Final GASB guidance on pensions for employers: GASB Statement No. 68, issued in June 2012, will primarily affect employers that participate in defined benefit pension plans. It will also change accounting and financial reporting for non-employer contributors in special funding situations.

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

In June 2012, the Governmental Accounting Standards Board (GASB) issued its much anticipated final standard on employer accounting and financial reporting for pensions. GASB Statement No. 68, Accounting and Financial Reporting for Pensions, is scheduled to be implemented starting with the fiscal year that will end June 30, 2015.The new guidance will primarily affect employers that participate in defined benefit pension plans. It will also change accounting and financial reporting for non-employer contributors in special funding situations.

SINGLE-EMPLOYER AND AGENT MULTIPLE-EMPLOYER DEFINED BENEFIT PLANS

In an agent multiple-employer plan, participating employers place their individual plans under centralized management. Stated differently, employers in an agent plan are really just "outsourcing" the management of their own individual plans. Accordingly, employers that participate in an agent plan use the same accounting and financial reporting as employers that offer benefits through a single-employer plan.

GASB Statement No. 68 significantly alters accounting and financial reporting for employers in single-employer and agent plans with regard to each of the following:

* The amount to be reported as a liability by the employer.

* The amount to be reported as pension expense by the employer.

* The discount rate used to calculate the present value of the employer's obligation.

* The method used by the actuary to allocate costs.

* The technique used by the actuary to compensate for changes in assumptions and for differences between assumptions and actual results.

The amount to be reported as a liability by the employer. Currently, employers report a liability for pensions only if they fail to fully fund their actuarially determined annual required contribution (ARC). Under GASB Statement No. 68, they have to report a net pension liability (NPL) for the difference between the present value of the benefits earned to date by employees (total pension liability--TPL) and the accumulated resources held in trust to pay those benefits (plan net position--PNP).

Assume, for example, that Employer A has always paid the full amount of its ARC each year, but there is a $1,000 difference between its total pension liability and plan net position. Under current standards, Employer A would report no pension liability at all; under GASB Statement No. 68, that same employer would report a $1,000 net pension liability. (The change just described might be...