Friday, July 20, 2012

New discounting rules from GASB should affect Nashville

Its not often that I get excited when a Government Accounting Standards Board acts, but this time they have done something really extraordinary--rewritten the rules on how much governments, like Nasvhille, should save:
Discount Rate. The rate used to discount projected benefit payments to their present value will be based on a single rate that reflects (a) the long-term expected rate of return on plan investments as long as the plan net position is projected under specific conditions to be sufficient to pay pensions of current employees and retirees and the pension plan assets are expected to be invested using a strategy to achieve that return; and (b) a yield or index rate on tax-exempt 20-year, AA-or-higher rated municipal bonds to the extent that the conditions for use of the long-term expected rate of return are not met.

I think this means that if Nashville is earning less than its discount rate (see previous post), they have use a much lower discount rate. In other words, a bunch of accountants may force political leadership in Nashville to do the right thing.

HT:  Steve & Beth

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