While stricter, new accounting and reporting standards for public pensions show that most are not contributing enough to improve their funding status, Moody's says that will have a "modest" impact on these plans' credit ratings.
One of the new standards issued by the Government Accounting Standards Board, GASB 67, was implemented last year, and is affecting the 2014 financials of pension plans now being released. The other new standard, GASB 68, will be implemented for plan years ending on June 15.
Together, the two require pensions to report a "depletion date," to determine whether plan assets are projected to be sufficient to cover benefits for current participants.
Recommended For You
With GASB 68, pensions will be required to report their Net Pension Liability, or what is commonly known as the unfunded liability, going forward.
So far, Moody's has reviewed 54 plan statements complying with GASB 67 for the first time. Just 13 received annual required contributions sufficient enough to reduce net pension liabilities, it said.
Still, the new data has not changed the rating agency's expectations, nor is GASB 68 expected to do so when it is implemented later this year, according to a report from Moody's.
"While GASB 67 and 68 impose many new rules related to pension accounting disclosure, our approach to evaluating credit risk stemming from public pension remains fundamentally unchanged," wrote analyst Thomas Aaron, one of the report's authors.
Essentially, the report says the public pensions are now required to do what ratings agencies been doing all along: account for, and report on, unfunded pension liabilities.
The new standards' marginal affect on ratings can be explained by the liabilities having already been considered by the ratings agency.
Consultants and actuaries have been predicting the new standards would increase accounting liabilities for many pensions.
The standards do not directly increase required contribution rates, according to a brief from Baker Tilly, a Chicago-based actuarial firm.
A recent report from the Center for Retirement Research said state and local pensions had over $1 trillion of unfunded liabilities in 2013 and only about 72 percent of the assets needed to meet future obligations. The figures, however, are skewed by a handful of states with gaping shortfalls, it said.
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
