Effective Date for FAS158?

[tuni88]

When will FAS158 be required for us? (We are a non-public company.)

Our fiscal year is the calendar year through 12/31/06, followed by a short year 1/1/07 to 6/30/07, then full years thereafter from 7/1 to 6/30. Our pension plan year remains as the calendar year.

As I understand it, we don't have to adopt until the year beginning 7/1/07. Is that right? Or do we get until 7/1/08?

Does anyone have an answer to my previous question regarding the mortality table to use for lump sums in 2007?

Thanks for your help.

[SoCalActuary]

My read of the rules is that you must comply June 30, 2007.

To quote from a memo posted by CCA Strategies, " Balance sheet recognition for employers with publicly-traded equity securities is required for the fiscal year ending after December 15, 2006."

It further states: "Other employers may delay recognition of the actual funded status on the balance

sheet until the end of the fiscal year ending after June 15, 2007"

Since you are adopting a fiscal year ending June 30, 2007, that becomes the date you must post a

funded status on your balance sheet.

[Don Levit]

Folks:

I understand that the states will have similar provisions for governmental plans.

Any ideas as to why the federal government does not have similar standards, say, in regards to Social Security and Medicare?

Don Levit

[SoCalActuary]

Don, maybe Congress is smart enough to know the FASB standard is artificial and biased against DB plans.

[Don Levit]

SoCalActuary:

I assume you are referring to the amounts needed to set aside for DB plans, versus those for DC plans.

I think you will agree the employer liability for funding DB plans is much greater than that for DC plans.

If you agree to that, why is the FASB biased against DB plans?

When I mentioned the federal government, I was referring to the idea that Social Security and Medicare are funded on a pay-as-you-go basis.

Are you familiar with the FASAB?

Are you aware how it views government liabilities?

Don Levit

[SoCalActuary]

We are getting off the track of the question, but I can't resist.

1. Was FASAB a typo? Did you mean FASB?

2. Many actuaries and plan sponsors objected to the FASB final ruling on FAS 158. It is not the proper

measure of liabilities. ABO is much more appropriate than PBO.

3. Actuaries have looked at the Social Security and Medicare liabilities from many different viewpoints,

including methods of EANC, projected unit credit, accrued benefit (traditional) unit credit. None of those

views really matter, because the liability is simply an off-the-book balancing item for an organization (US Govt) that does not do business on a balance sheet basis.

If the underfunding of Social Security is measured, what does Congress do about it? Do they raise more taxes now to improve their debt ratio, so they can borrow more later? Do they invest in private securities or do they reduce the current national debt? Does the economy benefit if the gov't has more tax revenue and less borrowing for the national debt, thereby taking more funds from the working economy and less from the banking and savings portion? Don't think for a second that these issues have been ignored!

A much more important issue is that gov't mandated health benefits with lawyer-enforced minimum standards of care is taking an ever increasing percentage of the economy. Where's the competition in health care to drive down costs to match inflation? Manufacturing has competitive pressures from Asia. Even much of the service economy has a lower cost provider in India.

All fun speculation, to no useful end, I'm sure.

[Don Levit]

SoCalActuary:

The FASAB is the Federal Accounting Standards Advisory Board, who is, basically, the accounting advisor for the federal government.

You say the liability is an off-the-book balancing item, in which the balnce sheet basis is not relevant.

You don't seem to be concerned about the government's financials. You say the issue of proper funding for Social Security has not been ignored. Well, that may be true, but wouldn't you think the longer the government waits to address the long-term solvency of Social Security and Medicare, the more drastic the revisions will have to be?

Do you have any concerns about the federal government viewing their long-term liabilities as irrelevant, in that only current liabilities are recognized?

Don Levit

[SoCalActuary]

Don - I am deeply concerned. I just do not have any great answers.

Balancing the Social Security cash flows is difficult already. We currently over-tax on a payments basis

and use the excess to "loan the govt" for other spending.

Here are some of the ideas worth considering:

1. Raise the interest rate that SSA charges for lending the funds.

2. Raise taxes more.

3. Push back the normal retirement age again.

4. Change the indexing to match CPI, not wage growth.

Here are some added ones:

5. Pay doctors and other medical practitioners a lot less money.

6. Charge emergency room patients the true costs.

7. Only allow tax deduction for the health care costs, not the living expenses.

This would apply to room costs and meals at hospitals, long-term care housing and meals,

and other ways to reduce expenses.

8. Allow more competition for health services and less liability for being imperfect.

But we are indulging in political discussion in the DB forum, and that is not what this was

intended for.

Where can I learn more about FASAB? Does anyone in gov't actually listen to it?

When did Congress actually use its results in any legislation?

[Don Levit]

SoCalActuary:

To read an excellent article published by the FASAB, go to:

http://www.fasab.gov/pdffiles/socialinsurance_pv.pdf.

It is a long article, but to learn more about the FASAB's views on government obligations, you may want to focus on p.8, 9, 38, 41, 80, 81, 85, and 87 to learn about the Alternative View.

Focus on p.57-58 for the Primary View.

The Alternative View is the present way that FASAB advises the federal government to view its liabilities.

The Primary View is a second choice. A comment period is available to the public to discuss the 2 views.

Don Levit