The Governmental Accounting Standards Board is proposing some far-reaching changes in the field of pension accounting that should affect public employees and state and local governments across the country.

Robert Attmore

GASB made the exposure drafts of the proposals public on its Web site, www.gasb.org, on Friday (see GASB Proposes Major Overhaul of Pension Accounting Rules).

GASB chairman Robert Attmore recently explained to Accounting Today what some of those proposed changes would be (see GASB Chair Attmore Expects Pushback on Pension Accounting Proposals).

Attmore has chaired GASB since July 1, 2004. He began his second and final term as chairman on July 1, 2009, after being reappointed in October 2008 and is scheduled to complete the term in 2014.

Prior to joining GASB, Attmore headed his own consulting business. Previously, he worked for New York State for more than 23 years, including serving as deputy state comptroller and state auditor from 1986 until 2003. Attmore has served as president of the National State Auditors Association and as a member of the executive committee of the National Association of State Auditors, Comptrollers and Treasurers. He is a Trustee of the Academy for Government Accountability and has served as a member of the U.S. Comptroller General’s Advisory Council on Governmental Auditing Standards. He also served on the National Executive Board of the Association of Government Accountants. He is a graduate of Villanova University and is a CPA and a Certified Government Financial Manager.

Could you tell me about some of the changes that GASB has been proposing with pension accounting?

We’re going to soon be issuing a couple of exposure drafts on pension accounting and financial reporting, and the reason that we think this is a big deal is governments are labor intensive entities. They have large employee compensation costs, both in terms of current compensation with salary and benefits, as well as deferred compensation in the form of pensions and other post-employment benefits. There has been a lot of attention recently. The issue of state and local government pensions has been getting significant attention … at all levels of government whether it’s at state legislatures or city councils, etc., and it’s also been getting attention in Washington and Congress and the media. A lot of people are focused on this issue right now because it is a big deal. One of the things, just as an aside: frequently people who talk about this issue confuse accounting and financial reporting issues with public policy issues that deal with items like contribution policies, or plan design, or benefit formulas, those sorts of things, and they really are different than accounting and financial reporting. Based on GASB research that we do periodically, to see if our existing standards are doing what they were expected to do, we began a review all the way back in 2006, long before the start of the Great Recession, before this became a hot topic for everybody, our staff went through and did some research, evaluated what was currently being reported, and so forth, and in 2008 they presented their research findings to the board, and suggested that they felt there were significant improvements that could be made to our existing standards, and with that the board reviewed the research and agreed with the staff and decided to add a project to our technical agenda to update and improve our current standards. So in 2009 we issued a first due process document, something called an invitation to comment that we sent out and got feedback from constituents.

Based on that, we went through another round of deliberations and in 2010 issued a preliminary views document on pension accounting by employers. We got a lot of feedback to that, did public hearings and roundtables and so forth, and are now at the point where we’ve evaluated all feedback and made some additional decisions, and next week our board will be meeting to presumably approve, and I say presumably, it’s not over till it’s over, but the board will vote next week and my guess is we’ll approve the issuance of two exposure drafts, which is the last stage of our process before we finalize new rules. The two exposure drafts will presumably be available in early July, probably shortly after the holidays, and one will address accounting and financial reporting by governments—the employers—and the other will address accounting and financial reporting by the pension plans themselves, which are separate legal entities that set up trusts to manage and disburse the pension assets.

What kinds of feedback have you been getting so far from people about the changes?

We will get a lot of feedback once we put these out. But on the earlier documents I mentioned, the invitation to comment and the preliminary views, we got a lot of feedback, almost 200 letters I believe it was, in response to the preliminary views document that we put out last year. And we also did some public hearings and roundtables, so we got some face-to-face feedback as well. These are potentially and likely to be controversial issues. There are people who take very different views of pension accounting and financial reporting, from one extreme where people think our current standards are just fine—if it’s not broke, don’t fix it—to the other extreme where people think we ought to throw out our standards and start over, and everywhere in between on the continuum. We’re not going to either one of those extremes, but we’ve got proposals that will significantly improve the current accounting and financial reporting. Our intent is to improve the decision usefulness of the information that gets reported on the face of the financial statements. That’s a key point because for the first time this proposal would require that the unfunded pension liability of a government be placed on the face of the financial statements, on its balance sheet. That’s not currently required, so that would be a big change. I saw another article recently on something else. It wasn’t related to pensions, but the title caught my eye. It was called “Out of the Footnotes and into the Spotlight.” I thought that was appropriate and could be used in our case as well. We don’t call them footnotes anymore, but we would be taking the information about pension liabilities that are currently in the notes to financial statements and putting them on the face of the statement, and therefore increasing the spotlight on those unfunded liabilities.

Is the aim to make sure that the costs are being accounted for while employees are still on the job?

That’s a big part of it, but it’s not just the liability. … It’s just another form of compensation when the employee is working and providing a service, the compensation is broken down into two pieces—current and deferred—but they’re actually earning both of those pieces while they’re providing services, and those expenses ought to be reflected currently while the employee is working.

Another impact that may concern people by putting that unfunded liability on the balance sheet, that may create the appearance, and “appearance” is the key word here, that the government may be in worse financial condition, and that’s because you’ve put this big unfunded liability on the balance sheet. Therefore the net position of the government looks weaker because there’s a liability that wasn’t there previously. I saw “appearance” because financial analysts, the rating agencies, etc., are all already aware of this obligation and when they do their credit ratings and so forth they already account for this so the economic reality isn’t changed because the display or the financial reporting looks different. The economic reality stays the same. It’s just more transparent and easier to understand what the obligation is because it’s right there on the balance sheet.

Will people also be able to get a better idea of the pension plans’ shortfalls, and they won’t be hidden in the footnotes?

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