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How to Prepare for Pension Reporting Under GASB 68
In March 2014, the Government Accounting Standards Board (GASB) voted unanimously to make GASB Statement No. 68, Accounting and Financial Reporting for Pensions, effective for periods beginning after June 15, 2014. The vote comes after more than a year of discussion and scrutiny, and follows through with the original implementation schedule.
GASB 68 ushers in changes to the reporting of pension assets and liabilities, requiring immediate recognition of the net long-term liability of future pension benefits in excess of accumulated plan assets. The new standard has significant implications for municipalities, which must now gather much more information about pension plans to assure that a complete audit can be conducted.
Even more so than in the past, municipalities need to communicate with their pension plan, auditor, financial statement users, and governing body to ensure a smooth implementation.
Coordinate with the pension plan
Under GASB 68, government finance officials will need to work closely with their pension plan to gather the information required by the new standards. The nature and extent of the pension plan’s audit procedures may affect the actions that the municipality must take to receive an unmodified (clean) opinion.
Work with the auditor
The new standards may mean that a clean opinion will require more rigorous audit work. Municipalities should check with their auditors to learn if the audit will require more time or additional work, and be prepared for the additional cost this may entail.
Communicate with bondholders and rating agencies
If a municipality expects GASB 68 to have a significant impact, it should proactively discuss the matter with its bondholders and rating agencies. During the earlier implementation of GASB Statement No. 45, government officials raised concerns with accounting for other post-employment benefits.
At that time, many were re-assured that rating agencies were aware of these benefits and the related costs, and that the standard was not expected to result in significant changes in the financial outlook. It remains to be seen whether Statement 68 will be similarly received. However, proactive communication with rating agencies may help minimize any rating impact.
Part of GASB’s reasoning behind voting to implement the new standard now were assurances from financial statement users that a clearly worded modification would not negatively affect their analyses of government finances. While this may be true as a general statement, it would still be wise to discuss the matter with financial statement users early in the process to ensure there are no additional concerns.
Talk with the governing body
At a minimum, a municipality should communicate two things to its governing body:
- The time and effort expected to implement GASB 68 is significant. Even if all of the required information is obtainable and auditable, implementation will require additional resources from departments that already have limited resources.
- The changes in reporting (particularly if a restatement is required to establish a beginning-of-the-year net pension liability), will require management to spend time proactively communicating with the governing body. A restatement is often viewed as the correction of an error, so it is important for management to relay that, in this case, restatement is simply complying with GASB 68.
In addition, if management expects the auditor to issue a modified opinion, similar communication will be required to articulate that the modification relates to the new information required under GASB 68.
Complying with the requirements of GASB 68 will be a significant undertaking for many government bodies. Proactive communication between all of the affected parties will help assure a smooth transition for financial statement users, and minimize the strain on the administrative resources.