Government Finance Officers Association Issues Guidelines For Pension Funding


As market regulators press for stricter reporting guidelines for state and local governments concerning pension disclosure in public offerings, the Government Finance Officers Association (GFOA) is advocating that funding policies and goals be developed separately from accounting and reporting standards. The GFOA is making this push as part of a larger “task force” of representative groups, including state auditors, representatives from the National Association of State Retirement Administrators, and the National Council on Teacher Retirement.

The GFOA’s new guidelines go a step beyond its “Best Practice” document issued earlier in November, which emphasized the critical importance of adequate pension disclosure in public offerings. This document, along with similar statements from the National Association of Bond Lawyers (NABL), the Municipal Securities Rulemaking Board (MSRB), the Securities and Exchange Commission (SEC), responded to changes the Governmental Accounting Standards Board (GASB) made in June 2012. (Our previous discussions of these statements are available here.) GASB’s changes promoted more uniformity and transparency in financial reporting, but the responses have argued for more stringent reporting guidelines.

GASB’s changes included new ways for governments to report pension liabilities and expenses, a removal of the requirement to report annual required contributions (ARCs) in financial reports, and a relaxing of the parameters on how the annual contributions should be calculated. The new GFOA guidelines recommend that governments and retirement systems continue tracking and reporting the data.

Specifically, the guidelines recommend that state and local governments follow five tenets to create a sound funding policy and make reporting easier:

  • Base the policy on actuarially-determined contributions.
  • Commit to meeting funding targets.
  • Ensure that benefit costs are paid by the generation of taxpayers receiving the services.
  • Manage contributions so that employer costs remain consistent as a percentage of payroll over time.
  • Promote accountability, transparency, and the ability to maintain contributions at a stable percent of payroll.

Finally, although GASB no longer requires that state and local governments report ARCs, the GFOA guidelines recommend that they continue to do so, and that state and local governments report ARC in financial statements if it is voluntarily calculated.

The GFOA guidelines suggest that pension funding policy and pension fund accounting go hand in hand. State and local governments should be prepared to properly disclose their pension obligations and funding status if, the paper argues, they first establish sound funding policies and practices.

As the regulatory trend seems to move inexorably toward enhanced and improved disclosure in municipal securities offerings, it is important to remember that the path forward is not linear and the end not yet in sight. Nonetheless, local governmental officials must pay increasing attention to enhanced disclosure, greater accountability, and improved investor relations.

If you have questions about these recommendations or for more information, please contact William C. Rhodes at 215.864.8534 or, Kimberly D. Magrini at 215.864.8365 or, or any other member of Ballard Spahr’s Public Finance Group.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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