New accounting rules for government pension funds are currently going into effect. The net effect is that realistic discount rates have to be employed when calculating the funded/unfunded values of the investments. Lower discount rates cause the unfunded liability to significantly increase with the associated requirement for increased annual funding by government organizations, like the City of Georgetown.
The new accounting rules require: "For all fiscal years ending after June 15, 2015, GASB 68 requires your city to record a net pension liability (NPL) or net pension asset (NPA); and being in TMRS requires that you include disclosures in your financial report as a participant in an agent, multiple-employer plan."(TMRS)
An example of the impact of the new accounting rules on the unfunded liability of a pension plan is what happened to the Kentucky Teachers Retirement System. "Kentucky Teachers Retirement System's (KTRS) unfunded liability jumped to $24.43 billion in the fiscal year ended June 30, 2015, using new accounting rules known as GASB 67, compared to $14.01 billion in the prior year, a meeting of board members was told on Wednesday.
Under the rules Kentucky had to use a discount rate of 4.88 percent to calculate the net present value of its liabilities, compared to the 7.5 percent it would have used normally, said Beau Barnes, an executive and general counsel for the fund."Link
Texas Municipal Retirement System(TMRS) currently uses a 7% discount rate and based on KTRS's experience, it is expected that the discount rate will be reduced for calculating the unfunded liabilities for Texas cities.
The city needs to be prepared to increase its pension contribution to be able to maintain the recommended 80% funded ratio. TMRS will not issue its Comprehensive Annual Financial Report(CAFR) until the middle of next year, so the next year's contribution amount will not be known until then.
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