Additional "trusts" related to pensions and other postemployment benefits.

• Author: Gauthier, Stephen J.
• Position: The Accounting Angle

Normally a local government pension plan or other post-employment benefits (OPEB) plan is operated in a manner that meets the requirements set by the Governmental Accounting Standards Board (GASB) for a trust or equivalent arrangement. One of those requirements is that the resources of the trust can be used solely to pay benefits. Because of this legal right of offset, the employer is able to subtract the resources of the pension/OPEB trust (fiduciary net position, or FNP) from its total pension/OPEB liability when calculating the net pension/OPEB liability that it reports on its government-wide statement of net position and its proprietary fund statement of net position.

Sometimes it can be difficult for a government to generate the resources it needs in a given year to pay in full its annual actuarially determined contribution (ADC) to a pension or OPEB plan. To avoid a contribution shortfall in such circumstances, some governments have established an additional trust for "stabilization" purposes. The government is able to draw upon the resources of this additional trust as needed to help make its annual pension/OPEB contribution, thereby avoiding the need to raise additional resources that year to do so. However, while the resources in such an additional trust ultimately must be used to pay pension/OPEB benefits, they are not directly accessible for that purpose, which disqualifies the arrangement from being a trust or equivalent...