Segal Backs Parts of GASB Pension Accounting Views

Segal said in a letter to GASB that it backs level percentage of pay cost methodology and long-term earnings discount rate items, but the consultancy said it had concerns regarding GASB’s preliminary views on decoupling funding and accounting, expense volatility from recognition periods for liability changes, and expense volatility from proposed asset smoothing.

A potential result of the approach outlined in the GASB preliminary views is that the public and other financial statement users will have difficulty in understanding the differences between the two cost numbers: the new GASB expense and the actuarially determined funding requirement, Segal said.

“Which one should be considered the real cost? “the Segal letter asked. “As discussed herein, under the Preliminary Views calculation methods, funding the GASB expense would be so volatile as to be impractical for most plans, cost-prohibitive in some years and imprudently low – or even negative – in others. This means that prudent systems could be open to attack for not funding the GASB expense, even though they are maintaining a sound funding policy.”

Segal’s complete letter to GASB is posted on its Web site and may be viewed here.