New rules created by the Governmental Accounting Standards Board, GASB, require all local government entities that operate pension plans to pay the payments recommended by their actuaries each year.
These payments, formerly known as the Annual Required Contribution or ARC, are the amount of money actuaries determine is needed to annually fund, in a financially-sound manner, the benefits provided by public pension plans.
As a result of these new accounting requirements, the Tennessee state legislature signed into law, the Public Employee Defined Benefit Financial Security Act of 2014, to assure that Tennessee local governments pay 100 percent of the yearly ARC.
Under the new law, local government entities that haven't been paying 100 percent of their ARC will have six years to gradually ramp up their yearly payments. If local government entities fail to pay 100 percent of the ARC after that phase-in period, the state will have the authority to withhold money it provides to those governments and use it to make the required payments.
The second big change under GASB will come up later this year as governments begin filing their comprehensive annual financial reports for fiscal year 2015. GASB has issued a new accounting standard, GASB Statement No. 68, that changes the way pension expense and liabilities should be reported by employers. Previously, unfunded liabilities were disclosed by the pension systems - in Tennessee, TCRS annually disclosed it as part of TCRSs Comprehensive Annual Financial Report.
What's new is that these unfunded liabilities now have to be reported as a liability on financial balance sheets of local governments. Local government employers are now required to include net pension liability and pension expense in their basic financial statements.
TCRS along with the system's actuary will provide the appropriate pension information required by GASB Statement 68 for each employer to disclose in their financial statements. TCRS anticipates providing the information to be recorded in the local government's financial statements for fiscal year ended June 30, 2015 by April 2015.
last updtated 1/15/2015
New Pension Options for Local Governments
To give local governments more choices for their employees' retirement plans, Tennessee State Treasurer David H. Lillard Jr. has proposed several new options to state legislators for their consideration.
Lillard stressed that none of the suggested changes would affect K-12 teachers, state employees or higher education employees who are covered under the Tennessee Consolidated Retirement System (TCRS). The changes, which would require approval by the General Assembly, are optional for local governments and would only affect new hires. The proposed options do not affect any current retirees of TCRS.
"Our city and county governments across Tennessee have to balance the need to be good stewards of taxpayer money with the need to offer fair retirement benefits to their employees," Treasurer Lillard said. "The goal is to make sure pension benefits are affordable, sustainable and sufficient. That's why I am recommending some choices that would give local governments greater flexibility to meet their specific needs."
The options presented today were:
• local governments may take no action and remain in the current TCRS defined benefit pension plan with retirement generally at 30 years of service or age 60; or • local governments may adopt a TCRS defined benefit pension plan with an annual service accrual rate of 1.4%, with an increase in retirement age, limits on cost of living adjustments, a cap on maximum allowed benefits and a revised employee contribution structure; or • local governments may adopt a TCRS defined benefit pension plan with an annual service accrual rate of 1% to offer reduced pension benefits, but with a supplemental deferred compensation program; or • local governments may decide to offer only a deferred compensation program as a stand-alone option. The proposals were developed following open meetings held throughout Tennessee with more than 200 local government representatives last fall.
"Over the last couple of years, we have had several local governments either withdraw or give notice that they planned to withdraw from TCRS due to changes in market conditions," Treasurer Lillard said. "We are offering these options because we want local governments to remain part of TCRS, which is in the best interests of local governments, their employees and the citizens they serve. We believe local governments will be more inclined to do that if we're offering more choices." Treasurer Lillard presented his ideas during a meeting of the General Assembly's Council on Pensions and Insurance. For a copy of the local government pension option proposals and other documents, go to http://treasury.tn.gov/tcrs and look at the tab titled "Proposed Plans for Local Gov't."
