GASB to issue proposals on pensions.

• Author: Gauthier, Stephen
• Position: Governmental Accounting Standards Board

The Governmental Accounting Standards Board (GASB) has released three exposure drafts (EDs) addressing the proper accounting and financial reporting for pensions. If approved, the new guidance would affect both pension plans and employers offering pension benefits to their employees.

Accounting for Pensions

The first of the three pension EDs is Accounting for Pensions by State and Local Governmental Employers. This ED would retain the traditional linkage between accounting and funding for employers. In other words, employers participating in single-employer pension plans or agent multiple-employer pension plans generally would continue to use their annual required contribution as the measure of annual pension expense/expenditure.

The ED also proposes retaining a traditional approach to the calculation and reporting of pension liabilities. That is to say, government employers would continue to report pension liabilities on the balance sheet only to the extent that their annual required contribution is not fully funded. In addition, the ED would require employers to report a net pension obligation (NPO) for their past failure to fully fund annual required contributions. At a minimum, this liability would reflect funding shortfalls for fiscal years beginning after December 15, 1986. If information is available for earlier periods, the NPO would need to reflect funding shortfalls from those periods, as well.

If an employer reported an NPO, the amount of pension expense/expenditure reported in the operating statement still would be the employer's annual required contribution, but it would be adjusted to reflect 1) imputed interest on the NPO during the year and 2) the amortization of past under- or overfunding reflected in the annual required contribution.

For employers contributing to cost-sharing, multiple-employer pension plans, the amount of pension expense/expenditure reported for the period would equal the employer's contractually required contributions. Required note disclosures would provide three years of information on annual pension cost. Required supplementary information would present information on the pension plan's funding progress for the past three actuarial valuations (actuarial valuations are required at least once every two years).

Pension Plan Financial Reporting

The second pension ED is Financial Reporting for Defined Benefit Pension Plans and Note Disclosure for Defined Contribution Plans.

Currently, the financial...