The Governmental Accounting Standards Board today opened a comment period for a proposal that would allow state and local governments to use an exact number, rather than an estimate, for pension and other post-employment benefit fund contributions.
The new accounting option could help governments save money by more accurately defining the contribution amount needed to be deposited into pension accounts and OPEB funds, like retiree health insurance.
Under the current accounting rules, governments estimate the amount they need to deposit. The estimation rule, based on the beginning liability number in a government's financial statement, went into effect because exact amounts for deposits were costly and time consuming to compute. But the estimation method, in use for more than 10 years, often counted payments already made elsewhere in the financial statements. The change under consideration would help governments avoid paying the deposit twice.
Earlier this year, some actuaries told GASB they track separately the amount required for deposit into a pension fund and do not need to use an estimate. The board decided to allow actuaries to use the new accounting option, if the exact deposit amount is known, rather than the estimate.
"When our pension standards were enacted, many governments had been funding their plans for years and it was believed that it would be necessary to estimate the ARC adjustment," said Robert H. Attmore, chairman of GASB, in a statement. "Since many governments are implementing the OPEB standards essentially with a blank slate, there is a higher likelihood that they will have the actual amounts from the start."
GASB officials said they are looking for feedback to the proposal and that the new option would only be used by a small number of governments. The comment deadline is Sept. 30, 2008.
"What we're trying to do is allow actuaries to use one fewer estimate if they actually have a known amount," said Michelle Czerkawski, project manager for the proposal.