Posted by Jeffrey Brown on Sep 5, 2011
Filed Under (Retirement Policy, U.S. Fiscal Policy)
There is an old saying that “the road to hell is paved with good intentions.” That saying immediately sprang to mind as I read a summary of the new Government Accounting Standard’s Board (GASB) proposal for the public sector pension standards.
I have written before about the utterly misguided and intellectually vacuous approach that GASB takes to the choice of a discount rate. But in reading a summary of the exposure draft produced by the Segal company, I was even more struck by the following explanation:
“The “blended” discount rate is not based on the plan’s current funded status, but rather on a projection of plan benefits and assets. That projection includes all future employer contributions that are intended to fund the benefits for current members, including payments towards any current unfunded liability.” (emphasis added)
Translation: governments would be allowed to mask their pension shortfalls not only by using an artificially high discount rate (which lowers the reported value of the liability), but also by reporting that they intend to make a lot of contributions in the future! Note that there is no obligation that they actually follow through on their intentions. I can’t wait to see what kind of creative assumptions governments start using to help obfuscate the real funding status of their pensions.