Pensions, Other Retirement Benefits, 

and Other Postemployment Benefits: 

Reporting the Gains and Losses from 

Changes in Assumptions and Selecting 

Discount Rates and Valuation Dates 

Statement of Federal Financial Accounting Standards 33 

October 14, 2008 

Federal Accounting Standards Advisory Board 
THE FEDERAL ACCOUNTING STANDARDS ADVISORY BOARD 

The Federal Accounting Standards Advisory Board (FASAB or "the Board") was established by the 

Secretary of the Treasury, the Director of the Office of Management and Budget (OMB), and the 

Comptroller General in October 1990. It is responsible for promulgating accounting standards for the 

United States Government. These standards are recognized as generally accepted accounting 

principles (GAAP) for the federal government. 

An accounting standard is typically formulated initially as a proposal after considering the financial and 

budgetary information needs of citizens (including the news media, state and local legislators, analysts 

from private firms, academe, and elsewhere), Congress, federal executives, federal program 

managers, and other users of federal financial information. The proposed standard is published in an 

Exposure Draft for public comment. In some cases, a discussion memorandum, invitation to comment, 

or preliminary views document may be published before an exposure draft is published on a specific 

topic. A public hearing is sometimes held to receive oral comments in addition to written comments. 

The Board considers comments and decides whether to adopt the proposed standard, with or without 

modification. After review by the three officials who sponsor FASAB, the Board publishes adopted 

standards in a Statement of Federal Financial Accounting Standards. The Board follows a similar 

process for Interpretations and also for Statements of Federal Financial Accounting Concepts, which 

guide the Board in developing accounting standards and formulating the framework for federal 

accounting and reporting. 

Additional background information is available from the FASAB or its website: 

• "Memorandum of Understanding among the General Accounting Office, the Department 

of the Treasury, and the Office of Management and Budget, on Federal Government Accounting 

Standards and a Federal Accounting Standards Advisory Board" 

 • "Mission Statement: Federal Accounting Standards Advisory Board" 

Exposure drafts, Statements of Federal Accounting Standards and Concepts, Interpretations, FASAB 

newsletters, and other items of interest are posted on FASAB’s website, at www.fasab.gov. 

Federal Accounting Standards Advisory Board 

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Mailstop 6K17V 

Washington, DC 20548 

Telephone (202) 512-7350 

Fax (202) 512-7366 

www.fasab.gov

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may be reproduced and distributed in its entirety without further permission from FASAB. However, 

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holder may be necessary if you wish to reproduce this material separately. 
Federal Accounting Standards Advisory Board 

Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting 

Gains and Losses from Changes in Assumptions, and 

 Selecting Discount Rates and Valuations Dates 

October 14, 2008 

Summary 

During its consideration of long-term obligations, the Board discussed the need to highlight 

gains and losses from changes in assumptions in federal financial reports. Some of the most 

significant changes in amounts on the statement of net cost for the consolidated Financial 

Report of the United States Government (CFR) and for certain component entities can result 

from gains and losses from changes in assumptions. This Statement addresses that need. 

This Statement applies to federal entities that report liabilities and expenses for federal 

employee pensions, other retirement benefits (ORB), and other postemployment benefits 

(OPEB) in general purpose financial reports prepared pursuant to Federal Accounting Standard 

Advisory Board standards. 

This Statement requires gains and losses from changes in long-term assumptions used to 

estimate federal employee pension, ORB, and OPEB liabilities to be displayed on the statement 

of net cost separately from other costs. Separate display will provide more transparent 

information regarding the underlying costs associated with these liabilities. 

This Statement also requires disclosure of the components of the expense associated with 

federal employee pension, ORB, and OPEB liabilities in notes to the financial statements. Such 

disclosure will provide useful information for analysis. The information will be comparable across 

agencies and between postemployment and retirement programs. 

This Statement also provides a standard for selecting the discount rate assumption for present 

value estimates of federal employee pension, ORB, and OPEB liabilities. There is currently 

uncertainty in practice in this regard. 

