How Will GASB 68 Affect Cities’ Reported Funded Status?

In a recent paper at the Center for Retirement Research at Boston College (CRR), Alicia Munnell and Jean-Pierre Aubry examine how the new provisions of the Governmental Accounting Standards Board (GASB) regarding public pension financial disclosure affects major cities’ reported funded status. Specifically, the paper looks at the GASB 68 rule that requires localities that participate in cost-sharing state plans to report their share of that plan’s unfunded liability on their books.

The paper is based on an analysis of 173 major cities, with a focus on 92 cities that are participating in cost-sharing state plans. To estimate a city’s share of assets and liabilities, the authors use the city’s contribution to a given state plan as a percentage of the plan’s total annual required contribution (ARC). In case the ARC information is not available, the ratio of the city’s actual contributions to the state plan’s total actual contributions is used instead.

The paper estimates that, for the 92 cities affected, the GASB 68 rule raises their unfunded liability as a percentage of revenue from 37 percent to 70 percent. The impact on the 173 cities is much smaller (only about 9 percentage points increase in the ratio) because the 92 cities are small in terms of revenue. One should note however that GASB 68 does not actually increase pension burdens on these cities, but merely makes them recognize these burdens on their books. The rule therefore may encourage local governments to fund their pensions more responsibly.

To read the paper, go here.