In June 2012, Governmental Accounting Standards Board (GASB) issued 2 new standards (GASB67 and 68) dealing with financial statement reporting of State and local government pensions. These standards change how State and local governments report the costs and obligations associated with defined benefit pension plans. Governments will be implementing changes as early as June 30, 2014 year-ends.
Governmental entities provide pension benefits either through some type of defined benefit pension plan or a defined contribution plan. Defined benefit pension plans that Arizona governmental entities are involved with include Arizona State Retirement System, Public Safety Personnel Retirement System, Correctional Officers Retirement Plan and Elected Officials’ Retirement Plan. Defined contribution plans for Arizona entities include the Volunteer Firefighter Pensions. The new GASB pension standards address all of these types of pension plans.
All of the defined pension plans obtain an actuarial report that provides information regarding the plan’s total net assets and pension liability. In the past, governmental entities made their required annual contributions to the defined pension plans and provided disclosures within the government’s annual financial report regarding the pension’s assets and liabilities. The new standards now require the government to record its share of the pension’s net assets or liability on the government’s accrual-based financial statements. Since most public pension plans are underfunded, a pension liability will be reported on the face of the government’s financial statements. Adding another liability on the face of the government’s financial statement will give the appearance of a weaker financial position. Governments may want to have discussions with their readers of the financial statements now to inform them of upcoming changes to their financial position and certain financial ratios.
For more information on these 2 new standards, go to the Governmental Accounting Standards Board website at www.gasb.org.
By Marilyn Mays, CPA