Provision requirements for municipalities

Legal background

Budgeting and Financial Reporting Regulation 2015 – VRV 2015

• Under section 1 of VRV 2015, this regulation applies to territorial authorities (federal states, municipalities and their commercial enterprises without separate legal personality).
• Under section 28 of VRV 2015, provisions must (also) be recognised for severance payments and long-service awards. These are measured using the projected unit credit method on the basis of the average yield on federal government bonds, weighted by the volume outstanding.
• Under section 31 of VRV 2015, recognition of provisions for pension benefits in the statement of financial position is optional. Civil servants’ pensions must be included in the provision in full as soon as entitlement is acquired. For occupational pensions, full entitlement is earned through service by the date of retirement. The services of an actuary must be used to calculate pension provisions correctly.
• Under section 40 of VRV 2015, federal states and municipalities must recognise provisions by the 2020 financial year at the latest.

Projected unit credit method:

• Actuarial method (taking probability assumptions into account)
• As a simplification, a financial mathematical method (without taking biometric factors into account), provided this simplification does not result in material differences compared with a valuation based on actuarial principles) (AFRAC Statement 27 “Provisions for Employee Benefits (UGB)”)

Our services specifically for municipalities:

• Seminars/advice for all departments and employees affected by VRV 2015 on “Recognising provisions using financial mathematical and actuarial methods”
• Comparative calculations of provisions for severance payments and long-service awards to determine whether the financial mathematical calculation provides a reliable approximation of the actuarial calculation (including projections), and selection of the most suitable method for the municipality
• Selection of appropriate calculation parameters (interest rate, salary growth, staff turnover, retirement age)
• Valuation of pension provisions

Services provided by our cooperation partners

• Advice on “Severance payments under the old system” and “Pension commitments”
• Options for transferring severance payment provisions to an employee provision fund (partial or full transfer)
• Options for fully funding severance payment obligations  

Do you have any further questions? We look forward to hearing from you via our contact form