GASB Gathers Employers, Pensions to Test Proposed Accounting Standards

CHICAGO — The Governmental Accounting Standards Board has assembled a group of 25 public employers and pension plans to “field test” the implementation of its proposed changes to state and local governments pension accounting standards, according to the organization’s research manager.

GASB unveiled its exposure drafts on July 8, opening a public comment period that runs through Sept. 30. The proposals would significantly alter how local and state governments report pension liabilities, with the aim of improving the understanding of the impact of pension obligations on a government’s finances.

In addition to collecting public comment, the organization will host public hearings in Chicago, New York City, and San Francisco, with forums scheduled the following day in those cities for users of government financial reports such as analysts and investors.

To assist in finalizing the standards before an expected vote next year, GASB will also review the analysis of about 25 volunteer employers and pension plans that will field-test the proposed changes and report back with their results by Sept. 30.

“They will go through the process of implementing the proposal to give us feedback in areas such as what parts of the proposal may be confusing or unclear and how much it costs to implement and the effort required in order to comply,” GASB research manager Dean Mead said Monday after speaking at the Governmental Research Association’s annual policy conference hosted here by the Civic Federation of Chicago.

With a vote on the final standards ­expected around mid-2012, most ­government employers would face implementation in 2013. “This is going to take some time to implement,” Mead told conference attendees.

The far-reaching proposed changes have major implications for most governments, posing challenges for many as their reported liabilities and costs will likely rise on financial statements, top financial adviser Public Financial Management Inc. said last week in announcing the release of its analysis.

“We’ve already had over 200 inquiries from clients who want to know more about what these changes can mean for them, and who want to begin gathering the information they need to make a reasonable assessment and plan going forward,” PFM managing director Michael Nadol said.

The exposure drafts would, for the first time, require state and local governments to report unfunded pension liabilities on their balance sheets, potentially raising concerns over how the liabilities will be funded in the future.

The project was launched by GASB, in part, as a result of feedback from users of state and local government financial reports who felt that current standards were not adequate. GASB released preliminary views in June 2010 and took public comment.

The proposals would not only require governments to report unfunded pension liabilities on their balance sheets, but would also change the formula states and localities use to convert projected pension benefit payments into present value. They would require state and local governments to provide enhanced disclosure in the notes to their financial statements about an array of pension data and calculations.

In addition, they would be required to provide supplementary schedules showing, for the past 10 years, the beginning and ending balances of and changes in the total pension liability as well as the plan trust’s net position and the net pension liability.

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Washington
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