NEWS RELEASE 07/08/11
GASB Proposes Major Improvements for Pension
Reporting
Norwalk, CT, July 8, 2011—The Governmental
Accounting Standards Board (GASB) has issued two Exposure Drafts proposing
improvements to financial reporting of pensions by state and local governments:
Accounting and Financial Reporting for Pensions and Financial Reporting for
Pension Plans. The documents would propose amendments to the existing
pension standards to improve how the costs and obligations associated with the
pensions that governments provide to their employees are calculated and
reported.
The first Exposure Draft, Accounting and Financial
Reporting for Pensions (Pension Exposure Draft), primarily relates to
reporting by governments that provide pensions to their employees. A second
related Exposure Draft, Financial Reporting for Pension Plans, (Pension
Plan Exposure Draft), addresses the reporting by the pension plans that
administer those benefits.
“Users of state and local government financial
reports have told the GASB that current standards do not provide enough
information to adequately understand the cost and the liability for benefits
promised to active and retired employees,” stated GASB Chairman Robert H.
Attmore. “The proposals contained in these Exposure Drafts are the result of
years of research and extensive deliberations by the Board to address these
issues and make financial reporting of pensions more transparent, comparable and
useful to citizens, legislators, and bond analysts.”
Added Mr. Attmore,
“It is important to note that these proposals relate to accounting and financial
reporting, not to how governments approach the funding of their pension plans.
Pension funding is a policy decision made by government officials.”
The
Pensions Exposure Draft proposes that governments be required to report in their
statement of financial position a net pension liability which is the
difference between the total pension liability and net assets (primarily
investments reported at fair value) set aside in a qualified trust to pay
benefits to current employees, retirees, and their beneficiaries. It also
proposes significant changes to how a government would calculate its total
pension liability and pension expense. These changes include:
- Immediate recognition of more components of pension expense than is
currently required, including the effect on the pension liability of changes
in benefit terms, rather than deferral and amortization over as many as 30
years which is common for funding purposes.
- Use of a discount rate that applies (a) the expected long-term rate of
return on pension plan investments for which plan assets are expected to be
available to make projected benefit payments and (b) the interest rate on a
tax-exempt 30-year AA-or-higher rated municipal bond index to projected
benefit payments for which plan assets are not expected to be available for
long-term investment in a qualified trust.
- A single actuarial cost allocation method—“entry age normal”—rather than
the current choice among six actuarial cost methods. Requiring governments
participating in cost-sharing multiple employer pension plans to record a
liability equal to their proportionate share of any net pension liability for
the cost-sharing plan as a whole.
- Requiring governments in all types of covered pension plans to present
more extensive note disclosures and required supplementary information.
The Pension Exposure Draft addresses situations in which another
entity contributes to a government’s pension plan on behalf of the employer and
it also addresses accounting and financial reporting for employers that provide
pensions through defined contribution plans.
The Pension Plan Exposure
Draft, which addresses financial reporting for plans that are administered
through qualified trusts, outlines the basic framework for the separately issued
financial reports of defined benefit pension plans. It also details
proposed note disclosure requirements for defined contribution pension
plans.
The Exposure Drafts, including instructions on how to submit
written comments, are available for download at www.gasb.org.
The deadline for submitting written comments is September 30, 2011.
In
addition, the GASB has released a comprehensive plain-language supplement to
assist non-accountant users of financial statements in commenting on the Pension
Exposure Draft. The supplement is also available for download at www.gasb.org.
The
GASB will host public hearings on the Exposure Drafts on October 3, October 13,
and October 20, 2011, and user discussion forums on October 4, 14, and 21.
Locations and other details, including instructions for registering to
participate, are explained in the Exposure Drafts.
About the Governmental Accounting Standards Board
The GASB is the independent, not-for-profit organization formed in 1984 that
establishes and improves financial accounting and reporting standards for state
and local governments. Its seven members are drawn from the Board’s diverse
constituency, including preparers and auditors of government financial
statements, users of those statements, and members of the academic community.
More information about the GASB can be found at its website www.gasb.org.