[Federal Register Volume 62, Number 196 (Thursday, October 9, 1997)]
[Notices]
[Pages 52793-52794]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-26869]
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OFFICE OF MANAGEMENT AND BUDGET
Interpretation Number 3 Related to Statement of Federal Financial
Accounting Standards Number 5
AGENCY: Office of Management and Budget.
ACTION: Notice of interpretation.
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SUMMARY: This notice includes an interpretation of Statement of Federal
Financial Accounting Standards (SFFAS), adopted by the Office of
Management and Budget (OMB). This interpretation was recommended by the
Federal Accounting Standards Advisory Board (FASAB) and adopted in its
entirety by OMB.
FOR FURTHER INFORMATION CONTACT: James Short (telephone: 202-395-3124),
Office of Federal Financial Management, Office of Management and
Budget.
SUPPLEMENTARY INFORMATION: This notice includes an interpretation of
Statement of Federal Financial Accounting Standards (SFFAS) Number 5,
adopted by the Office of Management and Budget (OMB). This
interpretation was recommended by the Federal Accounting Standards
Advisory Board (FASAB) and adopted in its entirety by OMB.
Under a Memorandum of Understanding among the General Accounting
Office, the Department of the Treasury, and OMB on Federal Government
Accounting Standards, the Comptroller General, the Secretary of the
Treasury, and the Director of OMB (the Principals) decide upon
standards and concepts after considering the recommendations of FASAB.
After agreement to specific standards and concepts, they are published
by OMB in the Federal Register and distributed throughout the Federal
Government.
An Interpretation is a document, originally developed by FASAB, of
narrow scope which provides clarification of the meaning of a standard,
concept or other related guidance. Once approved by the designated
representatives of the Principals, they are published by OMB in the
Federal Register.
This notice, including the third interpretation of SFFAS, is
available on the OMB home page on the Internet
[[Page 52794]]
which is currently located at http://www.whitehouse.gov/WH/EOP/omb,
under the caption ``Federal Register Submissions.''
G. Edward DeSeve,
Controller.
Interpretation Number 3 of Statement of Federal Financial Accounting
Standards Number 5
Measurement Date for Pension and Retirement Health Care Liabilities: An
Interpretation of SFFAS No. 5
Introduction
1. The Federal Accounting Standards Advisory Board (FASAB) was
asked to endorse use of an actuarial valuation as of the beginning of
the fiscal year to measure the pension and retirement health care
liabilities in general purpose financial reports prepared pursuant to
Statement of Federal Financial Accounting Standards Number 5 (SFFAS
5).1 This has been the practice in some of the special
purpose financial reports on pension plans that are prepared pursuant
to Pub. L. 95-595.2 OMB and GAO issue instructions for
preparing the reports required by P.L. 95-595.
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\1\ Statement of Federal Financial Accounting Standard Number 5,
``Accounting for Liabilities of the Federal Government.''
\2\ Pub. L. 95-595, ``Federal Government Pension Plans.''
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2. The plan reports called for by P.L. 95-595 receive scrutiny from
Congressional staff. Based on past experience, some actuaries were
concerned that differences between actuarial measurements used in
different reports would cause problems and confusion.
Some people who support using a beginning-of-year valuation also
were concerned about the potential for disagreements between auditors
and preparers if projections or estimates were used instead of a full
actuarial valuation.
Other people, on the other hand, believed that measurements for
recognizing liabilities in financial statements prepared pursuant to
SFFAS 5 should be as of the end of the reporting period, and that a
measurement based on a projection or ``roll forward'' of a full
actuarial valuation would be appropriate if it were not feasible to
perform a full actuarial valuation as of year end.
Interpretation
3. Pension and retirement health care liabilities in general
purpose Federal financial reports prepared pursuant to SFFAS 5 shall be
measured as of the end of the fiscal year (or other reporting period if
applicable). This measurement shall be performed following the end of
the period reported, but does not have to be based on a full actuarial
valuation as of the end of the reporting period. The measurement shall,
however, reflect the best available estimates of the major factors that
would be reflected in a full actuarial valuation, such as the actual
pay raise, the actual cost of living adjustment, and known material
changes in the number of employees covered (enrollment) that cause a
change in the liability.
4. This measurement may be based on an actuarial valuation
performed as of an earlier date during the fiscal year, including a
beginning-of-year actuarial valuation, with suitable adjustments for
the effects of changes during the year in major factors, such as the
pay raise, cost of living adjustment, etc. This is sometimes referred
to as a measurement based on a ``projection'' or ``roll-forward'' of
the most recent available actuarial valuation. In evaluating the effect
on the liability caused by changes in enrollment for plans that cover
employees of more than one reporting entity (e.g., CSRS, FERS),
materiality shall be assessed at the plan level. In evaluating the
effect on the liability caused by changes in enrollment for plans that
cover employees of only one reporting entity (e.g., Coast Guard,
Department of State), materiality shall be assessed at the reporting
entity level.
Scope of Interpretation
5. This interpretation applies to pension and retirement health
care liabilities recognized in accordance with SFFAS 5 in general
purpose Federal financial reports, such as financial statements
prepared pursuant to the Chief Financial Officers Act of 1990, as
amended. It does not apply to reports on pension plans pursuant to the
requirements of P.L. 95-595.
Effective Date
6. This interpretation shall be applied for reporting periods that
end on or after September 30, 1997.
Appendix: Basis for Conclusions
7. SFFAS 5 defines standards for recognition and measurement of
pension and retirement health care liabilities, which are reported as
of the balance sheet date. Although SFFAS 5 does not explicitly discuss
the measurement date, its provisions implicitly call for measurement at
year end. ``Measurement'' implies estimation based on the best
available information at the time, but does not necessarily require a
full actuarial ``valuation'' as that term is used by actuaries.
8. To avoid potential confusion, ambiguity, or conflict with
auditors, some people would prefer to use a beginning-of-year valuation
(which is permitted by private sector standards for plan reporting
pursuant to SFAS 35 3), or at least would prefer to use
beginning-of-year enrollment while updating the valuation for other
changes during the year (e.g., interest rate assumptions, COLAs, salary
increases), which generally are more significant.
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\3\ Statement of Financial Accounting Standard No. 35 (SFAS 35),
``Accounting and Reporting by Defined Benefit Pension Plans.''
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9. Changes in enrollment during the year will rarely lead to a
material change in the liability, and that such changes will,
therefore, not be a factor in some years. Nevertheless, in those years
when a material change in the liability does arise because of a change
in enrollment during the year, that change should be reflected in the
measurement. Conceptually there is no reason to treat enrollment
differently from other factors used in the measurement. Precise
enrollment data may not be readily available soon after year end, when
the measurement is to be performed. However, this should not normally
present a problem because absolute precision regarding enrollment
should not be necessary, given a reasonable definition of materiality.
[FR Doc. 97-26869 Filed 10-8-97; 8:45 am]
BILLING CODE 3110-01-P
