The Government Accounting Standard Board's accounting rules for public pension funds need to be revamped, says a new study from the National Conference on Public Employee Retirement Systems.
The study claims that GASB rules can mislead public pension fund decision makers, hiding some risks and exaggerating others, and prompt them to make poor decisions. By improving the rules, GASB can provide better guidance for those decision makers, the study said.
Among the study's critiques is that GASB rules regarding pension "debt" are inconsistent, that they downplay the collective nature of the money management of public pension funds, and obfuscate risks in various ways, such as treating different asset classes equally.
"One of the many quirks of today's pension accounting rules is that they value the promise of future contributions at zero, which is unlike any other government obligation, from revenue bonds to purchase orders," Brown University researcher Tom Sgouros said in a news release announcing the study. "As a result, the strength of the economy behind the pension plan counts for nothing from an accounting perspective. That is clearly a disservice to pension plan participants."
The study makes nine proposals on improving accounting methodology and how that methodology informs policy decisions by providing a more accurate overall financial assessment of the health of the plans. One proposal noted by the news release is to abandon the funding ratio as the primary calculator of public plan health and instead move to a asset depletion date estimate utilizing risk-weighted assets as a key indicator.
The study is available on NCPERS' website.