Understanding New Public Pension Reporting and Funding Guidelines

August 9, 2013

By Neil Bomberg

When the Governmental Accounting Standards Board (GASB) recently released the latest guidelines for cities and towns to use to report on their pensions, the world of government accounting changed forever.   Under the new GASB rules, which went into effect on June 15, 2013, it is no longer enough to report on this year’s annual required contribution and how much a city or town has budgeted towards its pension fund.  Cities and towns must now also report the pension fund’s unfunded liability; that is, the difference between the actual current value of the city’s pension plan and what would be needed if the city or town had to meet all of its pension obligations on that same date.

It’s important to note that although the rules technically went into effect in June, depending on the way in which a city’s pension year is set up, they may actually not go into effect for a while. For example, if the pension year for a fund is January 1 through December 31, the rule won’t take effect until January 1, 2014.  

What do these changes mean in a practical sense?  In short, cities and towns now have to generate separate and distinct pension reports that will be used for a variety of purposes.  These include:

1) A report on unfunded liability for city balance sheets;

2) A report that documents indebtedness, and therefore creditworthiness, for the purpose of selling bonds; and

3) A report that determines the annual retirement contribution that a city will have to make to keep its pension funded.  

This new world of pension reporting is much more complex and demanding.  GASB, the rating agencies, and governments themselves will all be using different sets of pension numbers for these different purposes. To help local officials and their staff sort through what this means, the International City/County Managers Association, NLC, the National Governors Association and other leading national associations representing state and local governments, agencies and officials developed a one-page summary to explain the differences between these numbers, how each has its own intended purpose and audience, and new resources available to lawmakers to address pension funding.