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Pension Fund Accounting and Reporting Changes: Meaningful Changes are Afoot

Changes to accounting standards governing pension funds could affect U.S. and

Pension fund executives in both the United States and the United Kingdom are bracing for changes to accounting standards and financial reporting requirements that could have a major impact on pension funds in each country.

In the United States, the Governmental Accounting Standards Board has proposed rules that would shift the focus of financial reports from annual required contributions and require funds to include information about liabilities in their statements. The rules were originally proposed in July of last year, but the GASB is preparing to vote on them June 18, according to Pensions & Investments.

Essentially, the change will mean public pension funds must report both figures - the contribution requirements and the net pension liabilities - in a similar way as private corporations. Previously, liabilities were consigned to the footnotes of these reports, P&I reported.

"In accounting terms, the change means that the unfunded actuarial accrued liability will use traditional entry-age projections offset by the fair value of plan assets," according to the source. "Currently, pension plans vary in which ages they use in their projections."

Public pension execs are bracing for the changes, and worry they could have a chilling effect on funding. A big part of countering this effect will be educating decision-makers on exactly what the new numbers mean, Paul Zorn, director of governmental research for actuarial firm Gabriel Roeder Smith & Co., told the source. To this end, the Center for State and Local Government Excellence is creating its own group that will make new accounting standards and policy recommendations for public pension funds.

Across the pond, representatives from Britain's National Association of Pension Funds are up in arms over a proposal from that country's Accounting Standards Board to classify pension funds alongside banks and insurers, which would significantly alter their financial disclosures.

"The trade body said schemes would be forced to disclose details of the financial instruments they use, such as derivatives and hedge funds, which would result in "major costs" for large pension schemes," reported Professional Pensions.

Not only would the proposed rules add reporting requirements that are already imposed on banks and insurers, there would be additional requirements specific to pension funds, according to NAPF.

This is one of three rules ASB is considering that are designed to consolidate reporting standards across a variety of industries, according to the source. They are set to take effect January 1, 2015.

Comments

Topic Expert
Barrett Peterson
Title: Senior Manager, Actg Stnds & Analysis
Company: TTX
(Senior Manager, Actg Stnds & Analysis, TTX) |

The GASB requirement are way overdue and still not all that they should be. The international standars have become somewhat more like US GAAP, with a significant difference in accounting for actuarial gains and losses expected to be considered later in the US. The "geography" of the rest of pension expense also differs betwern GAAP and IFRS.

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