The guide provides key facts about public pension plans and a brief overview of which issues state and local officials should address. It explores why developing a pension funding policy is essential and offers guidelines to follow when developing that policy.
Last year, the Governmental Accounting Standards Board (GASB) issued new standards that focused on how state and local governments should account for pension benefit costs but did not address how employers should calculate the annual required contribution (ARC) necessary to fund those pensions. To assist state and local government employers, the Big 7 of state and local government associations and GFOA established a Pension Funding Task Force to develop policy objectives and guidelines. The policy objectives were released last October.
The Task Force recommends that pension funding policies be based on the following five general policy objectives:
- Have a pension funding policy that is based on actuarially determined contributions;
- Build funding discipline into the policy to ensure promised benefits can be paid;
- Maintain intergenerational equity so the cost of employee benefits is paid by the generation of taxpayers who receives services;
- Make employer costs a consistent percentage of payroll; and
- Require clear reporting to show how and when pension plans will be fully funded.