This Statement also provides a standard for selecting the valuation date for estimates of federal 

employee pension, ORB, and OPEB liabilities, which will establish a consistent method for such 

measurements. 
Table of Contents 

Federal Accounting Standards Advisory Board 

Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting 

Gains and Losses from Changes in Assumptions, and 

 Selecting Discount Rates and Valuations Dates 

October 14, 2008 

Table of Contents 

Introduction................................................................................................................................ 3

Purpose.................................................................................................................................. 3

Background ............................................................................................................................ 3

Proposed Accounting Standard.................................................................................................. 6

Display ................................................................................................................................... 7

Selecting Discount Rates........................................................................................................ 9

Selecting Valuation Date ........................................................................................................ 9

Effect on Prior Standards.......................................................................................................10

Appendix A: Basis for Conclusions............................................................................................14

Display ..................................................................................................................................14

Selecting Discount Rates.......................................................................................................20

Selecting Valuation Date .......................................................................................................28

Appendix B: Pro Forma Statement of Net Cost Displaying Separate Line Item for Gains and 

Losses Due to Changes in Assumptions...................................................................................32

Appendix C: Pro Forma Note Disclosure of OPEB Liabilities and Expense ...............................33

Appendix D: Note 11 from FY 2006 Financial Report of the United States................................34

Appendix E: Glossary................................................................................................................37

Appendix F: List of Abbreviations..............................................................................................39
 Introduction 3

Federal Accounting Standards Advisory Board 

Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting 

Gains and Losses from Changes in Assumptions, and 

 Selecting Discount Rates and Valuations Dates 

October 14, 2008 

Introduction 

Purpose

1. This statement requires the following: 

A. Gains and losses from changes in long-term assumptions1

 used to estimate 

federal employee pension, other retirement benefit (ORB), and other 

postemployment benefit (OPEB) liabilities should be displayed on the statement 

of net cost separately from other costs. This display will provide more transparent 

information regarding the underlying costs associated with certain liabilities. 

 

B. Components of the expense associated with federal employee pension, ORB, and 

OPEB liabilities should be disclosed in notes to the financial statements. Such 

disclosure will provide information useful for analysis. The information will be 

comparable across agencies and between postemployment and retirement 

programs. 

2. This statement also provides standards for selecting: 

A. The discount rate assumption for pension, ORB, and OPEB liabilities. There is 

currently uncertainty in practice regarding the selection of discount rates in some 

situations. 

 

B. The valuation date for measuring pension, ORB, and OPEB liabilities, which will 

establish a consistent method for such measurements. 

Background

Reporting Gains and Losses from Changes in Assumptions 

3. During its discussions of long-term obligations the Board addressed the need to highlight 

certain gains and losses from changes in assumptions in federal financial reports. Some 

of the most significant changes in amounts on the statement of net cost for the 

consolidated Financial Report of the United States Government (CFR)2

 and for certain 

component entities can result from gains and losses from changes in assumptions. 

The Board is now requiring that such gains and losses be reported as a discrete line 

item on the statement of net cost. 

Selecting the Discount Rates 

4. SFFAS 5 provides standards for several types of liabilities, some of which require 

present value valuations. Federal accounting standards requiring present valuations 

 

1

 Terms in the Glossary are shown in boldface the first time they appear in this document. 2

 See Appendix D containing Note 11, ”Federal Employee and Veterans Benefits Payable,” from the FY 

2006 CFR. 
 Introduction 4

Federal Accounting Standards Advisory Board 

Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting 

Gains and Losses from Changes in Assumptions, and 

 Selecting Discount Rates and Valuations Dates 

October 14, 2008 

usually specify U. S. Treasury borrowing rates as the discount rates, although the 

terminology used differs. 

 

5. With respect to the selection of assumptions for pension, ORB, and OPEB liabilities, 

including the discount rate assumption, SFFAS 5 emphasizes expected long-term future 

trends rather than recent past experience. For the discount rate, SFFAS 5 required 

either the entity’s long-term investment yield on assets, if the benefit plan is being 

funded, or other long-term assumptions such as Treasury borrowing rates for securities 

of similar maturity to the period over which the payments are to be made.3

6. Some entities interpreted the SFFAS 5 standard with respect to other postemployment 

benefits (OPEB) to require the use of single-day Treasury rates for the discount rates. 

Single-day rates render liability projections susceptible to more volatility than, for 

example, rates based on long-term expectations or historical experience. 

7. Liabilities for postemployment and retirement benefits can be very large. The 

combination of the magnitude of these liabilities and volatility of the projections has 

resulted in large variations in annual cost from year to year that reduces the usefulness 

of reported operating results. 

