Navigating Changing Governmental Accounting Requirements

The Governmental Accounting Standards Board (GASB) has recently approved, but not yet released, Statements 67 and 68, which will replace Statements 25 and 27, respectively.  These Statements are related to the accounting and financial reporting for state and local governments with pension plans.  Statement 67 will be effective for financial statements for periods beginning after June 15, 2013, and Statement 68 for fiscal years beginning after June 15, 2014.  Early application is encouraged but not required.  The Statements are expected to be released in August, and will be available on GASB’s website,, at no cost.

Some of the changes included in Statement 68 are:

  • Reporting a net pension liability on governments’ statement of net position for the first time
  • Immediate or earlier recognition of more pension expense than is currently required
  • Requiring a single cost allocation method, “entry age”, to be used to calculate actuarial liability for financial reporting purposes for all governments, rather than a choice between six methods
  • Calculating actuarial liability using a discount rate which is partially based on tax-exempt 20-year municipal bond rates, for plans that do not have sufficient assets to pay pension benefits of current employees and retirees using the plan’s asset rate of return assumption
  • More extensive disclosures and required supplementary information (RSI), including sources of changes in net pension liability

 Statement 67 will also enhance note disclosures and RSI, and require new information about annual money-weighted rates of return.  Additional details are included in GASB’s news release.

 These new reporting requirements are a one-size-fits-all calculation, with little variation in how a government employer can choose to calculate the net pension liability.  The one factor that an employer may have some control over is the discount rate used to calculate the benefit obligation.  Without action, an employer with an underfunded plan, including those with pay-as-you-go benefits which have no dedicated assets, could see a significant increase in the benefit obligation if it is currently determined using an expected asset return assumption, rather than a lower municipal bond rate.  By setting aside additional assets to improve the funded status of the plan, or starting a pre-funding program if one does not currently exist, government employers may be able to reduce the net pension liability that would otherwise be shown in the statement of net position.

Our qualified GASB experts are closely following these changes and can help you figure out how your plan’s financial reporting will be affected, or provide advice on steps you can take to improve your plan’s financial outlook.  Please contact Steve Diess if you have questions or would like assistance.

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