Fitch Ratings said that two recently released pension accounting and financial reporting standards from the Governmental Accounting Standards Board are generally positive for state and local governments.GASB approved the standards Monday (see GASB Approves New Pension Accounting and Reporting Standards).
The new accounting standards will modify how governments calculate and report their liability for unfunded pension obligations and the associated annual expense, Fitch noted on Thursday. Calculations under the new standard will reflect a narrower range of assumptions and will recognize changes in a more conservative manner than current standards allow.
“For instance, the discount rate assumption in the future will blend a plan's investment return assumption for the portion of the obligation for which assets have been set aside and a lower investment return assumption for the remainder of the obligation,” aid Fitch. “More thorough information will be available under the new standards for financial statement users, such as requirements for cost-sharing plan participants to report the same data as governments in other kinds of plans. “
One change that causes some concern, Fitch acknowledged, is an actuarially calculated annual required contribution will no longer have to be reported if the government does not fund its plan on an actuarial basis. Although the ARC reflects a broad array of assumptions that differ from one government to another, in Fitch's view, it also provides a useful measure for whether the government's actual contribution is sufficient to make progress toward fully funding the obligation over time.
For more information, visit www.fitchratings.com.
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