8. FASAB standards that require the use of Treasury borrowing rates for discounting do not 

specify a precise method for selecting such rates. There were a number of options for 

the discount rate. However, the discount rate generally required in FASAB standards is 

the rate on marketable Treasury securities of similar maturity to the cash flows of the 

obligation in question. 

9. This Statement provides a standard for selecting discount rates for present value 

measurements of federal employee pension, ORB, and OPEB liabilities. 

Selecting the Valuation Date 

10. This Statement provides a standard regarding selecting valuation dates for present 

valuations of federal employee pension, ORB, and OPEB liabilities. Few FASAB 

standards currently address the valuation date per se. 

11. In Interpretation 3, Measurement Date for Pension and Retirement Health Care 

Liabilities (August 1997), the Board addressed the valuation date issue with respect to 

measuring federal civilian and military employee pension and retirement health care 

liabilities in general purpose financial reports prepared pursuant to SFFAS 5. 

Interpretation 3 requires that pension and retirement health care liabilities in general 

purpose federal financial reports prepared pursuant to SFFAS 5 be measured as of the 

end of the reporting period. However, a full actuarial valuation as of the end of the 

reporting period is not required. The Interpretation allows the measurement to be based 

on an actuarial valuation performed as of an earlier date during the fiscal year, including 

the beginning-of-year, adjusted or “rolled forward” for the effects of changes during the 

year in major factors such as pay raises and cost of living adjustments. 

 

 

3

 SFFAS 5, pars. 66, 83, and 95. 
 Introduction 5

Federal Accounting Standards Advisory Board 

Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting 

Gains and Losses from Changes in Assumptions, and 

 Selecting Discount Rates and Valuations Dates 

October 14, 2008 

12. In this Statement the Board is extending the Interpretation 3 approach to expense and 

liability measurement for OPEB liabilities. 

13. This Statement is effective for fiscal years beginning after September 30, 2009. 
 Accounting Standard 6

Federal Accounting Standards Advisory Board 

Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting 

Gains and Losses from Changes in Assumptions, and 

 Selecting Discount Rates and Valuations Dates 

October 14, 2008 

Proposed Accounting Standard 

Scope

14. This Statement applies exclusively to entities that report liabilities for federal employee 

pensions, other retirement benefits (ORB), and other postemployment benefits (OPEB), 

including veterans’ compensation,4

 in general purpose financial reports prepared 

pursuant to Federal Accounting Standard Advisory Board (FASAB) standards. This 

Statement does not apply to the Federal Employees Compensation Act (FECA) 

program. 

15. This Statement requires the display of gains and losses from changes in long-term 

assumptions used to estimate liabilities for federal employee pensions, ORB, and OPEB, 

including a discount rate assumption. For the purpose of this Statement, assumptions 

are considered long-term if the underlying event about which the assumption is made 

will not occur for five years or more. If the event is one of a series of events, the entire 

series should be considered the event and, thus, projected payments may commence 

within one year but would be required to extend at least five years. Otherwise, 

assumptions would be considered short-term. 

16. This Statement does not preclude entities from displaying or disclosing any information 

about the effect of changes in any assumptions with regard to other types of activities. 

17. In addition, except for the change in terminology to characterize the preparer’s “best 

estimate” as “reasonable estimate,” this Statement does not apply to social insurance 

programs for which the FASAB has specifically provided standards in SFFAS 17, 

Accounting for Social Insurance. The preparation and display of the expense and 

liability, related disclosures, and the statement of social insurance follows the standards 

promulgated in SFFASs 17, 25,5

 and 26.6

18. This Statement applies to information provided in general purpose federal financial 

reports. It does not affect statutory or other special-purpose reports, such as pension or 

ORB reports. 

 

4

 The pension program for veterans of the Department of Veterans’ Affairs (DVA) is not accounted for as 

a “federal employee pension plan” under SFFAS 5 and the obligation therefore is not recorded as a 

liability due to differences between its eligibility conditions and those of federal employee pensions. The 

veterans’ pension obligation is currently measured internally by the DVA in a manner consistent with the 

DVA’s compensation program. 

5 Reclassification of Stewardship Responsibilities and Eliminating the Current Services Assessments, July 

17, 2003. 

