New GASB Pension Rules to Impact PLeasanton Balance Sheet
Original post made by Transparency Is Overdue, Another Pleasanton neighborhood, on Aug 9, 2011
The new rules being proposed by the Government Accounting Standards Board are only new to government accounting practices. The rules changes are bringing public-sector pension accounting in-line, or at least heading in that direction, with already established rules for private-sector pension funds. The rule changes will have a significant impact on how the city of Pleasanton, and PUSD, report their unfunded pension liabilities. Currently, the unfunded liabilities are only reported in off balance sheet footnotes. That will soon change in a BIG and DRAMATIC way.
One of the issues being considered is how "smoothing" debt will be accounted for. Smoothing, CalPERS style, is the practice of spreading costs, for work that has already been consumed, over a 15 year period. In other words, the cost of last year's employees hasn't been fully recognized. We will continue making payments toward our employee's compensation, for last years service, for the next 15 years. To add insult to injury, the 2008-2009 stock market losses impacted the pension fund to the extend that CalPERS deemed it necessary to amortize those losses over a 30 year period, for work that was consumed during the same time frame, on top of the already established dollar amount from the 15 year smoothing policy.
Here is what one pension expert, Girard Miller, Editor of Governing Magazine, has to say about this practice:
""How high will this flood crest? Local employers are now skeptical that they have been told the full truth about how high their pension costs will ultimately surge. Unlike the vast majority of public pension funds, CalPERS uses a 15-year actuarial smoothing process that camouflages the genuine economic impact of market fluctuations. I have no issue with normal industry-standard actuarial smoothing periods of 5 years, in light of the average length of a business cycle which is 6 years based on 14 recession cycles in the past 84 years. But the CalPERS process is opaque and flunks the transparency test that taxpayers, public managers and municipal bond investors are entitled to expect. As I have explained before, such extraordinary "smoothing" practices deserve SEC investigation as an "artifice and device" to conceal relevant financial information from the investment community as well as the employers who must now bear the financial brunt of unsustainable pension benefits."
The new GASB rules will address the smoothing issue and, more importantly, require public pensions to move this off balance sheet debt to the balance sheet, while requiring the pensions funds to account for unfunded pension liabilities using a reduced discount rate - lower than the current 7.75% they are currently using - and the taxpayers are guaranteeing, to hide the true unfunded liability. In other words, the true cost of the debt will become more transparent and will FINALLY show up on the balance sheet - more difficult for the city to hide the growing unfunded liability. That goes double for the PUSD. This doesn't include the even bigger problem of unfunded retiree medical costs but GASB is expected to change those accounting rules the following year. It will look bad on the balance sheet but the public will see the hole that elected officials having been digging.
While the new GASB'y pension rules are still being analyzed, there is an opportunity for those interested in participating in , or listening to, a webinar that will be held tomorrow (Wednesday) between 10-11 am:
I would encourage city staff and the PUSD school board to participate.
One more reminder … Wednesday from 10AM to 11AM the Chair of the Governmental Accounting Standards Board (GASB) and GASB's Executive Director will give a Webinar titled "An Overview of the GASB's New Pension Proposals".
Here's GASB's info about the webinar including how you can register:
You can also access info from the home page at Web Link