Understanding New Public Pension Funding Guidelines and Calculations


NCSL Contacts

The importance of properly financing state and local government retirement systems has never been greater. Sound pension funding policies not only help ensure costs and benefits remain sustainable, but also strengthen the financial position and credit rating of the sponsoring governments.

State and local governments soon will need to distinguish several separate pension calculations that will be derived in different manners for distinct purposes:

  • Books  – computing an annual position regarding pensions for financial statements
  • Bonds  – calculating how pension obligations affect a government’s creditworthiness
  • Budgets  – determining the appropriate annual contribution to the retirement system for sound funding

The Governmental Accounting Standards Board (GASB) has released new standards for how governments should report pensions on their books or income statements. Some credit ratings agencies have announced that they will make new adjustments to governmental pension data for bond ratings. However, none of these computations is intended to determine the appropriate annual pension contribution a government should appropriate to ensure sound funding.

To guide lawmakers in reviewing the effectiveness of existing funding policies and practices, national organizations representing the nation’s governors, state legislatures, state and local officials, and public finance professionals jointly formed a Pension Funding Task Force and released "Pension Funding: A Guide for Elected Officials." These guidelines urge policymakers to ensure pension contributions are actuarially determined within sound parameters. Doing so ensures that pension promises can be paid, employer costs can be managed, and the policy to finance pensions is clear to all stakeholders.

Separate Pension Numbers for Books, Bonds, and Budgets


Bonds Budgets


Standardized financial reporting of pensions for accounting

Stress testing the degree to which pension obligations may affect a government’s ability to repay bonded debt

Determining an annual pension contribution to properly fund benefits

Primary audience

Users of government financial statements

Ratings analysts

State/local policymakers

Source of calculation

Accounting standards set by the Governmental Accounting Standards Board (GASB)

Practices established by individual credit rating agencies

State/local statutory, administrative and procedural rules


Pensions are accounted for through the computation of a Net Pension Liability, i.e., the difference between the market value of pension fund assets and benefit obligations as of a specific date

Varies by rating agency, as pensions are just one of many metrics used to determine a bond rating

Most governments make actuarially determined contributions, calculated within established parameters as a level percentage of payroll to fully fund benefits earned each year and to amortize unfunded liabilities

What’s changing

The Net Pension Liability is a new figure that will be placed on basic government financial statements and is expected to create unprecedented volatility and, in some cases, could dwarf other items on the financial statement

Some ratings agencies have announced that in their credit analytics, they will adjust pension data using uniform, generally more conservative assumptions regarding amortization periods and investment returns

New GASB standards will no longer include parameters for calculating an annual required contribution. Although this does not necessitate a change to existing funding policies or statutes, governments are urged to follow recommended guidelines established by the Pension Funding Task Force

For More Information 
National Governors Association
Barry Anderson | 202-624-5300 ● banderson@nga.gov
National Conference of State Legislatures
Sheri Steisel | 202-624-8693 | sheri.steisel@ncsl.org
Jeff Hurley | 202-624-7753 | jeff.hurley@ncsl.org
The Council of State Governments
Chris Whatley | 202-624-5460 ● cwhatley@csg.org
National Association of Counties
Michael Belarmino | 202-942-4254 ● mbelarmino@naco.org
National League of Cities
Neil Bomberg  | 202-626-3042 | bomberg@nlc.org
The U.S. Conference of Mayors
Larry Jones | 202-202-861-6709 | ljones@usmayors.org
International City/County Management Association
Joshua Franzel | 202-682-6104 | jfranzel@icma.org
Center for State and Local Government Excellence
Elizabeth Kellar | 202-962-3611 | ekellar@slge.org
National Association of State Auditors, Comptrollers and Treasurers
Cornelia Chebinou | 202-624-5451 | cchebinou@nasact.org
Government Finance Officers Association
Barrie Tabin Berger | 202-393-8020 | btberger@gfoa.org
National Council on Teacher Retirement
Leigh Snell | 540-333-1015 | lsnell@nctr.org
National Association of State Retirement Administrators
Jeannine Markoe Raymond | 202-624-1417 | jeannine@nasra.org