Pension Accounting and Financial Reporting

Pension Accounting and Financial
GASB Invitation to Comment
The views expressed in this presentation are those of Mr. Bean.
Official positions of the GASB are determined only after
extensive due process
1 and deliberation.
Project Overview
• Project objectives
– Evaluate the effectiveness of current
postemployment benefits reporting standards,
with the focus of this phase on pensions
– Consider need for modification to better meet the
financial reporting objectives of accountability and
decision usefulness, including extent to which
interperiod equity has been achieved
ITC Overview
• Issued March 31, 2009
• Plain-language supplement issued with the ITC
• Comments were requested by July 31, 2009
– Internet comment form, email, traditional mail
– Still not too late
• Can still download free of charge at
• Public hearing on August 26, 2009
What is an ITC?
• Developed with assistance of task force
– Meredith Williams
– Keith Brainard
• Addresses several key questions raised during
research phase of project
• Staff document; however, topics included and
arguments presented were deliberated by the
Chapter 1: Introduction
• Project objectives and scope
– Initial focus on pensions, consider OPEB at later stage
• Project background
– Standards developments
• OPEB Statements
• Conceptual framework
• ITC objective and structure
• Objectives of financial reporting
– Accountability, decision usefulness, interperiod equity
Chapter 1: Key Points
• Definition of a liability: Present obligation to
sacrifice resources that the government has little
or no discretion to avoid
• Interperiod equity:
– Attributes costs of the services to the period in which
those services were provided and
– attributes revenues provided by taxpayers and other
revenue providers to the appropriate period
– for the purpose of assessing whether those revenues
were sufficient to finance the costs of providing
services during that period.
Chapter 2: The Focus of Accounting and
Financial Reporting
• What defined benefit pension processes,
transactions, or other events should financial
reporting focus on (report information
– The process by which an employer incurs an
obligation to employees?
– The process by which an employer finances its
projected future cash outflows?
– Both processes?
Chapter 3: Recognizing Liabilities and
• Concepts related to
– Liabilities and flows of resources
– Criteria for recognition in basic financial
• Three alternative approaches to recognition
by sole and agent employers
– Each approach considers
• What pension liability should be reported?
• How should pension costs be attributed to periods?
Chapter 3: Recognizing Liabilities and
Expenses (cont.)
• What pension liability should be reported?
– Is the obligation that meets the conceptual
definition of a liability of the employer
• A measure of the difference between the annual
contributions necessary to maintain acceptable
progress toward full funding and the contributions
actually made?
• A measure of the employer’s unfunded accrued benefit
obligation associated with services received from
employees to date?
• Something else?
Chapter 3: Recognizing Liabilities and
Expenses (cont.)
• How should pension costs be attributed to
– In resource flows statements prepared with a flow
of economic resources measurement focus and
accrual basis of accounting, should employers
• Recognize the effects of various pension-related
transactions or other events immediately upon
• Amortize the effects of some or all transactions or
other events (other than normal cost) over future
Chapter 4: Measuring Pension Obligations
• Alternative approaches to measurement of pension
• Future changes affecting benefits
– Automatic and ad hoc COLAs
– Projected future salary increases
– Projected future service credits
• Discount rate
– Estimated long-term investment yield for the plan
– Risk-free rate of return (or a yield curve of risk-free rates of
– Employer’s borrowing rate
– Interest rate on high-quality municipal bonds
Chapter 5: Actuarial Methods
• Number of actuarial cost methods that should
be permitted
• Manner in which various methods allocate the
present value of projected pension benefits
among past, present, and future periods
Chapter 5: Actuarial Methods (cont.)
• Amortization of the unfunded accrued benefit
– Whether/within what limits should some components of
pension cost be recognized as expense in future periods?
– Should different maximum amortization periods apply to
different components of pension cost?
– Should a single amortization basis (open or closed) be
– Should maximum amortization periods vary depending on
the amortization basis and methods chosen (if options are
Chapter 5: Actuarial Methods (cont.)
• Actuarial value of plan assets
– Should determination include methods that
allocate effects of fair-value changes over more
than one year?
• If so, what constraints, if any, should be placed on the
• Should the funded status of the benefits that
reflects the fair value of plan assets at the
measurement date be disclosed?
Chapter 6: Cost-Sharing Plans
• Is relationship between cost-sharing employer and
plan different enough from the relationship of a sole
or agent employer to its plan to warrant different
liability/expense recognition?
• Three views:
– Current requirements appropriate
– Current measurement/recognition requirements
appropriate; additional disclosures needed
– Measure and recognize in a manner similar to sole and
agent employers
Chapter 7: Reporting by Pension Plans
• What should a plan report as its liability in regard to
pension benefits?
– Benefits currently due and payable
– Accrued benefit obligation
• Should a presentation of changes in the unfunded
accrued benefit obligation be a required part of
general purpose financial reporting?
– If yes, in reports of the employer, the plan, or both?
– If yes, as a basic financial statement, in notes, or as RSI?
Feedback to Date
Project Timetable
• October—Analysis of responses (including public
hearing testimony) to be discussed by the Board
– First full Board meeting after public hearing
November—Preliminary deliberations to begin
December 2—Task force meeting in New York
January-December 2010—Board deliberations
December 2010—Next due process document
scheduled to be released
– Preliminary views
– Exposure draft
• When will a final standard be issued?
Telephone—(203) 847-0700
Web site—

similar documents