6 Presentation of Significant Assumptions for the Statement of Social Insurance: Amending SFFAS 25, 

November 1, 2004. 
 Accounting Standard 7

Federal Accounting Standards Advisory Board 

Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting 

Gains and Losses from Changes in Assumptions, and 

 Selecting Discount Rates and Valuations Dates 

October 14, 2008 

Display

Component Entities

19. Component entities should display gains and losses from changes in long-term 

assumptions used to measure liabilities for federal civilian and military employee 

pensions, ORB, and OPEB, including veterans’ compensation, as a separate line item or 

line items on the statement of net costs. See the pro forma illustration in Appendix B. 

20. Selecting the gains and losses to display from changes in individual pension, ORB, and 

OPEB liability assumptions to be displayed on the statement of net cost requires 

judgment. The preparer should consider quantitative and qualitative criteria. Acceptable 

criteria include but are not limited to quantitative factors such as the percentage of the 

reporting entity’s cost that resulted from the gain or loss and the size of the gain or loss 

relative to the liability; and qualitative factors including whether the gain or loss would be 

of interest to decision-makers and other users. Nothing in this standard should be 

construed to preclude an entity from displaying gains or losses from changes in shortterm assumptions. 

21. Pursuant to SFFAS 5, some component entities report the liability and expense for 

pensions, ORB, or OPEB, while other component entities report only normal (or 

service) cost.

7

 The Office of Personal Management is an example of the former with 

respect to the Federal Employees Retirement System (FERS), and federal component 

entities with employees participating in FERS are examples of the latter. Component 

entities that report pension, ORB, or OPEB liabilities should display a discrete line item 

for gains and losses from changes in assumptions on its statement of net cost when the 

conditions in paragraphs 19-20 above are met. Component entities reporting only the 

normal or service cost should not display such gains and losses. 

22. Component entities should disclose in notes to the financial statements the following 

reconciliation of beginning and ending pension, ORB, and OPEB liability balances: 

 

7

 The terms “employer entity” and “administrative entity” are used in SFFAS 5 to distinguish between 

entities that employ federal workers and thereby incur the employee costs, including pension cost, and 

those that are responsible for managing and/or accounting for the pension or the other employee plan. 

For example, entities that receive “salaries and expense” appropriations are employer entities, while the 

Office of Personnel Management (OPM) is an administrative entity because it administers the civilian 

retirement benefit plans. See especially SFFAS 5, pars. 71-2 and 88. An entity may be both an employer 

entity and an administrative entity, for example, when it, rather than OPM, administers a pension plan for 

its employees. In such instances, that entity would be responsible for reporting gains and losses from 

changes in assumptions if the conditions in paragraph 19-20 are satisfied. 
 Accounting Standard 8

Federal Accounting Standards Advisory Board 

Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting 

Gains and Losses from Changes in Assumptions, and 

 Selecting Discount Rates and Valuations Dates 

October 14, 2008 

Beginning liability balance $X,XXX 

Expense:

 Normal cost* XX 

 Interest on the liability balance XX 

 Actuarial (gain)/loss: 

 From experience 

 From assumption changes 

XX

XX

 Prior service costs* X

 Other (X)

 Total expense XXX 

Less amounts paid (XX)

Ending liability balance $X,XXX 

23. This reconciliation must provide all material components of pension, ORB, or OPEB 

expense consistent with the components identified in the table immediately above, if 

applicable. Additional sub-components may be presented. The line item for actuarial 

gains and losses should be broken out into the sub-components “from experience” and 

“from assumptions changes.” Significant pension, ORB, and OPEB programs should be 

presented individually in a separate column along with an “all other” column, if 

applicable, and a “total” column for each line item. 

24. Component entities that report pension, ORB, or OPEB liabilities should disclose the 

information required in paragraph 22. Component entities reporting only the normal or 

service cost should not disclose the information required in paragraph 22. 

25. Component entities holding non-Treasury securities as assets to fund their pension, 

ORB, or OPEB programs should disclose the rates of return, specific maturities, and 

allocation by type (stocks, bonds, etc.) of such assets. 

Governmentwide Entity

26. The governmentwide entity should display gains and losses from changes in 

assumptions as a separate line item or line items on the statement of net cost after a 

subtotal for all other costs and before total cost. See the pro forma illustration in 

Appendix B. 

