5 December 2011

State and local governments use standards set by the Governmental Accounting Standards Board (GASB) to account for employee pension assets and liabilities on their financial statements. GASB recently proposed revisions to its pension accounting standards, Statement 25 and Statement 27. State and local organizations and government finance groups, including ICMA, have been involved in field-testing the new standards and providing critical commentary. The groups believe that if adopted as proposed, the new pension accounting standards will increase the administrative burden on state and local governments, as well as distort the financial situation of pension systems in a way that could confuse policymakers.

A recent issue brief from the Center for Retirement Research at Boston College explains how the proposed GASB standards would affect state and local government pension reporting. The researchers find that if adopted as proposed, the new GASB standards will:

• Change the way assets are valued (from actuarial determination to market value)
• Sharply reduce the reported funding levels of state and local pension funds (from 77% to 53% for 2010, baesd on the author's calculations)
• Establish uniformity in accounting standards (entry age normal)
• Establish a standard that states with statutory contribution rates do not need to report the ARC (or percentage of ARC paid) for a given year.

GASB extended the deadline for comments on their proposed standards after the groups requested they do so. The next step in this process is the official release of the revised standards, which should occur in 2012.