Go figure! New guidelines are changing how public pension accounting affects the books, budget and bond ratings.

• Author: Brainard, Keith
• Position: PENSIONS

[ILLUSTRATION OMITTED]

Across the nation, public pension funds hold some $3 trillion in assets in trust for 15 million state and local government employees and 8 million retirees and their family members. How these benefits are funded and accounted for is a matter of consequence and vigorous debate.

Until recently, state and local lawmakers needed to focus only on a single set of calculations, within parameters set by the Governmental Accounting Standards Board (GASB), to assess both the condition and costs of their public pension plans. But the days of a single set of numbers are gone. In June 2012, the GASB approved new standards for public pensions and the employers that sponsor them: states, cities, school districts, etc.

Known officially as GASB Statement No. 67 and No. 68, the revised standards for public pension plans apply to fiscal years that began after June 15, and will take effect for employers after June 15, 2014.

Lawmakers will now have at least three sets of pension numbers for three different purposes--books, bonds and budget. As sponsors of public pension plans, state and local governments must understand the source, purpose and audience for each to make sound policy decisions and accurately communicate with constituents about the condition of the retirement plan.

BOOKS: Computing an annual financial position for pensions for governmental accounting

Since the mid-1990s, financial reporting standards set by the GASB have been based on an actuarial calculation of the amount needed to fund the pension plan.

The new GASB standards set forth different guidelines for employers, depending on the type of their pension plan:

* Single-employer: The pension covers only one governmental entity.

* Agent: The pension covers several governmental entities that make individually calculated contributions for their respective portions of the costs.

* Cost-sharing: The pension covers several governmental entities that proportionally split the costs.

Under the new standards, any review of a pension should begin with understanding which type of plan it is. Plans covering the vast majority of public employees are either agent or cost-sharing plans.

Another important change under the new GASB standards is that the computation of a "net pension liability" will now appear in the government's basic financial statement. It is the calculation of the difference between the market value of the pension's assets and its obligations to pension beneficiaries...