City officials will see the impact of the Governmental Accounting Standards Board's Statement 68 on financial audits that report on fiscal years beginning after June 15, 2014. This means that a city with a July 1 to June 30 fiscal year is implementing Statement 68 for the first time in its financial audit covering the period July 1, 2014 to June 30, 2015.
The audit will show the city's net pension liability. This is the city's proportional share of the funds that have not yet been contributed to a government pension (retirement) plan, such as South Carolina's Public Employee Benefit Authority's retirement systems, but are expected to be needed to meet all retirement obligations.
It is important to note that the new GASB reporting requirement does not change the city's actual pension liability. It relates only to accounting and financial reporting aspects—how pension expense and obligations are measured and reported in audited external financial reports. Previously, GASB viewed the unfunded pension liability as a future liability.
The city's cash flow situation will not change as a result of recording the liability on financial statements. Pension costs are paid off over long periods—much like home mortgages—through regular contributions paid to the pension plan.
In many cases, the net pension liability being reported will represent a significant amount and could dwarf assets reported on financial statements. This could give the public the incorrect impression that the city has a large debt that must be paid immediately and/or is insolvent.
GASB issued Statement 68 in 2012 with the intention of improving pension reporting information and increasing transparency, consistency and comparability of pension information.