In 2012, the Governmental Accounting Standards Board (GASB) introduced revised requirements for public pension plans (GASB 67) and employers affiliated with those public pension plans (GASB 68) that significantly changed how public pension assets and liabilities were to be measured and disclosed for accounting and financial reporting (rather than funding) purposes.

Prior to 2012, the assets and liabilities determined for funding purposes typically were appropriate also to be used for accounting and financial reporting requirements under GASB 25 for most public pension plans. But as a result of the 2012 revisions, public pension plans – including PERA – now report two different measures of funded status: the first, based on the actuarial methods and assumptions under the pension funding policy adopted by the PERA Board and the second, based on the revised accounting and financial reporting requirements under GASB 67. PERA and PERA employers first began reporting under GASB 67 in 2014 and GASB 68 in 2015, respectively.

The revised GASB statements relate to accounting and financial reporting issues only—how pension costs and obligations are measured and disclosed in audited external financial reports. While in the past there has been a close relationship between how governments fund pensions and how they account and report information, the guidance under GASB 67 and GASB 68 established a decided shift from the former funding-based approach to an accounting-based approach. This shift was designed to improve the usefulness of reported pension information and increase the transparency, consistency, and comparability of pension information across governments.

(To learn more about the changes to accounting rules, visit PERA’s GASB guidance section.)

Under GASB 67:

the rate used to discount projected benefit payments to their present value will be based on a single rate that reflects (a) the long-term expected rate of return on plan investments as long as the plan net position is projected under specific conditions to be sufficient to pay pensions of current employees and retirees and the pension plan assets are expected to be invested using a strategy to achieve that return; and (b) a yield or index rate on tax-exempt 20-year, AA-or-higher rated municipal bonds to the extent that the conditions for use of the long-term expected rate of return are not met.

In 2017, PERA determined the plan’s liabilities using a discount rate of 7.25 percent as set by the PERA Board for funding purposes—applicable to all five division trust funds, but also determined the plan’s liabilities using a blended discount rate considering the 7.25 percent assumption and a municipal bond rate, in part, [as required under GASB 67 provisions (a) and (b) above] for financial reporting purposes—applicable to three of the five division trust funds. For example, this resulted in a 59.4 percent funded status for the School Division and 57.5 percent funded status for the State Division determined for funding purposes and a 44.0 percent and 43.2 percent funded status, respectively, determined under GASB 67, for accounting and financial reporting purposes.

In dollar amounts, unfunded liabilities for the first calculation total $28.8 billion and for the second, $54.6 billion; a difference of $25.8 billion.

So what’s the “real” number? Senate Bill 18-200 reduced PERA’s liabilities, no matter which reporting basis is used. Prior to SB 200, liabilities determined for funding purposes were $32.2 billion and projected to increase another $1.4 billion. With the implementation of SB 200, funding liabilities declined $3.4 billion to $28.8 billion and are projected to be eliminated within a 30-year period.