University of California

University of California 7

Universityof California

1.UCRP Disclosures in the Financial Statements

The`s Retirement Plan-UCRP is its traditionalpension plan that provides a predictable level of income onretirement. The plan has been operational since 1904, although, thecurrent plan was designed in 1961. The benefits are based on age,number of years at the institution`s service and the highest averagesalary (HAPC). The employees are governed by the 2013 or 1976 Tierprovision. UCRP requires a vesting period of five years of servicecredit for an employee to be considered for financial benefits onretirement usually at 50 years (California, 2013).

TheUniversity`s Retirement system is comprised of two benefits pensionplans and other four contribution plans. The Retirement Savings Program is part of the Retirement system. Theycollectively define the benefits to eligible retirees and employees.A summary statement of UCRP that provides lifetime retirement income,death benefits, and disability income, post-retirement andpre-retirement benefits for the fiscal year ended June 30, 2013 willbe used to draw the disclosures in the institution`s financialstatements.

Asof the end of 2013, the institution had a net position of $45.3billion and invested $4.8 billion. Contributions totaled $1.2 billionfrom the four contribution plans. The benefits payments were $2.2billion from an active plan membership of 118,321 members comprisingof the senate faculty, management and professional staff. The retireemembership had a membership of 52, 300 retirees comprised of thethree mentioned groups with an average age of 64, 60 and 59respectively. The employees participate in three other additionalclassifications from the Tier two membership namely Safety members,members without social security and members with social securitycoverage.

Theaverage service credit at retirement of the faculty, management andprofessional staff was $25, 22 and 20 years from which they earned$78000, $56100 and $31,008 respectively. The earliest age for UCRPretirement is 50 with a factor of 1.1 %. The factor increases by0.14% every additional year to a maximum 2.5% at 60 years. UCRP forsurvivor payments does not have beneficiaries, but instead names asurvivor at the time of retirement who earns 25% of the member`sretirement income. However, the UCRP plan allows its members tochoose another person eligible for retirement benefits upon theemployee`s death. It is different from the survivor`s benefitsbecause the member pays through a reduction in pension benefits. UCRPpaid $2.5 billion in disability, retirement and pre-retirement(survivor) benefits to 61,715 members during the 2012/13 fiscal year(California, 2013).

Impactof GASB proposed changes to the pension liabilities on University ofCalifornia financial statements

In2006, the Government Accounting Standards Board (GASB) reviewed itsaccounting standards for pensions and some proposals as needed. Theset of changes will affect the financial statements especially inunbalancing the balance sheets. The new guidelines will force theinstitution to list its share of the pension ability in potentiallybillions of dollars. The effect is that the institution`s creditrating, state support, accreditation and qualification for federalfinancial aid will be endangered.

Theinstitution provides its pension plans which will be complicated bythe proposed changes. The way it calculates the benefits it owes,through the discount rate, will not only change, but also the amountsin the pension fund will grow over. Before the new proposals, a rateof between 7.5 and 9% annual growth was used to calculate the pensionplans, but will change to a smaller rate estimated to be around 4%.Although 4% change compounded over the life of a pension obligationmight seem small, it will cost the institution billions of dollars inyears to come. Moreover, the new regulations will drop the fundedratio to 56% from 75%. The institution will, thus, have largerpension liabilities (California State University, 2010).

2.Analysis of the Economic Conditions that may Influence the Successand Growth of

Thesuccess and growth of California University are dependent on businessdrivers from sectors like exports, service and competitiveindustries. Economists at UCLA predict that the institution will growat an increasing rate in comparison with other state universities inthe near-future. The forecast relies on the fiscal conditions thatwill boost income taxes on the state`s highest earners beginning in2015.

Inaddition to the various knowledge-based sectors, CaliforniaUniversity is the basis of its success because education is regardedto be a key driver of economic growth and success. The institution isthe state`s major source of teachers. Science and Mathematics areparticularly important in producing the workforce for the state`shigh-growth sectors. The institution has demonstrated leadership inthe improvement of American education. Most of these professionalshave vowed to give back in the future to the growth of theinstitution.

The institution has cultivated partnerships with industry leaders inthe mentioned sectors. The partnerships are based on campus advisorycouncils. The Agricultural sector is the most pervasive industry inthe state. Its collaboration with the institution has seen it providea significant portion of the institution`s food demand. Efforts topartner with the Boeing Company in construction of photovoltaicinstallations have been put in place. Its efficiency in energyproduction will save the institution of high costs in energyconsumption. The institution has also ventured into hospitality andtourism. From the Coast Highway to the famous parks, hotels andrestaurants, the institution has appreciated the geographic diversitythat has attracted travelers from other parts of the world(California, 2013).

3.Review and Evaluation of the Federal Grants Such As Pell,Supplemental, and Work Study on the Revenue Recorded For UniversityOf California

UCLA`sfunding for the first quarter of fiscal year 2012/13 totaled $1.2billion. The positive trend during the year is a return to stabilityin federal agency funding. Federal grants to UCLA for the year thatended June 2013 amounted to $558 million. From a cash flow resultingfrom operating activities, the student tuition fee, local grants andcontracts are debited from the federal and state grants. Aid programsprovide the needed support to meet the costs of college education.The financial aid is available from scholarships, grants, work-studyand loans. The federal financial program provides the financial aid(pell grant).

Inaccordance with the revenue guidelines, the institution classifiesthe grants as non-current assets on the net assets statement. It actsas an agent in the disbursement of money to the students and reportsit as agency transactions. No expense or revenue is recognizedmeaning that the statement of Net assets should have only assets andliabilities for the grants. The institution records the revenue andrespective expense as being part of the restricted net assets. TheGovernment Accounting Standards Board requires that Pell Grants bestated as restricted funds because the institution is responsible forevaluation of students` requests for the aid. Pell Grant Revenue andother scholarships and grants from the state are handled asnon-operating revenue.

4.Comparing the Treatment of Earnings on Endowments, And RestrictedFunds with GASB Requirements

GASBrequires that universities apply GASB 34 since the state universitiesare to be considered special purpose for the government. In publicuniversities, endowment is a gift of resources. The donors demandthat the entire principal remains intact in perpetuity. For thepublic colleges and universities, engaging in business orgovernment-type activities, the criterion for using the endowmentsearnings will influence whether the endowment is a permanent trustfund or private-fund. Permanent fund uses accrual accounting torecord the assets and the respective income.

Netassets subject to limitations by organizations, not within theinstitution in non-exchange transactions are referred to asrestricted. Net assets of state universities are limited forresearch, loans, debt services and acquisition of capital assets.They are also classified as either expendable or non-expendable onthe net-assets. Endowments are, therefore, non-expendable becausethey are used to produce income. The gift is a restricted net assetwith its income unrestricted in public universities.

References

CaliforniaState University. (2010). Campuses of the California State University System (San Diego StateUniversity, California State University, Sacramento, California StateUniversity, Chico, Sonoma State University, and CaliforniaPolytechnic State University, San Luis Obispo): Report on audit of separate financial statements for the year ended June 30, 1994.Los Angeles: Coopers &amp Lybrand.

California.(2012). Areport on the financial practices of the .Sacramento.

California.(2013). Areport on the financial practices of the .Sacramento.