Breaking Down GASB Statement No. 101: Part 2

As a continuation of our blog, Breaking Down GASB Statement No. 101: What’s New with Compensated Absences?, we are back with part two answering the question, Where to start?

Determine the type of compensated absences that exist by reviewing:

• Employee agreements,
• Collective bargaining agreements, and
• Employment policies

Compensated Absences include PTO, Sick Time, parental leave, sabbaticals, holidays, and vacation

How do I know if the leave/time off falls under GASB 101:

• Leave/time off that has not been used as of year-end will be recorded if all are true:
  • Leave/time off is attributable to services already rendered
  • Leave/time off accumulates
  • More likely than not to be used for time off, paid in cash or through noncash means
• Leave/time off that has been used but not yet paid or settled will be recorded for the following:
  • Cash will be paid for the time

How and when is it calculated:

• Determine/estimate the amount of leave as of year-end based on the following:
  • Looking at historical data for time used, time paid out or forfeiture of compensated absences
    • May require splitting time into “buckets”:
      • Time that is paid at retirement is paid at a different rate than time that is used – one bucket for time expected to be used (which would be paid out at 100%) and one bucket for time expected to be paid out at termination (which would be paid out at ½ of the employee’s rate).
      • Buckets may also be needed for different types of employees or length of employment (as they may have levels of leave/sick time or different assumptions on each bucket)
    • Exclude leave that will convert to years of service in TRS, IMRF or other pension plans (as these are part of the actuarial valuation for these pension/OPEB plans)
      Since this is a change in accounting policy, the beginning balances will need to be restated (if your year-end is 6/30/2025 – you will need to determine the calculation for 6/30/2024 as well as 6/30/2025).

• Calculated at the pay rates as of year-end
  • ONLY use pay rates as of year-end unless the leave will be paid at a different rate (for example – sick leave is paid at 50% at termination or the % of sick leave is paid out differently based on years of service)
• Calculation MUST also include government’s portion of taxes (SS/Medicare) and payments to defined contribution pensions or defined contribution OPEB plans.

What we will need to see:

• Documented assumptions used for each type of leave and each group of the employees (if applicable)
• Calculation as of year-end
• Backup to support the accrual at year-end and payroll backup to support pay rates used

Key points to consider:

• Jury duty, parental leave – not recorded until the leave starts
• Vacation or holidays on a specified date (use it or lose it) are not recognized (floating holidays may need to be part of the calculation if it meets the requirements listed above).
• Sick time that will be converted to IMRF/TRS/Pension is not included in the calculation since it is part of the Pension/OPEB actuarial calculation
• Similar to Other Long-Term Liabilities, an estimate is needed for the amount of the liability that will be paid within one year and the amount after the first year.

GASB Statement No. 101 is a big step forward in accounting for compensated absences. By providing a unified model and updating disclosure requirements, it boosts the transparency and comparability of financial information. Government entities should gear up for its implementation to ensure compliance and take advantage of the benefits it brings to financial reporting.  If you have any questions on this standard and how it will affect your government, please reach out to us.