Question

When governmental entities provide defined benefit pension plans to governmental employees, a pension trust fund is used by the governmental entity that is acting as a trustee on behalf of current and future retirees to manage the funds at the "plan" level.

The pension trust fund reports liabilities on its Statement of Fiduciary Net Position that primarily are related to pension benefits currently due to retired employees.

The statement does not report a long-term liability for an unfunded portion, if any, of pension obligations.

Do you think this is misleading? What, if anything, should be done differently at the "plan" level to provide readers with greater transparency regarding long-term funding of pension obligations?

Answer 1

The Governmental Accounting Standards Board (GASB) approved Statement No. 67, Financial Reporting for Pension Plans.This guidance provides guidance in relation to plans that are reported as a fiduciary fund by a government.

The Fiduciary net position is required to be reported as provided in this standard.

The statement of fiduciary net position reports on a pension plan’s financial position as of the end of the fiscal year and contains the following information:

• Assets, like cash, receivables from employers and plan members, investments (at fair value), and equipment and other assets used in pension plan operations
• Deferred outflows of resources
• Liabilities, like benefit payments due to plan members
• Deferred inflows of resources
• Fiduciary net position, which equals assets, plus deferred outflows of resources, minus liabilities, minus deferred inflows of resources.

In view of the above it is evident that the Statement of Fiduciary Net Position does not report a liability for unfunded pension obligations—that is, amounts expected to be paid to employees in the future in excess of resources currently available.

To determine whether a pension plan is adequately funded, compare the net position of the pension fund to an estimate of the government’s total obligation hence it might be better option that the notes to account or disclosure should capture this aspect separately so as to increase the transparency.