GASB Statement No. 67

Definition

GASB Statement No. 67 is a guideline established by the Governmental Accounting Standards Board that provides a framework for accounting and financial reporting for pension plans. This statement focuses on the information that pension plans must disclose, including the valuation of pension liabilities and assets, which is crucial for transparency and accountability in financial reporting.

5 Must Know Facts For Your Next Test

1. GASB Statement No. 67 was issued in June 2012 and is specifically designed for state and local government pension plans.
2. The statement requires detailed disclosures about pension plan liabilities, including the actuarial assumptions used to measure those liabilities.
3. It mandates the recognition of a net pension liability on the balance sheet, reflecting the true cost of providing pension benefits.
4. Plans must also provide information about their funding progress, including contributions made towards covering the pension obligations.
5. GASB 67 improves consistency in reporting among different governmental entities, enhancing the comparability of financial statements.

Review Questions

• How does GASB Statement No. 67 impact the transparency of pension plans in financial reporting?
  • GASB Statement No. 67 enhances transparency in financial reporting by requiring pension plans to disclose detailed information about their liabilities and assets. This includes presenting a net pension liability on the balance sheet, which reflects the actual financial obligations that need to be met. By mandating standardized disclosures and valuation methods, it allows stakeholders to better understand the financial health of pension plans and assess their ability to meet future obligations.
• Discuss how GASB Statement No. 67 affects actuarial valuations and the assumptions used within those valuations.
  • GASB Statement No. 67 significantly influences actuarial valuations by stipulating the necessity for specific assumptions regarding discount rates, mortality rates, and retirement ages. Actuaries must ensure these assumptions are reasonable and reflect current market conditions, as they directly impact the measurement of total pension liabilities. This alignment helps ensure that reported figures accurately represent the pension plans' future payouts and funding needs.
• Evaluate the implications of GASB Statement No. 67 for long-term financial planning in state and local government entities.
  • The implications of GASB Statement No. 67 for long-term financial planning are profound, as it necessitates greater scrutiny of pension funding strategies by state and local governments. By requiring accurate measurement of net pension liabilities and more transparent reporting, entities must now prioritize sustainable funding levels to meet future obligations. This shift compels governments to develop comprehensive fiscal strategies that balance budgetary constraints with adequate contributions to pension plans, ultimately promoting fiscal responsibility and sustainability over time.

Related terms

Pension Liability: The obligation of a pension plan to pay benefits to its members, calculated based on expected future payouts.

Net Pension Liability (NPL): The difference between the total pension liability and the plan's fiduciary net position, indicating the shortfall in assets available to cover pension benefits.

Actuarial Valuation: A systematic process that assesses the financial status of a pension plan, involving calculations of present value of future liabilities and asset valuations.