Fall 2011 issue of Horizons

Public Sector

New Exposure Drafts Overhaul Financial Reporting for Governmental Pension Plans By Renita Duncan, CPA and Ted Williamson, CPA

On June 27, 2011, the Governmental Accounting Standards Board (GASB) issued exposure drafts of two proposed statements that will supersede existing guidance on financial reporting for defined benefit pension plans. The statements affect financial reporting for plans and for governments that participate in such plans. The proposed statements will represent a major departure from existing financial reporting requirements. Most significant is the change in the manner of calculating and presenting the net pension liability for governments.

Under current accounting guidance, employers recognize an increase in this liability to the extent that annual contributions to the plan were less than the annual required contribution calculated by an actuary. Under the new statements, the net pension liability will equal the present value of total future benefits to be paid to current employees less the net position of the plan. Put differently, currently employers recognize a liability only to the extent that they have failed to make their annually required “principal payments” on their pension “debt.” Under the new statements, the entire pension “debt,” minus the

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