Some public pension funds are reporting higher asset values under GASB 67 because of strong returns in recent years, said a new report from Fitch Ratings.
“In an accident of timing, the transition to GASB 67 is taking place at a very favorable moment in the economic cycle for reporting asset valuations. In most cases, the market value of assets reported by systems under GASB 67 is much higher than the smoothed asset value reported previously,” the report said.
With asset gains suddenly being realized, plans such as the $8.6 billion Oklahoma Public Employees Retirement System, Oklahoma City, are reporting higher funding ratios. “The resultant ratio of (OPERS) assets to liabilities was only 88.6% under the actuarial approach, while it rises to 97.9% under GASB 67 with full recognition of asset gains,” the report said.
While some results look favorable, the new reporting standards also are “exposing long-standing problems,” said Douglas Offerman, senior director at Fitch.
GASB 67 requires public pension funds to disclose their depletion dates, when projected benefit payments exceed a system's projected assets. Benefits payable after that date must be discounted to a present value using a much lower rate, which raises liabilities, Mr. Offerman said.
Under the new standards, the funding ratios for New Jersey's Public Employees' Retirement System and Teachers' Pension & Annuity Fund, both in Trenton, are 27.9% and 28.5%, respectively, compared to 49.1% and 51.5%, respectively, in fiscal year 2013, before GASB took effect, the report said.
Even plans with higher funding ratios than the New Jersey pension funds, which are overseen by the $9 billion New Jersey Division of Investment, are still reporting depletion rates due to years of low contributions, Mr. Offerman said.
Assets of the $25.4 billion Texas Employees Retirement System, Austin, are expected to be depleted in 2041. Under GASB 67, the pension fund has a funding ratio of 63.4% vs. 77.2% under the old standards.
While the new standards shed light on “situations where contributions aren't being made,” the impact on ratings is expected to be minimal, Mr. Offerman said.
“That was something that was a significant consideration to (Fitch's) credit analysis in the past. … We don't think of it as necessarily indicating something we haven't known,” he said.