The GASB's new pension accounting and reporting standards.

• Author: Zorn, Paul
• Position: Governmental Accounting Standards Board

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On June 25, 2012, the Governmental Accounting Standards Board (GASB) approved new accounting and reporting standards for pensions provided by state and local governments. GASB Statement No. 67, Financial Reporting for Pension Plans, applies to state and local pension plans established as trusts or similar arrangements. GASB Statement No. 68, Accounting and Financial Reporting for Pensions, applies to governmental employers that sponsor or contribute to pension plans.

The GASB's new standards make significant changes to pension accounting and financial reporting by state and local governments. While the current standards under Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, and Statement No. 27, Accounting for Pensions by State and Local Governmental Employers, link pension accounting and pension funding, the new standards under Statements No. 67 and No. 68 disconnect pension accounting and funding in several ways:

* The discount rate used to determine pension liabilities for funding purposes will continue to be the long-term expected rate of return on plan assets. However, for accounting purposes, the discount rate may include a portion based on tax-exempt municipal bond yields.

* The asset valuation method used for funding purposes will still allow asset smoothing. However, for accounting purposes, the fair (market) value of assets will be used.

* The amortization period used for funding purposes will still be relatively long. However, for accounting purposes, the period will be considerably shorter.

Overall, these changes will likely make the new pension accounting measures more volatile than the funding measures. It should be noted that the GASB's changes do not affect the actuarial methods and assumptions used to determine the contributions needed to fund the plan.

TYPES OF PENSION PLANS AND EMPLOYERS

In applying the accounting and reporting standards for pensions, the GASB makes distinctions between different types of pension plans and employers:

* "Single-employer plans" provide benefits to the employees of only one employer. An employer with a single-employer plan is referred to as a "single employer."

* "Agent multiple-employer plans" are essentially collections of single-employer plans. They pool assets for investment purposes, but legally segregate each individual employer's assets for the purpose of paying benefits. An employer in an agent plan is referred to as an "agent employer."

* "Cost-sharing multiple-employer plans" provide benefits to more than one employer by pooling the assets and obligations across all participating employers. As a result, plan assets may be used to pay the benefits of any participating employer. An employer in a...