Public pension accounting and reporting standards that place more emphasis on liabilities were approved Monday by the Governmental Accounting Standards Board.
The two sets of rules, for government employers and for public pension plan administrators, were developed after years of deliberation and field testing, to increase transparency about plan liabilities.
“This will present a clearer picture of plans' financial reality,” said GASB Chairman Robert H. Attmore. “By providing more information, people will be able to make informed judgments.”
Under existing standards, public pension plans have concentrated on the annual required contribution amount to keep the focus on funding targets. The new standards call for having a new “net pension liability” figure directly on balance sheets, along with those funding projections.
Public pension plan executives worry that shifting the focus to liabilities will exacerbate fears about a plan's financial conditions and lead to short-sighted funding changes.
“We have a lot of educating to do” to avoid that, said Elizabeth Kellar, president and CEO of the Center for State and Local Government Excellence, Washington. “We have to have some sense of how we're doing on funding.”
Until now, pension plans have focused on the annual required contribution, which highlights their funding targets, while keeping liabilities in the footnotes. Now, the GASB will require plans to put a new “net pension liability” figure directly on the balance sheets, in addition to the funding projections.
In accounting terms, the change means that the unfunded actuarial accrued liability will use traditional entry-age projections offset by the fair value of plan assets. Currently, pension plans vary in which ages they use in their projections.
The standards for public plans' financial statements go into effect for periods beginning after June 15, 2013. The standards for employers are effective for fiscal years beginning after June 15, 2014. GASB plans to issue an implementation guide for both sets later this year.