The Governmental Accounting Standards Board (GASB) has approved Statements 67 and 68 that will supersede existing guidance on financial reporting for defined benefit pension plans. The statements affect financial reporting for plans and for governments that participate in such plans. 

These statements will represent a major departure from existing financial reporting requirements.  Most significant is the change in the manner of calculating and presenting the net pension liability for governments.  Under current accounting guidance, employers recognize an increase in this liability to the extent that annual contributions to the plan are less than the annual required contribution calculated by an actuary. 

Under the new statements, the net pension liability will equal the present value of total future benefits to be paid to current employees less the net position of the plan.

GASB Statement No. 67, Financial Reporting For Pension Plans, supersedes GASB Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Notes Disclosures for Defined Contribution Plans, and GASB Statement No. 50, Pension Disclosures. 

This statement modifies the format of financial statements for plans.  It also mandates various disclosures for the total pension liability and net pension liability, including significant assumptions and rates of return. 

The statement also requires the presentation of new information about annual money-weighted rates of return in the notes to the financial statements and in 10-year required supplementary information (RSI) schedules.

GASB Statement No. 68, Accounting and Financial Reporting for Pensions, supersedes GASB Statement No. 27, Accounting for Pensions by State and Local Government Employers, as well as GASB Statement No. 50, Pension Disclosures. 

This statement establishes the methodology to be used by governments to value and report the liability associated with their participation in a defined benefit pension plan.  Once the total pension liability has been calculated, the net position of the plan (as defined in the first statement) is subtracted from the total pension liability to arrive at the net pension liability for the plan. 

The net pension liability is the amount that the government must report as a liability within its financial statements.  Statement 68 will also require employers to present more extensive note disclosures and RSI.

The effective date for GASB Statement No. 67 is for periods beginning after June 15, 2013 and the effective date for GASB Statement No. 68 is for periods beginning after June 15, 2014, with earlier application encouraged. 

Both statements will be available for download at no cost from the GASB website in early August by clicking here.

Readers should not act upon information presented without individual professional consultation.