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Historically, both governmental and nongovernmental entities routinely offered defined benefit pension plans. These plans promise employees a lifetime stream of monthly payments after retirement and paid or subsidized health care. Nongovernmental entities have been moving away from defined benefit pension and retiree health care plans as they were considered overly costly and burdensome and resulted in significant reported liabilities. One factor motivating this shift is a desire by employers to transfer investment risk to employees.
In the governmental sector, defined benefit pension plans and the payment of postretirement health care benefits have generally continued, although some states have switched to defined contribution plans.1 This shift away from defined benefit plans is likely influenced by the size of the unfunded liability associated with these promised retiree pension benefits. Standard and Poor's estimated that unfunded state pension liabilities amounted to $284 billion in 2006.2 This amounts to 44 percent of annual state revenues or $960 on a per-capita basis. The state of Illinois is among the most poorly funded state pension systems, with a $40.7 billion unfunded obligation.3 These underfunding levels have ignited discussions by legislatures, taxpayer groups, analysts and others to revise defined benefit pension plans in the governmental sector.
GASB Statements Relating to Pension and Other Postemployment Benefits
The Governmental Accounting Standards Board (GASB) aims to provide comprehensive and transparent information about governments' costs related to retiree benefits. Nine of the first 50 GASB Statements address the accounting and financial reporting of pension and other postemployment benefits. In subsequent sections we discuss these nine statements, noting which statements have been superceded, and conclude with a more detailed discussion of the requirements of GASB Statement No. 50, Pension Disclosures-an amendment of GASB Statements No. 25 and No. 27, the most recently issued pension statement (May 2007).
GASB Statement No. 4, Applicability of FASB Statement No. 87, "Employers' Accounting for Pensions," to State and Local Governmental Employers, was issued in September 1986 to ensure that governmental entities understood that they were not responsible for implementation of the Financial Accounting Standards Board (FASB) Statement.
GASB Statement No. 5, Disclosure of Pension Information by Public Employee Retirement Systems and State and Local Governmental Employers, standardized pension disclosure requirements previously defined by the AICPA industry audit guide and by...