The decision by the Governmental Accounting Standards Board
(GASB) to toughen reporting standards for public employee pensions was praised by both the American Institute of CPAs
(AICPA) and investors, but states and municipalities are concerned with their impact. The new rules require state and local governments to acknowledge their employee’s pension plans are underfunded liabilities on their financial statements beginning in 2013 and 2014.
The unanimous decision is putting the GASB in the spotlight. Even supporters of the decision call the new standards radical. Underfunded pension plans will be required to use a much lower projected rate of return on their investments than the approximately 8 percent they use currently now.
Prior to the GASB decision, a July 2 Moody’s Investors Service
report estimated that a new rate of 5.5 percent would nearly triple the 2010 reported actuarial accrued liability for the 50 states. Municipal liability would increase from $766 billion to $2.2 trillion. The 5.5 percent rate is higher than the rate adopted by GASB.