Beginning with financial reporting for the fiscal year ending in 2015, governmental employers who sponsor a pension plan must report pension liabilities and costs as part of their overall financial summary. Now, instead of governments disclosing pension information in the footnotes to their financial statements (which generally included only the reported contributions they were required to make, the amount actually paid and the difference between the two for the year) governments are, for the first time, required to report a “net pension liability” figure, as well as funding projections, on their balance sheets.
In 2012, the Governmental Accounting Standard Board (GASB) approved two statements, 67 and 68, which were designed to improve the way state and local governments report their pension liabilities and expenses in order to provide a more complete representation of these financial obligations; they require the pension plan’s net position to be reported by the state or local government as a liability on their comprehensive financial statements.
For many state and local governments, including municipalities, counties, special districts and school districts, those will be big numbers. In fact, some analysts expect the newly reported pension liabilities will swamp the balance sheets of many public employers. A recent example was seen in the December 15, 2015, Greeley Tribune article which reported Weld School District 6 had an unfunded liability through its proportionate share of the Colorado Public Employees’ Retirement Association’s (PERA) liability — $285 million with a total yearly budget of $160 million. Put more simply, the pension liability was 178% of the annual budget alone.
While the GASB standards are not binding by law in many states, it is believed that state and local governments must meet them in order receive clean, or unqualified, opinions from auditors on their financial statements.
The unfunded liability of most public pension plans was the result of the 2001 “dotcom” stock crash, and the 2008 recession. Weld County, like many public pension plans, experienced the same impact and had an unfunded liability. All Weld County employees are covered by the Weld County Retirement Plan, except the Public Health Department employees, who are part of the Colorado PERA. For those employees in PERA, the Weld County shares it proportionate share of the unfunded PERA liability which is $8 million.
In response to the unfunded liability, Weld County took a number of actions to correct the situation including reducing the benefits of the plan to new members since 2002, going to a hybrid pension plan for new hires since 2010, and increasing contributions from the county and members. The county also contributed additional funds to reduce the liability. And with regard to its Public Health Department Employees who are in PERA, Weld County has fully funded this liability with a reserve in the Public Health Fund.
Because of the forethought and management actions on December 31, 2015, when the new accounting requirements went into effect, the Weld County Retirement Plan is now fully funded and shows no accrued actuarial unfunded liabilities as the county begins fiscal year 2016.
In fact the Weld County Retirement Plan had a surplus of $4,658,013 or is 101.93% funded as of the beginning of this year. This means that Weld County will continue to show no long-term debt on it financial statement. A claim few, if any other, local jurisdiction can make.
Don Warden is Director of Finance for Weld County in Colorado.