News highlights for September 2012

Unfunded pension liabilities will begin appearing on the balance sheets of U.S. state and local governments that provide defined benefit pensions under provisions of two new GASB standards.

GASB approved Statement No. 67, Financial Reporting for Pension Plans, and Statement No. 68, Accounting and Financial Reporting for Pensions. Statement No. 68 will require governments with defined benefit pension plans to disclose a “net pension liability” on their balance sheets.

That liability equals the difference between the total pension liability and the value of assets set aside in a pension plan to pay benefits. The statement calls for immediate recognition of more pension expense than is currently required. This includes immediate recognition of annual service cost and interest on the pension liability, plus the effect of changes in benefit terms on the net pension liability.

Existing standards for governments that provide defined contribution pensions are largely carried forward by the new standard. These governments will recognize pension expenses equal to the amount of contributions or credits to employees’ accounts, absent forfeited amounts. They will recognize a liability for the difference between amounts recognized as expense and actual contributions made to a defined contribution plan.

State and local governments will have to comply with the new standards if they prepare financial statements in conformity with GAAP in order to receive clean opinions from auditors on their financial statements.

The statements were scheduled to be available for download at GASB’s website,, in early August.

Statement No. 68, which primarily relates to reporting by governments that provide pensions to their employees, is effective for fiscal years beginning after June 15, 2014.

Currently, the pension liability on a government’s balance sheet is based on the difference between the contributions the government is required to make to a pension plan in a given year versus what it actually funded. The change reflects the view that pension costs and obligations should be recorded as employees earn them, rather than when the government contributes to a pension plan or when retirees receive benefits.

The pension obligation will take into account cost-of-living increases, future salary increases, and future service credits. The effects on the net pension liability of differences between expected and actual investment returns will be recognized in pension expense over a closed, five-year period.

One actuarial method—“entry age”—will be used as a basis for the allocation of the present value to past and future years during which employees are expected to work; in the past, standards allowed a choice of six methods.

More extensive note disclosures and required supplementary information (RSI) also will be required of employers with defined benefit plans.

Statement No. 67 addresses reporting by pension plans that administer benefits for governments, and is effective for financial statements for periods beginning after June 15, 2013. Statement No. 67 outlines the basic framework for the separately issued financial reports of defined benefit pension plans and details note-disclosure requirements for defined benefit and defined contribution pension plans.

“The new standards will improve the way state and local governments report their pension liabilities and expenses, resulting in a more faithful representation of the full impact of these obligations,” GASB Chairman Robert Attmore said in a statement.

The AICPA issued a news release in favor of the new standards and submitted a supportive comment letter (available at while the standards were in exposure.


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