The Government Accounting Standards Board (GASB) has made public sector headlines in the last decade with its altered standards for recognizing long term liabilities related to post-employment benefits other than pensions (frequently referenced as OPEB). This year, a GASB working group has focused on pension systems and their reporting, and has released a draft document indicating the general direction of their forthcoming new accounting guidelines.

From Bond Buyer magazine:

GASB’s latest guidance, like its preliminary recommendations last year, would require governments to report the unfunded portion of their retirement plans as a liability on their balance sheets. The board is also proposing to change the formula states and localities use to convert projected pension benefit payments into present value, based on an assumed “discount rate.”

Specifically, GASB recommends that pension plans use a historic rate of return – typically 7% to 8% – only to the extent the plan has sufficient assets, set aside in an irrevocable trust, to make projected benefit payments. When a plan reaches a point of no longer having sufficient assets set aside in a trust for long-term investments, it would have to shift to a lower, so-called risk-free rate of return pegged to a tax-exempt, high-quality, 30-year municipal bond index rate, typically, 3% to 4%.

“As I’m sure you know, this is a big deal,” GASB chairman Robert Attmore said in an interview.

Currently, many governments disclose pension information in the footnotes of their financial statements and generally only report the contributions they are required to make in a given year, as well as what they actually paid.

“Recognition in the financial statements alongside other liabilities such as outstanding bonds, claims and judgments, and long-term leases, will clearly put the pension liability on an equal footing with other long-term obligations,” the board said.

Read the full GASB “eposure draft” online here.