Newspaper article The Florida Times Union

Pension Changes May Make Debt Look Larger; but It's Really Just Cosmetic Effect, According to Board

Newspaper article The Florida Times Union

Pension Changes May Make Debt Look Larger; but It's Really Just Cosmetic Effect, According to Board

Article excerpt

Byline: Walter C. Jones

ATLANTA | The state's balance sheet could wind up showing a bigger figure in the liabilities column under accounting changes ordered last month by a national oversight body.

That's because the pension plans for state workers and retirees will be calculated more conservatively as a result of the change by the Governmental Accounting Standards Board.

"The new standards will improve the way state and local governments report their pension liabilities and expenses, resulting in a more faithful representation of the full impact of these obligations," GASB Chairman Robert H. Attmore said.

No estimates were available from the Employees' Retirement System of Georgia as of Friday, but Joshua Rauh of Northwestern University estimated that nationally it could boost the figure for outstanding liabilities more than seven times.

"While this information will, in some cases, give the appearance that a government is financially weaker than it was previously, the financial reality of the government's situation will not have changed," the GASB observed in its explanation.

Under current standards, in 2009 Georgia's plan had just over 85 percent of the money it will need over the next 30 years to pay expected retirees. Compared with other states, that looks good.

A comparison of all 50 states' pensions released June 18 by the Pew Center on the States noted that Georgia is ahead of the 80 percent most financial experts describe as the minimum, prudent funding level that 34 states fall below.

Incidentally, the pension fund for legislators had 128 percent of its needed investment.

The Pew Center classified Georgia as "a solid performer at how it managed its long-term liabilities for pensions."

However, the most recent audit of the pension shows the funding level fell the following year to just 80 percent.

Still, the funding level is likely to be significantly lower under the new accounting guidelines. One reason is that the investment assets will have to be reported at their current value rather than the seven-year average Georgia uses.

Until now, states have used the averaging to smooth out losses over several years, according to Laura Quinby, research associate at the Center for Retirement Research at Boston College.

"That change is going to be fairly dramatic," she told the Financial Times. "Currently, actuarial assets are higher than market assets because the full losses from 2008-9 have not been phased in yet."

The new rules are similar to those imposed on banks at the outset of the financial crisis that started the most recent recession. …

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