GASB 68: How Will State Unfunded Pension Liabilities Affect Big Cities?

Beginning in 2015, under new provisions of the Governmental Accounting Standards Board (GASB), the unfunded actuarial accrued liability for public pension plans moved from the footnotes of financial statements to the balance sheets of employers. In ad­dition, localities that participate in “cost-sharing” state plans are now required to report their share of that plan’s unfunded liability on their books. This brief explores the implication of this latter shift. The discussion proceeds as follows. The first sec­tion describes the new GASB provisions. The second section illustrates, in detail, our method for applying GASB 68. The third section presents the estimated impact of GASB 68 on the 92 cities in our sample that are participating in cost-sharing state plans, as well as the overall impact on our full sample of 173 cities. The fourth section compares individual results for se­lected cities. The final section concludes that forcing cities to recognize their share of the state’s unfunded liability may lead them to take more interest in having these liabilities paid off.