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Estate and Elder Law

Government Accounting -- Accounting Issues in Pensions and Other Postemployment Benefits

By Edward W. Stepnick CPA, G. Robert Smith Ph.D. C.P.A. C.G.F.M and Dwayne N. McSwain CPA*

Employee pensions and other postemployment benefits (OPEB), such as healthcare, life insurance, disability, and long-term care benefits, are significant elements of cost for state and local governments. This Emerging Issue Analysis details the important field of governmental accounting for pensions and other postemployment benefits, updates the area, and discusses the most recent significant updates in the field.



     Current GAAP for pensions stem from two sets of standards issued in 1994, one focusing on pension plans and the other on contributing state and local government employers. Those standards were amended in 2007 to align more closely the financial reporting requirements for pensions with those for OPEB.

     Pension plans. Governmental Accounting Standards Board (GASB) Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, explains how to present a defined benefit pension plan's financial statements, note disclosures, and required supplementary information in:

(1) a plan's separately issued (stand-alone) financial report;

(2) a PERS financial report; and

(3) a pension trust fund included in the financial report of a state or local government that is the plan's sponsor.

     Although disclosure standards for defined contribution pension plans are also detailed, the statement does not discuss defined contribution plans' accounting, financial statements, or required supplementary information.

     Government employers. GASB Statement No. 27, Accounting for Pensions by State and Local Governmental Employers, discusses how state and local government employers should report their expenditures, expenses, liabilities, and assets related to pension contributions. The statement, however, does not address financial reporting for plans that are reported as pension trust funds of the employer. Therefore, governments that include pension trust funds in their financial reports should follow GASB Statement No. 25 for pension trust fund reporting and GASB Statement No. 27 for reporting employer pension contributions, liabilities, and assets. (GASB Statement No. 27 also applies to the pension costs of public colleges and universities.)

     Neither the GASB nor the FASB has issued financial accounting and reporting standards specifically for defined contribution plans, except for disclosures. Other GAAP guidance includes the following:

Data in Image NCGA Statement 1 and GASB Statement No. 14 state that defined contribution plans should be reported in an employer's financial report as pension trust funds on the accrual basis of accounting if the employer has a fiduciary responsibility for the plan.
Data in Image GASB Statement Nos. 3 and 31 indicate that most, if not all, defined contribution plan investments should be reported at fair value.
Data in Image The AICPA audit and accounting guide, "Audits of Employee Benefit Plans," cites guidance in other accounting literature regarding reporting defined contribution plans. While governments may find this guidance useful, they are not required to follow it.

(footnotes omitted) 

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*Edward W. Stepnick, C.P.A., continuing professional education consultant on government accounting and auditing, Sarasota, FL. G. Robert Smith, Jr., C.P.A., C.G.F.M., has his Ph.D. from Texas Tech University. He is an Associate Professor of Accounting at Middle Tennessee State University. Dwayne N. McSwain, C.P.A., has his Ph.D. in Accounting from the University of Texas, Arlington. He is an Assistant Professor of Accounting at Appalachian State University.


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