Pension Funding: A Guide for Elected Officials
In 2012, the Governmental Accounting Standards Board (GASB) issued new standards for how state and local governments should account for pension benefit costs, but did not address how employers should calculate the annual required contribution necessary to fund those pensions.
To assist state and local government employers, the Big 7 (a coalition of seven national associations whose members represent state and local governments) and the Government Finance Officers Association (GFOA) established a Pension Funding Task Force. The Task Force developed this primer on policy objectives and made the following recommendations to elected officials:
- Have a pension funding policy that is based on actuarially determined contributions.
- Build funding discipline into the policy to ensure promised benefits can be paid.
- Maintain intergenerational equity so the cost of employee benefits is paid by the generation of taxpayers who receives services.
- Make employer costs a consistent percentage of payroll.
- Require clear reporting to show how and when pension plans will be fully funded.