GASB 67 and GASB 68: What’s the Difference?

Key Points

• Governmental Accounting Standards Board Statement No. 67 (GASB 67) – Financial Reporting for Pension Plans
• Governmental Accounting Standards Board Statement No. 68 (GASB 68) – Accounting and Financial Reporting for Pensions
• GASB 67 and GASB 68 changed the way public pension plan data is measured and reported, effectively replacing previous statements GASB 25 and GASB 27.  

As a governmental entity that sponsors an Other Postemployment Benefits Plan (“Pension Plan”), you’re subject to Governmental Accounting Standards Board Statement 67 (“GASB 67”)  and Governmental Accounting Standards Board Statement 68 (”GASB 68”) to issue Generally Accepted Accounting Principles (GAAP) compliant financial statements.

What is GASB?

In the 1980s, there was a lack of structure when it came to the creation and implementation of consistent accounting standards, so GASB (Governmental Accounting Standards Board) was established. 

GASB serves as a private non-political organization that sets the accounting and financial reporting standards for state and local governments. Their goal is to enhance the transparency and clarity of governmental financial reporting so that key stakeholders and the general public can easily make use of the information and stay up-to-date.  

In June 2012, GASB issued two new accounting standards, GASB 67 and GASB 68, which changed the way public pension plan data is measured and reported. 

What is a Pension Plan?

A Pension Plan is a program that provides retirement income to an employee as a result of their employment. This benefit is usually determined based on the service and compensation of the employee as well as the age at which they commence such a benefit. The Pension Plan may or may not require employees to contribute to the plan and such plan may provide ancillary benefits including death, disability, and survivor benefits.

GASB 67 (Financial Reporting for Pension Plans)

GASB Statement No. 67 relates to the financial reporting of the Pension Plan itself vs. the governmental entity, employer, or plan sponsor.

What are the key issues to consider under GASB 67?

1. The Statement relates to accounting & financial reporting for pension plans administered through trusts that have the following features:
   • Contributions to the Trust and earnings thereon are irrevocable.
   • Pension plan assets will only be utilized to provide pensions in accordance with plan terms (e.g., may not revert to the plan sponsors until all obligations have been satisfied).
   • Pension plan assets shall be legally protected from the creditors of employers, contributing entities, and plan members.
2. The discount rate (interest rate used to determine liabilities) will be based on the interaction of the current level of Pension Trust assets, the 20-year municipal bond index (e.g., Standard & Poor’s and Bond Buyer) expected future benefit payments, expected future contributions to the Pension Trust and the Pension Trust investment policy.
   • Higher discount rates yield lower disclosed liabilities & vice versa.
3. GASB 67 does NOT allow for asset smoothing – it requires the use of the market value or actual value of plan assets.
4. GASB 67 does NOT provide for a Measurement Date unlike GASB 68
   • The Measurement Date under GASB 67 is the Reporting Date or fiscal year-end so it is important that the plan sponsor, actuaries, and auditors work together to ensure that reporting deadlines can be met.
5. Disclosure is done via Required Supplementary Information (“RSI”) – likely six to eight pages.

GASB 68 (Accounting and Financial Reporting for Pensions)

GASB Statement No. 68 relates to the financial reporting for pensions that are provided to the employees of state and local governmental employers through pension plan trusts. 

What are the key issues to consider under GASB 68?

1. The discount rate (interest rate used to determine liabilities) will be based on the interaction of the current level of Pension Trust assets, the 20-year municipal bond index (e.g., Standard & Poor’s and Bond Buyer) expected future benefit payments, expected future contributions to the Pension Trust and the Pension Trust investment policy.
   • Higher discount rates yield lower disclosed liabilities & vice versa.
2. While asset smoothing is not explicitly allowed, the use of deferred inflows & outflows of resources allows any asset returns above or below the expected return for the period to be amortized over a period not to exceed five (5) years.
3. GASB 68 allows for a Measurement Date of up to 12 months prior to the Reporting Date (fiscal year-end)
   • The use of an earlier Measurement Date can alleviate year-end stress by allowing the GASB 68 disclosures to be done well in advance.
   • In the event of an earlier Measurement Date, this will require the disclosure of a deferred outflow of resources to reflect employer contributions paid after the Measurement Date and before the Reporting Date.

This article is meant to be a summary and not to be misconstrued as a detailed analysis of either GASB 67 or GASB 68. For a more robust description of GASB 67 and GASB 68 or any other questions, please contact any Odyssey consultant. 

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