State to Stick With Same Method for Pension Financial Reporting

The State Pension Board decided to maintain the current system of financial reporting after reviewing two alternatives. The options would have led to different reported liabilities for county members.

A report released yesterday in open session of the State Pension Board provides a comparison of liability allocations for county and municipal members of the State Pension System using three different approaches to financial reporting. The report compares the current method of reporting and auditing the System as one pool, to an approach more clearly separating its five or seven component pools (including the local pool, with the county and municipal “participating government units.”)

The report discusses various effects of changing the pension system’s reporting, including different liability allocations for county members of the state pension system. Under a new accounting rule, county governments must now record their net pension liability on their financial statements.(See recent Conduit Street postings for more background)

During this process, MACo and MML had raised concerns that the state’s “one pool” approach to this specific calculation (not necessarily the entire pool auditing and reporting) was unfairly overstating the local share of the system-wide unfunded liabilities. These concerns are bolstered by the report’s finding that a separate accounting of each component pool would decrease these local allocations by nearly $300 million.

The Ad Hoc Joint Committee on System Financial Reporting shares the following information and data:

Current Financial Reporting:

  • Costs $84k in auditor fees
  • Allocates $964M in state pension liability to county, municipal, and other governmental units participating in the State Pension System for reporting purposes

Five-pool Financial Reporting:

  • Could increase the State’s actuary and auditor costs by $66k based on estimates for the first year
  • Would increase the state’s reported liability allocation to county, municipal and other governmental units by $75 million

Seven-pool Financial Reporting:

  • May require a statutory change
  • Could increase the State’s actuary and auditor costs by $116k based on estimates for the first year
  • Would require investment allocation into seven pools, asset and liability allocation between the State and Municipal Pools, and additional accounting and reporting changes
  • Would decrease the state’s reported liability allocation to county, municipal, and other governmental units by approximately $277 million

For more information, read the Ad Hoc Joint Committee Report and our previous posts, State Retirement Agency Shares Reasoning on Recent Pension Decision, State Pension System Launches County Outreach On Liability Accounting, and State Retirement Agency Issues Revised Liability Allocation Letter.