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Fitch backs GASB pension rules

Fitch Ratings recently backed new GASB rules for government pension funds.

New Governmental Accounting Standards Board guidelines regarding government-run pension funds have received support from a major financial agency. Fitch Ratings said the rules will be "generally positive" for U.S. states.

"The new accounting standards will modify how governments calculate and report their liability for unfunded pension obligations and the associated annual expense," Fitch said in its supporting statement. "Calculations under the new standard will reflect a narrower range of assumptions and will recognize changes in a more conservative manner than current standards allow. For instance, the discount rate assumption in the future will blend a plan's investment return assumption for the portion of the obligation for which assets have been set aside and a lower investment return assumption for the remainder of the obligation."

The Fitch analysis of the new rules did raise one point of possible contention, however. The agency pointed out that, under the plan, pension funds will no longer have to report an actuarially calculated annual required contribution if the government does not fund its plan on an actuarial basis. According to Fitch, this measure is helpful in determining whether pensions will be fully funded based on a government's actual contributions.

Recently, Accounting Web highlighted a report from the Pew Center on the States that found the gap between pension promises and actual money set aside to cover those pensions is roughly $1.38 trillion.