27. The governmentwide entity should disclose in the notes to the financial statements a 

reconciliation consistent with information required in paragraph 22 above for pension, 

ORB, and OPEB liabilities. At a minimum, reconciliations for liabilities classified as 

civilian, military, and veterans compensation must be presented. See Appendix C for an 

example. 

 

* See the glossary for this standard’s definition of “normal cost.” 
 Accounting Standard 9

Federal Accounting Standards Advisory Board 

Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting 

Gains and Losses from Changes in Assumptions, and 

 Selecting Discount Rates and Valuations Dates 

October 14, 2008 

Selecting Discount Rates

28. Discount rates as of the reporting date for present value measurements of pension, 

ORB, and OPEB liabilities should be based on interest rates on marketable Treasury 

securities with maturities consistent with the cash flows being discounted. The discount 

rates should be matched with the expected timing of the associated expected cash flow. 

Thus, cash flows projected in each period should have a discount rate associated with 

them. However, one discount rate may be used for all projected future cash flows if the 

resulting present value is not materially different than the resulting present value using 

multiple rates. A change to or from multiple rates from or to a single rate should be 

disclosed. 

29. The discount rates as of the reporting date should reflect average historical rates on 

marketable Treasury securities rather than giving undue weight to the current or very 

recent past experience of such rates. Historical experience should be the basis for 

expectations about future trends in marketable Treasury securities. The discount rate, 

the underlying inflation rate, and the other economic assumptions should be consistent 

with one another. 

30. In developing average historical Treasury rates, a minimum of five historical rates as of 

the reporting date (e.g., at the current and four prior fiscal year ends) should be used for 

each maturity. The historical rates used to calculate the average should be sequential 

(e.g., 2003-2007). For example, for an average historical Treasury rate to be used as the 

discount rate as of the end of fiscal year 2007 for a payment due in 10 years (i.e., in 

fiscal 2017), a minimum of the five most recent fiscal year-end historical rates on 10-year 

Treasury securities should be used. Thus, the rate on 10-year Treasury securities as of 

the end of fiscal year 2007 would be one of the five historical rates used in the average, 

the rate on 10-year Treasury securities as of the end of fiscal year 2006 would be 

another rate, etc., until, at a minimum, the rates on 10-year Treasury securities as of the 

end of fiscal years 2003 through 2007 would be included in the average. 

31. The number of historical rates used in the calculation of the average as explained in 

paragraph 30, e.g., five fiscal year-end rates, should be consistent from period to period. 

The entity’s accounting policy disclosures should include its policy regarding consistency 

from one reporting period to the next. 

32. In the determination of the historical Treasury rates used, for cash flows that are 

projected to occur in future years for which Treasury securities are or were not available 

or that are expected beyond the maturities at which Treasury securities are available, 

e.g., beyond the 30-year security, the preparer should incorporate into the determination 

of the discount rate interest rates interpolated or extrapolated from historical Treasury 

rates. 

Selecting Valuation Date

33. Estimates of pension, ORB, and OPEB liability and expense in general purpose federal 

financial reports should be measured as of the end of the fiscal year (or other reporting 

period if applicable). Measurements based on an actuarial valuation may be performed 

as of an earlier date during the fiscal year, including the beginning of the year, with 
 Accounting Standard 10

Federal Accounting Standards Advisory Board 

Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting 

Gains and Losses from Changes in Assumptions, and 

 Selecting Discount Rates and Valuations Dates 

October 14, 2008 

adjustments for the effects of changes during the year in major factors such as the pay 

raise and cost of living adjustment. A full actuarial valuation as of the end of the reporting 

period is not required. Measurements should reflect the entity’s assumptions about 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 material known changes in the number of 

participants covered (enrollment) that cause a change in the liability. 

34. The valuation date in the full actuarial valuation utilized by the entity should be 

consistently followed from year to year. 

Reasonable Estimates

35. The entity’s estimates should reflect its judgment about the outcome of events based on 

past experience and expectations about the future. Estimates should reflect what is 

reasonable to assume under the circumstances. The entity’s own assumptions about 

future cash flows may be used. However, the entity should review assumptions used 

generally in the federal government as evidenced by sources independent of the 

reporting entity, for example, those used by the Bureau of Economic Analysis for the 

National Income and Product Accounts and, if its assumptions do not reflect such data, 

explain why it is inappropriate to do so. 

