Enhanced Integrity in Public Employee Pension Plan Reporting

Enhanced Integrity in Public Employee Pension Plan Reporting

 Summary

Under current GAAP for state and local governments some financial statement users may not realize the gravity of failure to address under-funding of state-sponsored pension plans. This Resolution calls upon the relevant standard-setting body, the Government Accounting Standards Board (GASB), to adopt reporting standards that require reporting as a liability on a governmental entity’s balance sheet any unfunded pension plan obligation for which it is responsible; reporting as a current expense the cost of any changes in benefits awarded on the basis of past service; clear disclosure of discount rates used in the calculation of pension liabilities; why such discount rates were selected; and the liabilities which would result if alternative discount rates were applied.  It also requests GASB to send an official representative to present information and answer inquiries at a public hearing to be held by the relevant committee or committees.

Model Resolution

Section 1 {Title.}  This Resolution may be cited as the Resolution Calling for Enhanced Integrity in Public Employee Pension Plan Reporting

Section 2 {Definitions.} 

 (A)  In this Resolution:

(1)   GASB or the Government Accounting Standards Board means the Governmental Accounting Standards Board, the independent organization established by agreement of the Financial Accounting Foundation (FAF) and 10 national associations of state and local government officials that establishes and improves standards of accounting and financial reporting for U.S. state and local governments.

(2)   FAF or the Financial Accounting Foundation is a non-stock Delaware corporation that operates exclusively for charitable, educational, scientific, and literary purposes within the meaning of Section 501(c)(3) of the Internal Revenue Code. The Foundation, FASB, and GASB are located in Norwalk, CT with responsibility for:

(a)    Establishing and improving financial accounting and reporting standards;

(b)    Educating constituents about those standards;

(c)    The oversight, administration, and finances of its standard-setting Boards, the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB), and their Advisory Councils;

(d)   Selecting the members of the standard-setting Boards and Advisory Councils; and

(e)    Protecting the independence and integrity of the standard-setting process.

WHEREAS, GASB is the organization charged with the responsibility for establishing generally accepted accounting principles for state and local governments; and

WHEREAS, Accounting and financial reporting standards designed for the government environment are essential because governments are fundamentally different from for-profit businesses; and

WHEREAS, The information needs of the users of government financial statements are different from the needs of the users of private company financial statements; and

Pensions and other post-employment benefits present serious problems that threaten the flexibility of state and local governments to address future problems; and

Many employees have faithfully labored over many years with an expectation of receiving a pension and other post-employment benefits; and

WHEREAS, Under current GAAP for state and local governments some users of the financial statements may not realize the gravity of failure to address the under-funding of pension plans; and

WHEREAS, GASB is deliberating changes in accounting standards for pensions; now

Therefore, be it RESOLVED that this {insert name of legislative body} hereby encourages GASB to adopt accounting standards such as to require:

(1)   Government entities to account for the output and cost (including indirect costs) of any program and activity undertaken and

(2)   To account for the achievement of each program and activity undertaken.

(3)   Clear disclosure of discount rates used in the calculation of pension liabilities; why such discount rates were selected; and the liabilities which would result if alternative discount rates were applied; and to include, without limitation, a pro forma analysis based on prevailing ten-year U.S. Treasury bond rates.

(4)   Projections for each of the next 20 plan years following the plan year relating to the amount of annual contributions, the fair market value of plan assets, current liability, the funding percentage, together with a statement of the assumptions and methods used in connection with such projections, including assumptions related to funding policy, plan changes, future workforce projections, future investment returns.

And be it further RESOLVED that GASB is hereby invited to send an official representative to present information and answer inquiries at a public hearing to be held by the relevant committee or committees of {insert name of legislative body} on:

(1)   the real and potential impact of its current government accounting principles for pensions which it is deliberating,

(2)   how such changes may provide a clearer and more relevant base of information for state and municipal officials to exercise their judgment in the management of their respective financial affairs,

(3)   the nature and transparency of the deliberative procedures of GASB, and

(4)   mechanisms by which the officials, representatives, and taxpayers, public employees, and service recipients of the respective states and municipalities may provide input to such deliberations.

Section 3. {Severability clause.}

Section 4. {Repealer clause.}

 

 

Approved by the ALEC Board of Directors on October 19, 2012

Keyword Tags: Pension reform

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