SIDNEY — Local government officials have responded to news of the upcoming, retirement fund-liability reporting requirement with questions and wait-and-see attitudes.
In Ohio, no local government, except for the city of Cincinnati, is responsible for more than the premiums it pays into the five centralized retirement funding agencies. Those are the Ohio Public Employees Retirement System (OPERS), the State Teachers Retirement System (STRS), the School Employees Retirement System (SERS), the Highway Patrol Retirement System (HPRS) and the Ohio Police and Fire Pension Fund (OPFP).
Shelby County Auditor Denny York told the Sidney Daily News that adding a retirement liability line item to the county balance sheet would be a “fiction,” because the county isn’t directly liable to its retirees for their pensions. If the retirement systems are underfunded, it’s their liability, not the county’s, he said.
“Once we’ve paid our share with the employees’ (share), the pension fund is responsible,” he said. “Our budgets account for what we’re obligated to pay in.”
Nevertheless, OPERS officials told York and other Ohio county auditors during a statewide meeting Aug. 6 that OPERS will divide the roughly 19 percent of its unfunded liability among the 3,500 government employers whose retirees OPERS serves. Once that’s done, Shelby County and all the others will have to add their amount as a liability to their accounting reports.
“It’s really a fiction to say it’s a liability on the books of a local government,” York said. “The Government Accounting Standards Board (GASB) is supposed to be an accounting standards board. Why are they suggesting that we put a fiction on our balance sheet when they’re supposed to be the purists, the final arbiter of that? It’s totally contrary to what accounting principles would dictate.”
During the state meeting, he said he questioned what OPERS would base its figures on, but said he didn’t really get an answer.
“Current Ohio law does not require individual local government entities to fund any potential future shortfalls in the various state-managed retirement systems,” he said. “These systems are independent of government except that the state legislature has oversight authority to assure the ongoing solvency of the systems. As such, the legislature can mandate changes in the ongoing ‘premium’ paid into the systems. However, in the unlikely event that an individual system were to become insolvent, there is no provision to charge back any shortfall to local entities. It is assumed that, in such a situation, benefits to members would be adjusted in as equitable a manner as possible. There is plenty of precedent for this in instances where private pensions have gone into bankruptcy in recent years,” he added.
York said there is no way to predict the amount of liability the county will have to show to comply with the GASB ruling. That’s up to the state fund officials to figure out.
“The current assets of the OPERS retirement system are equal to about four and a half years of total tax revenues for the entire state of Ohio. Making that system go broke would be a pretty tough task for even the lousiest manager,” York said.
Generally, officials in individual Shelby County villages who responded to inquiries said they did not believe the regulation changes will significantly affect them at this time.
Ginger Adams, finance officer for the city of Sidney, said the city has not been able to calculate the amount of the new liability the city will be required to report beginning next summer.
“The accounting liability has not yet been calculated by the state pension systems, so it is not possible for us to calculate our pro-rata share,” Adams said. “Recording the accounting liability on our financial statements does not mean there is legal liability under current Ohio law. Ohio law dictates the funding required to be paid by governments based on a percentage of current employees’ wages. If the states’ pension systems were to forecast funding difficulties, then the state legislature would change employee or employer contribution rates or plan benefits in order to maintain funding adequacy.”
Adams said this new liability is not expected to negatively impact the city’s ability to issue bonds or borrow money.
“The auditor of state and the Ohio pension systems have worked with the rating agencies to help them understand how this application of a national accounting standard in Ohio does not translate well given how our pension systems operate,” she said.
Adams said that in July, the city of Sidney’s credit rating of AA/Stable was reaffirmed by Standard & Poor’s due to the city’s “strong liquidity, budget flexibility, and management profile.”
“Recording the liability keeps us in compliance with national accounting standards,” Adams said. “It is unfortunate that the national accounting standard is attempting to paint every state’s pension systems using the same broad brush.”
Adams questioned whether it is helpful to know for the first time the specific amount of the city’s portion of the state’s unfunded pension liability.
“To the extent this is measuring a liability that is not payable, I think it could be more misleading than helpful,” she said. “I believe that in recent years the states’ pension systems have identified potential funding issues and have taken actions to remedy those problems. Those actions helped in controlling future liabilities.”
Sidey City Schools
Mike Watkins, treasurer for Sidney City Schools, said the change won’t affect the school district at all.
“The school district works on a day-to-day cash basis,” said Watkins. “We don’t track account receivables.”
The district, said Watkins doesn’t work on the GAP system but instead uses Other Cash Basis of Accounting.
“This is a nonevent for us unless STRS needs me to supply them with information and we won’t know that until June,” said Watkins.
Watkins said the change will be “a big one for the retirement system because of the pending retirements.”