WASHINGTON — The Government Finance Officers Association wants to give state and local governments guidelines on how to craft sound pension funding policies.
In recent days, the group approved pension funding policies guidelines that were developed by a coalition of associations and professional groups representing state and local governments, retirement systems and government employees.
“There is a pressing need for widely recognized, standardized guidelines concerning what constitutes a sound funding plan for state and local government employers,” said GFOA in resolution posted on the group’s website in recent days. “The GFOA and several other national associations ... are developing a set of recommended guidelines for funding a pension plan.”
The groups developed the guidelines in response to changes in June to the Governmental Accounting Standards Board’s financial reporting standards. Those changes included new ways for state and local governments to report pension liabilities and expenses. GASB stopped requiring governments report their annual required contributions, or ARC, in their financial reports, and stopped setting parameters for how those contributions should be calculated.
GASB may no longer require annual required contributions calculations, but the groups are recommending that their members continue making and reporting the data. And they are writing their own standards to guide members.
“Governments and retirement systems can “no longer piggy back” on GASB’s standards, said Stephen Gauthier, GFOA’s director of technical services. He noted that GFOA doesn’t fault GASB for changing their standard.
“[GASB’s] goals in accounting and financial reporting are not necessarily the same as goals as [for] funding,” Gauthier said.
GFOA contributed to a “Pension Funding Task Force,” which was led by the National Conference of State Legislatures, The Council of State Governments, The National Association of Counties, the National League of Cities, the United States Conference of Mayors and the International City/County Management Association.
Other contributing groups included the National Association of State Auditors, Comptrollers and Treasurers, the National Association of State Retirement Administrators and the National Council on Teacher Retirement.
The task force published a paper called “Pension Funding Policy Guidelines” in early October which recommended that governments and retirement systems follow five tenets to create sound pension funding policies.
Funding policy should be based on actuarially-determined contributions, and should have “funding discipline,” meaning that governments should commit to meeting funding targets, said the guidelines. Also, funding policies should maintain “intergeneration equity,” which ensures benefit costs are paid by the generation of taxpayers that receive the services.
In addition, the guidelines said funding policy should promote accountability and transparency and maintain contributions at a stable percent of payroll.
GFOA’s statement added that a pension funding policy should also address actuarial costs, asset smoothing and amortization.
Gauthier noted although GASB no longer requires state and local governments to calculate annual required contributions, they must report those contributions in financial statements if they are calculated.
“If you do what GFOA suggests, you [will] have to disclose it in financial reports,” Gauthier said.
He added that GFOA’s Committee on Retirement and Benefits Administration will follow-up on the guidelines by creating detailed pension funding best-practices in the coming months. The best practices will need to be approved by the group’s executive board, likely during the group’s annual meeting in San Francisco next June.