The Governmental Accounting Standards Board (GASB) has rolled out new financial reporting rules for pension funds, and the expectation is that the new rules will expose some “red ink”, so to speak, at pension funds who previously kept some liabilities off the books.
But implementation and enforcement of the rules is hardly straightforward. Pennsylvania serves as a great microcosm of the rules’ complexity. Mark Guydish writes about the impact of the rules on small municipalities:
GASB standards do not have the weight of law and GASB has no enforcement powers. The standards are widely adopted because independent auditors look for compliance with GASB, and state and federal money may depend on that compliance.
Theoretically, a small township that has an elected auditor rather than a contracted auditor could disregard GASB standards…though the risk to state and federal funds would still exist.
There’s another quirk in Pennsylvania, and Luzerne County, that complicates how these standards play out: The high number of municipalities managing their own pension funds, creating a wide disparity in the size of those funds.
On the one hand, the sheer number of municipalities and authorities may prevent big swings in the numbers once the new standards are used, simply because so many pension plans cover only a handful of people in many townships and boroughs.
On the other hand, Dave Davare, retired director of research at the Pennsylvania School Boards Association, noted that the dollar figures are so small it wouldn’t take much of a change to move a fund from surplus to deficit.
Dreyfuss pointed out that the standards do not require a municipality to meet pension obligations, simply to report them differently. From the municipality’s point of view, the most important number in Pennsylvania is the state-mandated “Minimum Municipal Obligation,” or MMO. Fail to pay the MMO, and state money can be at risk.
Hanover Township Manager Sam Gusto said that’s the focus at his office, and that there is no way of knowing the impact of the new GASB standard until the actual book work changes are implemented.
You can read the rest of Guydish’s massive piece here. It goes on to explain how the rules might impact school districts and state-level pension funds.