The Governmental Accounting Standards Board (GASB) has issued new pension accounting standards for public pension plans that will require the plans and their sponsoring governmental agencies to report future pension liabilities on their balance sheet in a manner which divorces those liabilities from the funding mechanisms designed to address them. The new standards are set to start affecting LAGERS employers beginning with their fiscal years starting after June 15, 2014.
Historically, GASB standards have always held a close link between accounting and funding measures. As the new standards are implemented, accounting and funding measures will become disconnected and local governments will be required to publish future pension liabilities as a line item liability on their balance sheet. Doing this may raise undue alarm for taxpayers as local governments may suddenly be reporting a large liability that was never there before.
What the new standards fail to address is that there is no need for alarm. Public pension liabilities have not changed, only the way they are reported. LAGERS' funding policy works extremely well and will continue to provide stability and security for its members, employers, and taxpayers going forward.
In the past, future liabilities have always been clearly and accurately reported by each LAGERS employer in their Annual Actuarial Valuations. Now, pension liabilities will be highlighted on employers' balance sheets, with nothing more than the employer's annual contributions to explain the sound mechanisms already in place to fund that liability, and despite the fact that investment return of the LAGERS' system will actually fund a majority of that future bill, not the taxpayers. The pension liability would be similar to having an unpaid balance (liability) of $150,000 on your mortgage without noting that you diligently make your monthly payments and will continue to do so until it is paid off in 20 years.
As the new GASB standards take effect, know that LAGERS will work to provide all the necessary support to our member employers to help clarify the new requirements. LAGERS will be sending more information about a number of learning opportunities in the coming months to help educate administrative personnel in greater detail on the upcoming changes. As always, LAGERS remains at your service. Please do not hesitate to contact our office with any questions.