September 1, 2011

Proposed Changes in Pension Accounting and Financial Reporting for Governments

On June 27, 2011, the Governmental Accounting Standards Board (GASB) issued an exposure draft that would amend GASB Statement No. 27, Accounting for Pensions by State and Local Governmental Employers, and GASB Statement No. 50, Pension Disclosures, and set forth new requirements for Pension Accounting and Financial Reporting for Governmental organizations. GASB's objective in developing this standard is to improve financial reporting by state and local governments by providing decision-useful information, supporting assessments of accountability and inter-period equity and creating additional transparency.

Some of the significant proposals included in the exposure draft include:

  • Recording the net pension liability (total obligation minus any assets accumulated to pay future benefits) as a liability in its financial statements. This would only apply to financial statements using the accrual basis of accounting.
    • Financial statements using the modified accrual basis of accounting would only recognize a net pension liability to the extent the liability is expected to be liquidated using expendable available financial resources.
    • Pension expenditures would be recognized equal to the total amount contributed to the pension plan during the fiscal year and amounts expected to be liquidated with expendable available financial resources.
  • Measuring a government's pension liability will require an actuarial valuation that will involve projecting benefit payments, discounting (an appropriate discount rate is subject to certain facts and circumstances) the projected benefit payments to their actuarial present value, and attributing the present value of projected benefit payments to past and future years during which employees have worked or are expected to work

For governments that participate in a cost-sharing multiple-employer pension plan, the GASB is proposing that the government report in its own financial statements, a net pension liability based on its proportion of the collective net pension liability of all of the governments that participate.

Impact on You

As currently drafted, the proposed standard will require you to provide substantially enhanced disclosure of unfunded employee pension. How this will affect your government's constituents view of your operations or how the public sector bond market will view the attractiveness of your debt cannot be measured.
The effect of the proposed standard on employers participating in a cost-sharing multiple-employer pension plan is the aspect that will impact New Jersey governments the most.

Who Will Be Affected?

This Statement will be effective for all governmental units that provide pensions to either active or inactive employees. The provisions that would apply for those governments that do not follow GAAP, such as New Jersey municipalities and counties, would be dependent on changes promulgated by the New Jersey Division of Local Government Services through the issuance of a local finance notice.


Comments from the public are due back by September 30, 2011. For a single employer that participates in a single-employer defined benefit pension plan with a net position of $1 billion or more in the first fiscal year ending after June 15, 2010, the requirements for implementation would be in periods beginning after June 15, 2012. For all other employers and for governmental non-employer contributing organizations, the Statement would become effective for periods beginning after June 15, 2013.