The Government Accounting Standards Board voted Monday to toughen pension reporting standards, a slight accounting change that has significant repercussions for muniland. Reuters’ Lisa Lambert reports how data that was formerly buried in the footnotes of financial statements will have to be made more prominent:
State and local governments will have to post their net pension liability – the difference between the projected benefit payments and the assets set aside to cover those payments – up front on financial statements, under the changes.
“The pension liability will appear on the face of the financial statements for the first time. That’s going to create the appearance of a weaker financial position,” said Robert H. Attmore, GASB chairman, who said the board intended to “peel back the veil so things are more transparent and there’s more information for policy makers.”
In addition to providing taxpayers and municipal investors with easier access to data, the GASB changes also stipulate the method by which future returns are calculated for pension funds that are underfunded. This will likely make many pension funds appear less healthy as they will have to use projected rates of return that are more sober.
For several years state and local governments have been making adjustments to retiree benefits in an effort to square up their pension plans. A consortium of government associations, led by the National Council of State Legislatures, has published a fact sheet so the public has a balanced view of the health of the pension system. It highlights how the majority of governments have already made changes to pension plans: