GASB 67 & 68 Overview
The Governmental Accounting Standards Board (GASB) recently approved two new statements that will change the way a public retirement system like SDRS discloses its pension information. The new GASB Statements are a change from the way financial disclosures have been made in the past, and SDRS will be assisting affiliated employers in the development of the required information for employer reporting.
Statement No. 67 replaces the requirements of the existing Statement No.25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, and is effective for fiscal years beginning after June 15, 2013. SDRS will include these new requirements in the year-end 2014 CAFR.
Statement No. 68 replaces the requirements of Statement No. 27, Accounting for Pensions by State and Local Governmental Employers. This reporting requirement applies to SDRS-affiliated employers and is effective for fiscal years beginning after June 15, 2014.
Both Statement Nos. 67 and 68 replace the requirements of Statement No. 50, Pension Disclosures.
The new Statements relate to accounting and financial reporting issues and how pension costs and obligations are measured and reported in audited external financial reports. While there has been a close relationship between how governments fund pensions and how they account and report information until now, the new guidance establishes a decided shift from a funding-based approach to an accounting-based approach. This shift was designed to improve pension information and increase the transparency, consistency, and comparability of pension information across governments.
Historically, GASB viewed an unfunded pension obligation as a liability to be reported in future financial statements, rather than as an existing liability of the employer or plan and information about the total liability was disclosed in the required supplemental information. GASB has adopted a formal definition of a liability for purposes of governmental financial reporting, known as the Net Pension Liability, which now will show on participating employers' balance sheets.
It is important to note that these new reporting requirements will not necessarily reflect the financial condition of a governmental entity because a pension liability cannot be made immediately due and payable. In an instance where there might be a surplus attributable to the pension plan, the assets belong to the employees, not to the governmental employer and cannot be used for any purpose other than to pay retirement distributions to employees once they are eligible to receive them.