes effect on January 1, 2011 will require two new forms to be filed by employers and submitted to the Employment Development Department (EDD). According to EDD, the new forms, filed quarterly rather than annually, will allow EDD to identify overpayment and delinquencies sooner. 

The first form, Quarterly Contribution Return and Report of Wages, will require employers to report total subject wages, Unemployment Insurance, Disability Insurance, taxable wages and contributions. The second form, Quarterly Contribution Return and Report of Wages (Continuation), will require employers to continue reporting employee wages and personal income tax withheld quarterly.

These two new forms replace the Annual Reconciliation Statement and the Quarterly Wage and Withholding Report.

IRS Delays Cost of Coverage Reporting Requirement for Employers

In March 2010, Congress passed the Patient Protection and Affordable Care Act, which included a requirement that employers must report on employees’ W-2 forms the cost of coverage under an employer-sponsored group health plan for tax years starting on or after January 1, 2011.

The Internal Revenue Service (IRS) last week issued a notice providing interim relief for employers, determining that employers needed additional time to make necessary changes to payroll procedures in order to abide by the new reporting requirement.

Employers who choose to report 2011 health care coverage costs on their employees’ W-2 forms will do so in Box 12 using the code “DD.”

CalPERS Releases Web Video to Employers

The California Public Employees’ Retirement System (CalPERS) has released a web video to employers in which CalPERS CEO Anne Stausboll summarizes actions they have taken to combat the effects of the downturned economy, changes the agency is taking to improve ethics and their renewed focus on transparency. Watch the video here.

GASB Proposes Changes to Pension Accounting and Financial Reporting Standards

The Governmental Accounting Standards Board (GASB) held a hearing in San Francisco last Thursday to receive public comment on and present their proposed changes to public pension accounting rules. GASB members expressed their joint opinion that such changes are necessary to improve the transparency, comparability and consistency of reported pension information, and that the modifications are in response to feedback from users of state and local government financial report users who believe the current standards do not provide enough information on the costs and liabilities of promised pension benefits.

GASB is specifically proposing the following changes (which apply to all state and local governments that sponsor defined benefit pension plans), essentially separating pension benefit accounting from funding standards:

• Net Pension Liability Must Be Recognized in Financial Documents. State and local governments, under this rule, would be required to recognize net pension liability (NPL) in their financial documents (currently only provided as supplemental information). At this time, state and local governments must recognize their annual required contribution (the employer’s periodic required annual contributions to a defined benefit pension plan, calculated in accordance with the plan assumptions) as an expense on financial reports. The new rule would require governments to also include NPL (the market value of assets subtracted from the total pension liability) which will then be used as the measure of the employer’s pension liability. Accordingly, GASB rejected the current concept of Net Pension Obligation, which is the difference between the employer’s actual and required contributions.
• Shorter Amortization Periods. Actuarial gains and losses, plan changes and changes in assumptions will have the same amortization period applied to them; however, any such changes will be treated differently with respect to whether they apply to active plan members, inactive and retired plan members or assets. GASB proposes amortizing changes associated with active members over their average expected remaining service lives; for inactive members and retirees, the change must immediately be recognized as a pension expense. With regard to assets, GASB proposes deferring the recognition of any differences in asset gains and losses to the extent that they remain within a 15 percent corridor around the market value of the plan’s net assets. Should the difference fall outside of this corridor, the excess portion must be recognized immediately in the expense calculation.
• Single Discount Rate to be used to Value Future Projected Benefit Payments. The discount rate used to place a value on a plan’s total pension liability will, under the proposed GASB rule, be an average of the following: 1) the current long-term investment rate of return for future and current assets, and 2) the risk-free, high quality municipal bond index rate.

GASB received 143 public responses to the proposed rules, some of which were conveyed at their San Francisco hearing. According to GASB Chairman Robert Attmore, GASB will most likely wait two years before issuing a final ruling on the proposed changes.