The Governmental Accounting Standards Board has issued two exposure drafts proposing improvements to financial reporting of pensions by state and local governments.

The two documents, “Accounting and Financial Reporting for Pensions” and “Financial Reporting for Pension Plans,” would propose amendments to the existing pension standards to improve how the costs and obligations associated with the pensions that governments provide to their employees are calculated and reported. The proposals are likely to generate considerable debate among pension officials (see GASB Chair Attmore Expects Pushback on Pension Accounting Proposals and GASB Chairman Robert Attmore on Pnesion Accounting Changes).

The first exposure draft, “Accounting and Financial Reporting for Pensions,” primarily relates to reporting by governments that provide pensions to their employees. A second related exposure draft, “Financial Reporting for Pension Plans,” addresses the reporting by the pension plans that administer those benefits.

“Users of state and local government financial reports have told the GASB that current standards do not provide enough information to adequately understand the cost and the liability for benefits promised to active and retired employees,” said GASB Chairman Robert H. Attmore in a statement. “The proposals contained in these exposure drafts are the result of years of research and extensive deliberations by the board to address these issues and make financial reporting of pensions more transparent, comparable and useful to citizens, legislators, and bond analysts.”

“It is important to note that these proposals relate to accounting and financial reporting, not to how governments approach the funding of their pension plans,” Attmore added. “Pension funding is a policy decision made by government officials.”

The Pension Exposure Draft proposes that governments be required to report in their statement of financial position a net pension liability which is the difference between the total pension liability and net assets (primarily investments reported at fair value) set aside in a qualified trust to pay benefits to current employees, retirees, and their beneficiaries. It also proposes significant changes to how a government would calculate its total pension liability and pension expense.

These changes include:

• Immediate recognition of more components of pension expense than is currently required, including the effect on the pension liability of changes in benefit terms, rather than deferral and amortization over as many as 30 years which is common for funding purposes.

• Use of a discount rate that applies (a) the expected long-term rate of return on pension plan investments for which plan assets are expected to be available to make projected benefit payments, and (b) the interest rate on a tax-exempt 30-year AA-or-higher rated municipal bond index to projected benefit payments for which plan assets are not expected to be available for long-term investment in a qualified trust.

• A single actuarial cost allocation method—“entry age normal”—rather than the current choice among six actuarial cost methods. Requiring governments participating in cost-sharing multiple employer pension plans to record a liability equal to their proportionate share of any net pension liability for the cost-sharing plan as a whole.

• Requiring governments in all types of covered pension plans to present more extensive note disclosures and required supplementary information.

The Pension Exposure Draft addresses situations in which another entity contributes to a government’s pension plan on behalf of the employer and it also addresses accounting and financial reporting for employers that provide pensions through defined contribution plans.

The Pension Plan Exposure Draft, which addresses financial reporting for plans that are administered through qualified trusts, outlines the basic framework for the separately issued financial reports of defined benefit pension plans. It also details proposed note disclosure requirements for defined contribution pension plans.
The exposure drafts, including instructions on how to submit written comments, are available for download at The deadline for submitting written comments is Sept. 30, 2011.

In addition, the GASB has released a comprehensive plain-language supplement to assist non-accountant users of financial statements in commenting on the pension exposure draft. The supplement is also available for download at

The GASB will host public hearings on the Exposure Drafts on Oct. 3, Oct. 13, and Oct. 20, 2011, and user discussion forums on Oct. 4, 14, and 21. Locations and other details, including instructions for registering to participate, are explained in the exposure drafts.

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