New GASB Exposure Draft Issued

The Governmental Accounting Standards Board (GASB) has issued an exposure draft of a proposed statement addressing certain pension issues. The exposure draft would amend Statements No. 67, 68, and 73, effective for reporting periods beginning after June 15, 2016.

Action Needed Now: Plans and plan sponsors need to be aware of the proposed changes and decide if they want to submit comments. Comments are due by February 12, 2016. The exposure draft is at this link .


GASB issued Statements No. 67, 68, and 73 to revise the accounting and financial reporting for defined benefit pension plans by governmental entities. In general, the new statements prescribe the method used to report plan assets, net pension liability, and pension expense. The statements also require that certain measures be disclosed as a percentage of the payroll of covered employees.

After the issuance of Statements No. 67, 68, and 73, questions have continued to arise regarding certain issues. The new exposure draft is intended to address some of these issues.

Proposed Changes

The proposed changes are:

  1. The measure of payroll that is presented in schedules of supplementary information (and used in ratios that are presented) should be covered payroll. Covered payroll is the portion of compensation paid to active employees on which contributions to a pension plan are based.
  2. A deviation from actuarial standards of practice in selecting actuarial assumptions used to determine the total pension liability is not considered to be in conformity with Statements 67, 68, or 73.
  3. The payment by the employer of contributions that are classified by the plan as plan member contributions will be treated as plan member contributions, including the exclusion of these contributions when determining a cost-sharing employer's proportionate share. The employer should disclose information about an arrangement in which it pays member contributions.

Cheiron Observations

The proposed change with respect to the measure of payroll will eliminate an unnecessary administrative burden. Many plans do not receive information on the total payroll for covered employees that was required for disclosures under GASB 67 and 68 because there are often pay elements that are not included in pay for purposes of determining plan benefits or contributions. The plans typically only receive the payroll upon which pension benefits and contributions are based. The proposed change harmonizes the reporting requirements of Statements No. 67 and 68 with the information typically received by pension plans.

The proposed change concerning the deviation from actuarial standards is not surprising as similar language was included in Statements No. 74 and 75 relating to reporting for postemployment benefit plans other than pension plans. An actuary can comply with actuarial standards by disclosing any deviation from the guidance in the standards. GASB is making it clear that in the selection of assumptions for accounting and financial reporting purposes, there should be no deviation from the guidance in actuarial standards.

The proposed change with respect to member contributions that are paid by the employer clarifies GASB's intent in response to some preliminary guidance provided by AICPA that would have treated these contributions as employer contributions. Under the Internal Revenue Code (IRC), contributions that would be employee contributions but that are "picked up" by the employer (following the rules set forth by the IRS1) are treated as employer contributions for income tax purposes. However, from the point of view of the plan and the employees, the picked up amounts are part of the compensation upon which pensions and contributions are based. The proposed change recognizes these types of arrangements are tax-motivated and treats the amounts as employee contributions for accounting and financial reporting purposes.

Cheiron pension consultants can assist you in analyzing the impact of these proposed changes.

Cheiron is an actuarial consulting firm that provides actuarial and consulting advice. However, we are neither attorneys nor accountants. Accordingly, we do not provide legal services or tax advice.

1See IRC section 414(h)(2) and Revenue Ruling 2006-43.