At the ICMA Annual Conference in Seattle, David Vaudt, chairman of the Governmental Accounting Standards Board (GASB) joined local government leaders for a conversation about GASB’s role and standards, its engagement with the local government community, and changes to financial reporting standards relevant to local governments.
Here are some of the issues under examination by the GASB that local governments need to be aware of:
Pensions – GASB Statements 67 & 68
What? These standards significantly revise pension accounting and financial reporting standards. The new standards view the cost of pensions within the context of an ongoing, career-long employment relationship.
- Use an accounting-based rather than funding-based approach to measure and report any net pension liability.
- The portion of the total pension liability not covered by plan assets will be recognized as a liability on the face of the financial statements as the net pension liability (NPL).
- Local governments participating in cost-sharing plans (i.e., statewide plans) report a proportional share of the collective NPL.
- Discounting of the liability at the long-term expected rate of return is limited to the extent that assets are expected to be available to cover future benefit payment.
- Once a plan’s liabilities exceed its assets, the remainder of the liability must be discounted at the municipal bond rate.
- Only one actuarial valuation approach is now permitted (entry age, as a level percentage of payroll).
When? For pension plans, the requirements take effect for fiscal years ending June 30, 2014, and later. For employers, the requirements take effect for fiscal years ending June 30, 2015, and later
Other Post-employment Benefits (OPEB) – GASB Statements 74 & 75
- These standards now require employers to calculate their net OPEB liability and, to the extent that liabilities exceed assets set aside to fund the liability, the liability must be recognized on the face of the financial statements.
- Changes in measurement might increase the size of the long-term obligation and annual cost for OPEB.
- In most cases, local governments have not prefunded the OPEB liability at all, meaning that the OPEB liability could exceed the pension liability.
- The standards also require the presentation of more extensive note disclosures and supporting schedules.
When? For pension plans, the requirements take effect for fiscal years ending June 30, 2017, and later. For employers, the requirements take effect for fiscal years ending June 30, 2018, and later
Tax Abatement Disclosures
What? The goal of this statement is to provide disclosure guidance that is essential to financial statement users on tax abatements granted by local governments, giving users the opportunity to ask valuable questions.
Disclosures required are very high level, and abatements covered are only those with a specific taxpayer/taxpaying entity.
When? These requirements become effective December 15, 2015.
Individuals with questions about the GASB presentation can contact Amber Snowden, public policy coordinator, at email@example.com or 202-962-3639.