By Eric Boehm | PA Independent
HARRISBURG — Changes adopted by an independent agency that sets accounting standards for public pension plans will show a wider gap between assets and liabilities for Pennsylvania’s two major pension systems.
The Governmental Accounting Standards Board, which adopted the new rules on Monday, said the changes provide a more accurate view of the assets and liabilities for pension funds across the nation, but others say the changes are simply a different way to view the problem, not necessary a better way.
In either case, the official funding levels for the State Employees Retirement System, or SERS, and the Public School Employees Retirement System, or PSERS, will decline under the new set of rules, leaving a larger unfunded liability.
At present, PSERS is about 69 percent funded and SERS is about 66 percent funded.
Under the new rules, PSERS will have about 57 percent of liabilities funded and SERS will have about 50 percent funded, according to estimates by the Center for Retirement Research at Boston College, which studies pension issues.
Robert Attmore, GASB chairman, said the new rules will give a clearer picture of the obligations due by governments to current and former employees.
“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,” he said.
The changes have to do with how pension funds account for future returns on investments.
Both SERS and PSERS assume an annual 7.5 percent rate of return. The new GASB rules will allow them to use that rate of return only for the portion of the funds that are covered with assets.
The other portion – the unfunded liability in both funds, which totals about $40 billion – will have to be accounted for going forward with a lower assumption of around 3.5 percent.
Without being able to assume the higher rate of return in the future, the consequence is an apparent increase in the unfunded liability.
Evelyn Tatkovski, spokeswoman for PSERS, said it was too early to determine how the new rules would affect the fund’s balance sheet.
“It is not an issue of accuracy,” she wrote in an email. “It provides another way of looking at the numbers.”
Pennsylvania’s two funds have not calculated yet how the new standards will affect their balance sheets, and will not have to comply with the new rules until the end of the year.
Pamela Hile, spokeswoman for SERS, said preliminary assessments indicated the changes would not have a major impact on SERS’ financial reporting, but more in-depth analysis was necessary.
“SERS certainly supports the transparency the proposed standards seem like they may allow our system to achieve for Pennsylvania’s taxpayers, SERS’ members and the commonwealth’s policymakers,” she wrote in an email.
As a result, the estimated $40 billion unfunded liability in the two pension funds will balloon to about $50 billion using the new standards, according to the numbers presented by the Boston College report.
Eileen Norcross, a senior research analyst for the Mercatus Center at George Mason University, a national free-market think tank, said the reforms will make pension accounting more accurate, but should go farther.
“The GASB reforms are a compromise, but they are still leaving out a part of the liabilities,” Norcross said.
For a more accurate picture, pensions should be required to use the lower expected rate of return for all investments — not only the unfunded portion of their accounts, she said.
Jordan Marks, executive director of the National Public Pension Coalition, a union-backed collection of groups representing public employees, denounced the changes for making unfunded liabilities look worse.
“Instead of continuing to punish public workers for politicians’ fiscal ineptitude, we should be demanding that our elected official start holding Wall Street accountable and start making them pay their fair share,” he said in a statement.
This story was updated on 6/28/12 at 7:05 to accurately show PSERS’ funding ratio under the new GASB standards. The figures provided by Boston College in the original story were incorrect.