Sunday, June 24, 2012

A Reality Check from GASB

There are new rules coming out from the Government Accounting Standards Board (GASB) that will require public pension funds to recalculate their unfunded liability.  The new rules still retain a "wishful thinking" component, but the new rules definitely move the calculations more toward reality and away from the current fantasy rules that public pension funds now use.

The bottom line issue is how to "value" the future payments that pension beneficiaries are expecting to receive.  Current methods have absurdly low valuations on these future payments and, as a result, the employer contributions to these funds have always been absurdly inadequate.  It has long been in the interest of politicians and board members to downplay the miserable funding status of these pension funds and to hope and pray that their inevitable blow-up will occur on someone else's watch.

Some states, Utah in particular, have dealt with these obligations in a straight forward fashion and enacted true reform of their public pension plans.  Others, like Virginia, have enacted temporary band-aid solutions that mostly just obscure the true nature of the funding crisis.

Expect the usual knee-jerk response to the new GASB rules, which actually don't go far enough, from folks who fear that telling the truth about the true costs of these public pension plans would eviscerate the political support for the plans.