GASB invites views on pension accounting.

• Author: Gauthier, Stephen J.
• Position: The Accounting Angle - Governmental Accounting Standards Board

The Governmental Accounting Standards Board (GASB), as a matter of policy, periodically reviews its authoritative guidance to determine whether it continues to meet the needs of users of state and local government financial statements. Pursuant to that policy, the GASB recently issued an Invitation to Comment (ITC) on Pension Accounting and Financial Reporting that invites the opinions of interested parties on certain key aspects of the current authoritative guidance found in GASB Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, and GASB Statement No. 27, Accounting for Pensions by State and Local Governmental Employers. Both of those pronouncements were issued in late 1994 and have now been in effect for more than a decade.

FOCUS OF REPORTING

How an employer incurs an obligation to employees for pension benefits is one thing; how that same employer finances pension benefits can be quite another. For financing purposes, public-sector employers have tended to favor actuarial funding methods that produce annual contribution amounts that can be expected to remain relatively constant over time as a percentage of payroll. The ITC invites respondents to express an opinion on the need for pension information that reflects one or the other of these perspectives, or both. Current GASB standards essentially focus on funding, within predetermined parameters. Private-sector pension guidance, on the other hand, focuses more on the employer's incurrence of an obligation to employees.

LIABILITY RECOGNITION

Not every obligation is necessarily a liability for accounting and financial reporting purposes. Today, for example, a state or local government employer does not display a liability on the face of the financial statements for the employer's unfunded accrued obligation to employees for benefits already earned. Conversely, employers are required to report a liability for the cumulative effect of any failure on their part to fully fund their annual required contributions to finance future benefit payments (consistent with a funding focus). An alternative would be for employers to report the entire unfunded accrued benefit obligation as a liability on the face of the financial statements, as in the private sector. The ITC invites respondents to take a position on which approach provides a better measure of the liability, based on the authoritative definition of that term provided...