The Governmental Accounting Standards Board (GASB) proposed changes to how state and local governments report and account for the pension benefits provided to their employees.

The proposal would require public pension funds that are not adequately funded to lower their projected rate of return on investments to a more conservative 30-year municipal bond index rate, which is generally around 3 to 4%. However, adequately funded public pension funds could continue to project rates based on what they have historically received, which is around 8% for most funds.

In addition, when computing total pension liability, the proposal would require a public pension fund to immediately recognize more components of pension expenses. For example, a public pension fund would be required to include the effect on the pension liability of changes in benefit terms immediately. Currently, a public pension fund can defer and amortize actuarial gains and losses over as many as 30 years. The proposal would also require public pension funds to present more extensive note disclosures and required supplementary information.  

Final rules are expected by July 2012.