Statement No. 27
Accounting for Pensions by State and Local Governmental Employers
This Statement establishes standards for the measurement, recognition, and display of pension expenditures/expense and related liabilities, assets, note disclosures, and, if applicable, required supplementary information in the financial reports of state and local governmental employers. Reporting requirements for pension trust funds of employers are included in two related Statements: No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, and No. 26, Financial Reporting for Postemployment Healthcare Plans Administered by Defined Benefit Pension Plans.
Employers that participate in single-employer and agent multiple-employer defined benefit pension plans (sole and agent employers) are required to measure and disclose an amount for annual pension cost on the accrual basis of accounting, regardless of the amount recognized as pension expenditures/expense on the modified accrual or accrual basis. Annual pension cost should be equal to the employer's annual required contributions (ARC) to the plan, unless the employer has a net pension obligation (NPO) for past under- or overcontributions.
The ARC is defined as the employer's required contributions for the year, calculated in accordance with certain parameters. The parameters include requirements for the frequency and timing of actuarial valuations as well as for the actuarial methods and assumptions that are acceptable for financial reporting. When the methods and assumptions used in determining a plan's funding requirements meet the parameters, the same methods and assumptions are required for financial reporting by both a plan and its participating employer(s).
An NPO is defined as the cumulative difference between annual pension cost and the employer's contributions to a plan, including the pension liability or asset at transition, if any. An employer with an NPO should measure annual pension cost equal to (a) the ARC, (b) one year's interest on the NPO, and (c) an adjustment to the ARC to offset the effect of actuarial amortization of past under- or overcontributions.
The calculation requirements for the pension liability or asset at transition are similar to the requirements for calculating the NPO after the effective date. For some employers, the requirements include recalculation of any differences between the employer's actuarially determined required contributions and the contributions made, for all fiscal years beginning between December 15, 1986 and the effective date of this Statement.
Pension expenditures of governmental and expendable trust funds and all other entities that apply governmental fund accounting should be recognized on the modified accrual basis. A liability balance in the NPO should be recognized in the general long-term debt account group; an asset balance should not be recognized in the financial statements but should be disclosed. Pension expense of proprietary and similar trust funds and all other entities that apply proprietary fund accounting, and pension expenditures of colleges and universities that apply the AICPA College Guide model, should be recognized on the accrual basis; NPO balances should be recognized as fund liabilities or assets.
In addition to descriptive information about the plan and its funding policy, the required disclosures include three years of information about annual pension cost and, if applicable, the components of annual pension cost, the increase or decrease for the year in the NPO, and the year-end balance of the NPO. Information about the plan's funding progress for the past three actuarial valuations, calculated in accordance with the parameters, should be reported as required supplementary information. Information for one or more of those valuations may be disclosed in the notes to the financial statements. However, unless the note disclosures include all three valuations, the information also should be reported as required supplementary information.
Employers that participate in cost-sharing multiple-employer defined benefit pension plans are required to recognize pension expenditures/expense equal to the employer's contractually required contributions and a liability for unpaid contributions. Recognition should be on the modified accrual or accrual basis, depending on the fund type or type of entity. Previously recognized pension liabilities should be adjusted at the effective date to equal the pension liability at transition, if any. That amount should be equal to the employer's contractually required contributions that are unpaid at the effective date. In addition to descriptive information about the plan and its funding policy, the required disclosures include three years of information about the employer's required contributions and the percentage contributed.
Employers that participate in defined contribution plans are required to recognize pension expenditures/expense equal to the employer's required contributions to the plan and a liability for unpaid contributions. Recognition should be on the modified accrual or accrual basis, depending on the fund type or type of entity. The required disclosures include descriptive information about the plan and the required and actual contributions of the employer and plan members.
This Statement also includes guidance for employers that participate in insured plans and for entities that are legally responsible for contributions to pension plans covering employees of other entities. Guidance also is provided for sole and agent employers that elect to apply the pension measurement provisions of this Statement to postemployment healthcare benefits on an interim basis, pending issuance of a future Statement(s) on accounting for those benefits.
The provisions of this Statement are effective for periods beginning after June 15, 1997. Early implementation is encouraged.
Unless otherwise specified, pronouncements of the GASB apply to financial reports of all state and local governmental entities, including general purpose governments, public benefit corporations and authorities, public employee retirement systems, utilities, hospitals and other healthcare providers, and colleges and universities. Paragraph 4 discusses the applicability of this Statement.