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Connecticut CPA
September/October 2012
artford, we have a problem.
And, as with Apollo 13, fixing
the problem reporting the state
government's full pension liability
begins by acknowledging it. We must
admit it. We must quantify it. We must
deal with it.
Last month, the Governmental Ac-
counting Standards Board (GASB),
which sets the standards for U.S.
state and local governments' financial
statements, changed the rules. Gov-
ernments must now report how much
they owe in pension promises on their
financial statements as a liability. This
would be calculated starting with the
total dollar amount that the actuaries
have determined would be needed to
fund the pension promises minus the
total dollars that have been put aside.
You might say, "Of course, this is a no-
brainer." But governments are slow
to change. We all think governments
will be here forever. They don't go out
of business. They don't go bankrupt.
They don't need the same rules. For
these reasons, governments have had
special rules when it comes to finan-
cial reporting.
Up until now, a government reported a
liability on its financial statement as the
amount that the actuary says should
be paid into the pension for the current
year to cover the current year's costs
minus the cash that was set aside for
the current year. This is based on the
government's funding approach and
not the real liability. The current meth-
od does not take into account certain
changes in expectations, changes in
benefits, and shortfalls in expected re-
turns on investments.
If we look at Connecticut's audited fi-
nancial statements from June 30, 2011,
we see that the net pension promises
after subtracting the cash that has
been set aside (unfunded actuarially
accrued liability) is $20.9 billion. This
is only reported as a footnote to the
financial statements. It is not reported
on the balance sheet as a liability.
If we look at what is actually reported
on the balance sheet, we see a liability
of $2.4 billion. We are only reporting
$2.4 billion of our actual $20.9 billion
pension shortfall on our balance sheet.
We are not reporting $18.5 billion of our
pension liabilities. The new accounting
rules would correct this and cause us
to report the real and larger liability on
our balance sheet.
We, the 6,000 certified public accoun-
tants who are members of the Con-
necticut Society of Certified Public
Accountants, are concerned about
the financial health of the state and
our leaders' long-term plans for ad-
dressing and correcting it. We are
concerned that our leaders will look to
regulations exempting the state from
the new standard. Although this might
make the leaders look better for today,
it hurts us, the citizens. Ignoring the
costs does not exempt us from pay-
ing the bill for the promises we have
already made.
We are especially concerned because
the last time the GASB came out with
a pronouncement that would cause
a large liability to be shown on the fi-
nancial statements, for Other Post Em-
ployment Benefits, Connecticut's lead-
ers tried to do just that. Approximately
five years ago, the state was required
to start reporting the costs of health in-
surance promises that we had already
made to our retirees on the financial
statements. Our leaders looked to cre-
ate state regulations exempting the
state from these standards. Fortunate-
ly, they were unsuccessful.
We can't let our leaders repeat that
maneuver by trying to avoid the new
requirement that the amount the state
owes in pension promises be reported
as a liability on their financial state-
ments. Ignoring the problem doesn't
make it go away.
We cannot pretend this problem does
not exist. We cannot have leaders
making short-term political decisions
with long-term consequences for the
citizens. We cannot pass these prob-
lems on to our children and grandchil-
dren. We must fix our future. We must
start today with honest accounting of
our liabilities.
State Must Face True Pension Liabilities
By CTCPA Past President Marcia Marien, CPA
This opinion piece first appeared in the Hartford Courant on July 10, 2012.
CTCPA Past President Marcia
L. Marien, CPA is a partner at
O'Connor Davies in Wethersfield.
She specializes in accounting, audit-
ing, and consulting for governmental
and not-for-profit organizations. An
active leader in the CTCPA's "Fixing
Our Future" initiative, she has made
more than 20 presentations regard-
ing the state of Connecticut's finan-
cial condition to audiences com-
prising legislators, municipal and
local government officials, cham-
bers of commerce, and town hall
meeting participants. She can be
reached at