That assertion was in response to GASB’s question about whether future government accounting and financial reporting should result in more information being conveyed about the process by which an employer incurs an obligation to employees for earned defined benefits, the process by which the employer finances projected future cash flows for defined benefits, or both.
“To best achieve the financial reporting objectives of accountability and decision usefulness, we believe government accounting and financial reporting should provide information about the process by which an employer finances its projected future cash outflows earned by employees over their entire employment careers and not the process by which an employer incurs an obligation to employees for specific time periods during these employees total employment careers,” Segal contended.
Segal also contended that a “market-based” system restricts the needed details to understand what might happen in years after the one in which the market-based calculation is undertaken. “In our opinion,” Segal concluded, “providing so-called “market-based” results does not provide useful information and should not be the approach.
Segal suggested it could be useful to have a projection of future years' costs and funded status using the current basic methodology, which it said "provides relevant and useful information to financial users who want to know what resources of the plan sponsor will be required to be allocated to the pension system in the future."
Segal contended: "We feel this is preferable to a measure that purports to be the 'exact cost' of the employment exchange, but which in fact provides no information upon which the reader can draw any conclusions about the current year or future years' actual costs."
The Segal officials put forward another argument for tying the benefit obligation to the funding method to be used to meet it: "The funding process is based on the employment exchange, plan terms and services rendered, but in a way that recognizes that a pension promise is most effectively managed as an exchange over a career of service."
Segal also argued that automatic cost-of-living adjustments should be included in projecting pension benefits and asserted that the pension discount rate should be a future earnings rate based on the estimated long-term investment yield for the plan.
The Segal letter is available here .
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