New GASB guidance for employers in cost-sharing pension plans: a new technical bulletin on pension and other postemployment benefits clarifies some of the practical differences concerning the proper application of two GASB statements on this topic.(The Accounting Angle)(Governmental Accounting Standards Board )

State and local government employers that offer pension or other postemployment benefits (OPEB) to their employees can turn to two pronouncements of the Governmental Accounting Standards Board for authoritative guidance--GASB Statement No. 27, Accounting for Pensions by State and Local Governmental Employers, and GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. Unfortunately, there have been some practical disagreements concerning the proper application of certain provisions of these two standards to employers participating in cost-sharing plans. In December 2004, the GASB issued a special technical bulletin to resolve these differences.

GASB TB 2004-2, Recognition of Pension and Other Postemployment Benefit Expenditures/Expense and Liabilities by Cost-Sharing Employers, will take effect for employers participating in cost-sharing pension plans starting as of periods ending after December 15, 2004 (earlier application encouraged). In the case of OPEB, the new guidance will need to be implemented at the same time an employer first implements GASB Statement No. 45.

The questions and answers that follow provide background and an overview of the new guidance.

What is a "cost-sharing plan" and how does it differ from a single-employer or agent multiple-employer plan? In a cost-sharing pension or OPEB plan, employers pool their costs and risks, much as they would in an insurance pool. Specifically, employees of a number of different employers are all placed together in a common pool for rate-setting purposes, so that the rate charged to a given participating employer reflects the experience of the pool rather than the experience of that particular employer's employees. That is to say, there is a single actuarial valuation for the pool rather than separate actuarial valuations for each participating employer (as would be the case for an agent multiple-employer plan).

How are employers who participate in cost-sharing plans supposed to recognize related expense/expenditures? Both GASB Statement No. 27 and GASB Statement No. 45 call for employers in cost-sharing pools to recognize expense/expenditure based upon contractually required contributions. Characteristically, such contributions can be directly associated with a specific period of time, such as a month, quarter, or year.

Are contributions by employers participating in cost-sharing plans always scheduled to take place in the period with which they are associated? No. An employer might be required, for example, to make quarterly contributions within 45 days--or some other interval--of the close of each quarter. As a result, the contribution for the last quarter of the calendar year, which begins October 1 and ends December 31, might not be due until February 15 of the following year.

If a contractually required contribution associated with one period is scheduled for payment in the next, when should expense/expenditures be recognized? Some have argued that recognition should be based upon the payment schedule, at least in the case of governmental funds with their unique modified accrual basis of accounting. Others have argued that the timing of payments is irrelevant ...