GASB Proposes Changes to Calculating, Reporting Pension Costs

GASB issued two exposure drafts that the board said w ould establish a definition of pension plan that reflects the primary activities of a fund that is used to provide pensions—the accumulation and management of assets dedicated for pensions and the payment of pensions to plan members as the benefits come due. The board said the proposed amendments to existing pension standards would improve how the costs and obligations associated with the pensions that state and local governments provide to their employees are calculated and reported.

“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,” GASB Chairman Robert Attmore said in a press release. “Pension funding is a policy decision made by government officials.”


The first ED, Accounting and Financial Reporting for Pensions—an amendment of GASB Statement No. 27 (Pension ED), primarily relates to reporting by governments that provide pensions to their employees. The second ED, Financial Reporting for Pension Plans—an amendment of GASB Statement No. 25 (Pension Plan ED), addresses the reporting by the pension plans that administer those benefits.

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

The Pension Plan ED, 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.

Comments on the proposals are due Sept. 30.

GASB also released a comprehensive
plain-language supplement to assist nonaccountant users of financial statements in commenting on the Pension ED. The board will host public hearings on the proposals on Oct. 3, Oct. 13 and Oct. 20, and user discussion forums on Oct. 4, Oct. 14 and Oct. 21. Locations and other details, including instructions for registering to participate, are explained in the EDs.


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