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Business and Policy Areas
Business and Policy Areas

GASB Releases New Pension Guidance

July 13, 2012

The Governmental Accounting Standards Board (GASB) has approved a new pension standard that will affect how governmental entities measure, report, and disclose information about defined benefit pensions offered to employees. The new guidance in Statement No. 68, "Accounting and Financial Reporting for Pensions," takes effect in FY 15 and will impact public higher education institutions.

Pension benefits are part of a compensation exchange between an employer and employee. The new standard attempts to align the recognition of pension expense with the period in which the related benefits are earned. Consequently, the measurement process incorporated into Statement No. 68 involves three essential steps:

  1. Project future benefit payments for current and former employees and their beneficiaries.
  2. Discount those payments to their present value.
  3. Allocate the present value over past, present, and future periods of employee service.

Overall, the changes set forth by the GASB will likely accelerate the recognition of pension expense. As a result, governmental employers will have to recognize and report a related net pension liability-the difference between the total actuarially determined pension benefit liability and plan assets that are available to pay the calculated benefits.

For purposes of Statement No. 68, employers fall into one of three categories:

  • Cost-sharing employers provide their employees with defined benefit pensions through cost-sharing, multiple-employer pension plans-plans in which the plan assets can be used to pay the pensions of any participating employer's employees.
  • Single employers provide their employees with defined benefit pensions through single-employer pension plans-plans in which pensions are provided to the employees of only one employer.
  • Agent employers provide their employees with defined benefit pensions through agent multiple-employer pension plans-plans in which plan assets are pooled for investment purposes but are legally segregated to pay the pensions of each employer's employees.

The most significant aspect of the new standard for public higher education institutions concerns the recognition of pension expense and a net pension liability for cost-sharing employers. Hundreds of public institutions have employees who have been promised pension benefits through their state's public employee retirement systems, which are structured as multiple-employer, cost-sharing plans. Currently, cost-sharing employers are not required to present actuarial information about pensions.

The new guidance for cost-sharing employers in Statement No. 68 reflects the GASB's belief that the information needs of users regarding cost-sharing employers do not differ significantly from those interested in single and agent employers. Accordingly, cost-sharing employers are viewed collectively as having primary responsibility for the plan's unfunded pension obligations. Under the new standard, public colleges and universities that are part of their state's multiple-employer, cost-sharing pension plan will report a proportionate share of a net pension liability and pension expense.

The final pension standard will be available from the GASB in August. NACUBO will provide more detailed analysis in an upcoming issue of Current.


Sue Menditto
Director, Accounting Policy