Cities, States Could Argue Over Share of Unfunded Pension Liabilities: Report

A new accounting requirement, issued by the Governmental Accounting Standards Board (GASB) and directed at cost-sharing retirement plans, could lead to in-fighting between cities and states, according to a recent report.

The report, released by the Center for State and Local Government Excellence and the Center for Retirement Research at Boston College, says cities and states could bicker over their respective shares of unfunded pension liabilities.

More details from BenefitsPro:

[The new GASB rule] requires employers that participate in cost-sharing pension plans to report their share of a state’s “net pension liability” on their balance sheet is having a substantial impact on many large cities that participate in cost-sharing state plans.

[…]

GASBB’s rule change not only requires employers to move pension funding information from footnotes onto their balance sheets, but also requires those who participate in cost-sharing plans to provide information regarding their share of the net pension liability on their books.

The liability isn’t new, and does not affect the funded status of a pension plan.

However, reporting their share of such liabilities has nearly doubled the burden of the 92 cities in the study that are in such plans.

“Local governments—now saddled with a portion of the state plan’s unfunded liabilities on their books—may be more interested in seeing the unfunded liability decline over time and will have a vested interest in ensuring that their contributions are doing just that,” [the report says].

In its footnotes, the study reported that, because of the change, “political tensions have already begun to emerge between a state and the local governments involved in its cost-sharing plans.”

Read the report here.

Photo by Laura Gilmore via Flickr CC License