FT: New Accounting Standards Could Widen Pension Funding Gap

In a Financial Times article, writers Nicole Bullock and Hal Weitzmanin note that new accounting standards before the Governmental Accounting Standards Board (GASB) could cause some U.S. states to “see the reported shortfalls in their public pension funds grow sharply.”

The debate over pension plan accounting has been especially sharp in recent years, as decades of underfunding coupled with stock market losses during the financial crisis widened funding gaps, causing states to push for benefit cuts.

One of the GASB’s proposals, which Bullock and Weitzmanin say is likely to pass, would require that pension funds report assets on a mark-to-market basis.

Currently, states employ a “smoothing” method, which allows for losses to be spread over a longer period of time. Though controversial, the technique has allowed government pensions to prevent reported assets from fluctuating wildly as market values change.

“That change is going to be fairly dramatic,” said Laura Quinby, research associate at the Center for Retirement Research at Boston College. “Currently actuarial assets are higher than market assets because the full losses from 2008-9 have not been phased in yet.” The new standards “will better reflect the economic reality,” said Robert Attmore, chairman of the GASB.