GASB today issued an exposure draft of a proposed accounting rule that would affect pension plans, retiree medical care plans and other post-employment benefit plans of governments in Chapter 9 bankruptcy protection.
“At present, there is no authoritative accounting and financial reporting guidance for governments filing for bankruptcy,” according to the exposure draft.
“With the current economic environment putting stress on state and local government resources, it became necessary for the GASB to address the financial reporting issues associated with local governments filing for bankruptcy protection under Chapter 9,” Robert Attmore, GASB chairman, said in a statement.
Chapter 9 is the bankruptcy code under which a government entity seeks protection from creditors while it develops a debt-restructuring plan.
For pension and other post-employment benefits, a government could “reject” its plans and related obligations, the exposure draft states. “In that case, the rejected unfunded benefit obligations become general unsecured debt of the government” and the plan participants “would need to present their claims in the creditor’s committee together with all other general creditors of the government” for consideration of payment.
Alternatively, a government would not reject the obligations but bargain to reduce them, according to the statement from the Governmental Accounting Standards Board.
The deadline for commenting on the proposal is Aug. 28.
