New GASB rules result in New Jersey's funded status plummeting to 44%
Published: November 26, 2014 - Pensions & Investments
New Governmental Accounting Standards Board regulations have led to a big dip
to an already-low funded status for the New Jersey Pension Fund, Trenton.
Using the rules established by GASB 67, the funded status for the fiscal year
ended June 30 was 44.1% based on the aggregate data of the seven separate
pension funds that make up the $81.2 billion New Jersey Pension Fund, according
to a Tuesday supplement to a $525 million general obligation bond document from
the state.
The funded status using traditional accounting methods before GASB 67 took
effect was 63% for the fiscal year ended June 30, 2013, according to a recent
report by a commission studying New Jersey's pension and health-care
benefits.
The bond document and a spokesman for the New Jersey Department of Treasury
said that all states are subject to the new GASB accounting rules.
The new rules “now require all state and local governments which administer
defined benefit pension plans to take a more stringent approach when reporting
to the financial community liabilities, assets and funding ratios,” Christopher
Santarelli, a Treasury Department spokesman, said in an e-mail. “This is just a
financial reporting change and does not materially impact New Jersey's fiscal
position or the system's current assets.”
Mr. Santarelli added: “This new reporting system, which is based on actual
contributions and not long-term promises … only underscores the urgent need for
additional, aggressive reform of a pension and health benefits system that if
fully funded would eat up 20% of New Jersey's budget.” The New Jersey Pension
Fund's actuaries “have completed preliminary audit reports that reflect the new
required calculations (and), as expected, these changes increase pension
liabilities and decrease funded levels for financial reporting purposes,” the
bond document said. “This new method does not cause a change with respect to the
calculation of the state's statutory liabilities or its funding or budgetary
requirements.”
In a research note Tuesday, Standard & Poor's Ratings Services
acknowledged the change in the GASB rules, saying that its “A” rating/stable
status for New Jersey's general obligation bonds incorporates the effect of New
Jersey's “weak pension funding.”
“Regardless of how the liability is measured, the state's record of
underfunding its annual contributions to the pension system is at the root of
its deterioration,” the S&P research note said. “The new pension accounting
standards shed further light on what we already understood as a problematic
feature of New Jersey's credit profile.”
The S&P report said New Jersey would be eligible for an A+ rating, but
the “weakness in its pension funding levels and contributions have resulted in
us assigning a rating one notch below that.”
Original Story Link: http://www.pionline.com/article/20141126/ONLINE/141129877/new-gasb-rules-result-in-new-jerseys-funded-status-plummeting-to-44