LIMA — Recent changes from the Government Accounting Standards Board as to how government entities are required to report unfunded pension liabilities is being taken in stride by many local government bodies.
“The city of Wapakoneta has already previously made these changes,” according to city auditor Gail Walter. “There will be no new changes for us in 2014.”
For many public pensions in Ohio, these new regulations requiring local government bodies to add any unfunded pension liabilities may not give an accurate picture of that organization’s financial status. According to Lima schools treasurer Ryan Stechschulte, many public employee pensions, such as the School Employee Retirement System, are separate entities, with the government body only required to pay a set portion or percentage into the plan.
“This new requirement is going to show our liabilities as higher than what they actually are because when we pay the amount we’re required to the pension systems, our liability is done at that point,” he said. “It will make things a little more confusing.”
Putnam County Auditor Robert Benroth made a similar observation, noting that for the Ohio Public Employees Retirement System, the government pays 14 percent of an employee’s payroll into the plan, and that is where the employer’s liability ends.
“The pension liability stops when the employee leaves employment here, either for retirement or another job,” he said. “It’s been paid into the Ohio Retirement System, so they’re actually holding the money.”
However, Benroth asserted that GASB views these pensions as part of an employee’s benefits, much like health insurance, so any risk of underfunding needs to be shown in a government body’s financial records, whether or not that body would in fact be liable for that shortfall.
“They feel it’s part of the benefits, so the cost should be shown somewhere,” he said. “The state has pension liabilities for five retirement systems, so there’s some concern that they may be underfunded going forward. What GASB is saying is that the pension obligations are part of the employment exchange that should be reported by governments as a liability.”
The concern for government entities going into this new policy is that any extra pension liability could have an impact on that entity’s credit rating. Representatives from the School Employees Retirement System reported in June that Moody’s, one of the nation’s leading credit agencies, could possibly take pension liabilities into account in combination with any other shortfalls in the books.
“The concern is that it’s going to overstate our liabilities, which could affect Moody’s credit rating,” Stechschulte said.
However, Walter was confident that Wapakoneta’s credit rating would not be affected by this new policy.
There will be “no changes in our credit rating and no excessive liability,” she said. “We fully fund our pensions.”
Benroth had similar assurances that Putnam County’s credit rating, recently raised to AA-, is in no danger.
“We’ve been assured by the Auditor of State’s Office that they’ve talked with Fitch Ratings and Moody’s, and both have indicated that the implementation of this policy will not impact how they determine their ratings,” he said. “Say a town or political subdivision might be getting close to emergency watch or caution, those agencies won’t use this as an occasion to push them into that category.”
With this policy now in effect, these liabilities could be seen on area government ledgers as early as January. To avoid any public confusion, many government agencies plan on adding new footnotes to their financial records clarifying that these pension liabilities do not reflect any unmet obligations on their part.
“I’m sure we’ll probably add something into our notes so that whoever may be examining our financial statements will see in our notes that the liability of so many dollars pertains to the school’s retirement pensions, but the board’s obligation has been met, or something to that effect,” Stechschulte said. “Hopefully once we explain it in our financial notes, the public will be able to understand it better, and then we’ll go from there.”