Public pensions are a major problem across the country.
Many are significantly underfunded and the gap between what state and local governments have on hand today and what they owe could be getting bigger.
Under current accounting standards from the Governmental Accounting Standards Board — a nonprofit group that sets guidelines for how governments report their finances — public pensions use a discount rate for future benefit liabilities using an assumed rate of return on assets.
Historically, that number has been around 8 percent.
But, as returns have fallen off in uncertain economic times, 8 percent is a risky number to assume moving forward.
In June, the GASB issued new standards to improve pension accounting and financial reporting. It is saying the discount rate should be more conservative, which means governments need to save more today to pay for pensions down the road.
“It’s all dependent on how much you fund the plan,” said Andrea Caladie, a partner in Philadelphia-based ParenteBeard’s Wilkes-Barre office. “In the last few years, governments have not funded pension plans, so liabilities could be much higher.”
State and local governments normally report as a liability only the difference between the contributions they are required to make to a pension plan versus what they actually fund. The new standards will require them to disclose the net pension liability equal to the difference between the total pension liability and the value of assets socked away to pay pension benefits.