Effect on Prior Standards

36. This Statement provides additional requirements for display, disclosure, discount rates, 

and valuation dates for federal civilian and military employee pensions, ORB, and OPEB 

in SFFAS 5. Interpretation 3 is rescinded. In addition, this Statement replaces “best 

estimate” with “reasonable estimate” in SFFAS 5, SFFAS 7, and SFFAS 17. 

SFFAS 5

37. This Statement also affects current standards for selecting discount rates. SFFAS 5, 

Accounting for Federal Liabilities, is amended as follows: 

65. Assumptions—For financial reports prepared for the three primary federal 

plans (CSRS, FERS, and MRS), the best available actuarial estimates of 

assumptions should be used to calculate the pension expense and liability. The 

selection of all actuarial assumptions should be guided by Actuarial Standards 

of Practice No. 4, Measuring Pension Obligations, as revised from time to time 

by the Actuarial Standards Board. Accordingly, actuarial assumptions should be 

on the basis of the actual experience of the covered group, to the extent that 

credible experience data are available, but should emphasize expected long 

term future trends rather than give undue weight to recent past experience. 

Although emphasis should be given to the combined effect of all assumptions, 

the reasonableness of each actuarial assumption should be considered 

independently on the basis of its own merits and its consistency with each other 

assumption. [footnote omitted] 

66. In addition to complying with the guidance in the preceding paragraph, the 

discount rate assumption for present value measurements pension
 Accounting Standard 11

Federal Accounting Standards Advisory Board 

Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting 

Gains and Losses from Changes in Assumptions, and 

 Selecting Discount Rates and Valuations Dates 

October 14, 2008 

liabilities should be the interest rate on marketable Treasury securities of 

similar maturities to the cash flows of the payments for which the estimate 

is being made. The discount rates should be matched with the expected 

timing of the associated expected cash outflow. Thus, each year for which 

cash flows are projected should have a separate discount rate associated 

with it. However, a single average discount rate may be used for all 

projected future payments if the resulting present value is not materially 

different than the resulting present value using multiple-rates. the interest 

rate assumption should be based on an estimated long-term investment yield for 

the plan, giving consideration to the nature and the mix of current and expected 

plan investments and the basis used to determine the actuarial value of assets; 

or if the plan is not being funded, other long-term assumptions (for example, the 

long-term Federal government borrowing rate). The underlying inflation rate and 

the other economic assumptions should be consistent. The rate used to 

discount the pension obligation should be equal to the long-term expected 

return on plan assets. The discount rates should reflect average historical 

rates on marketable Treasury securities rather than give undue weight to 

recent past experience with such rates. Historical experience should be 

the basis for expectations about future trends in marketable Treasury 

securities. In developing the average historical Treasury rates, a minimum 

of five historical rates as of the appropriate reporting dates should be 

used for each maturity. The historical rates used to calculate the average 

should be sequential (e.g. 2003-2007). For example, for an average 

historical Treasury rate to be used as the discount rate as of the end of the 

fiscal year 2007 for a payment due in 10 years, i.e., in 2017, a minimum of 

five 10-year Treasury rates should be used. Thus, the rate on 10-year 

Treasury securities as of the end of fiscal year 2007 would be one rate, the 

rate on 10-year Treasury securities as of the end of fiscal year 2006 would 

be another rate, etc., until, at a minimum, the rates on 10-year Treasury 

securities for the years 2003 through 2007 were included in the average.

The number of historical rates used for the average, e.g., five yearly rates, 

should be consistent from period to period. The entity should explain that 

its accounting policy is to be consistent in this regard from period to 

period. For cash flows that are projected to occur in future years for which 

Treasury securities are not available or that extend beyond the maturities 

for which Treasury securities are available, e.g., beyond the 30-year 

security, the preparer should incorporate in the assumed discount rate 

expected re-financing rates extrapolated from historical Treasury 

borrowing rates.

83. Assumptions—Amounts calculated for financial reports prepared for ORB 

plans should reflect (1) general actuarial and economic assumptions that are 

consistent with those used for federal employee pensions and (2) a long-term

health care cost trend assumption that is consistent with Medicare projections or 

other authoritative sources appropriate for the population covered by the plan. 

The discount rate assumption for present value measurements of ORB

liabilities should be developed in accordance with paragraph 66 of this 

standard. be equal to the long-term expected return on plan assets if the plan is 
 Accounting Standard 12

Federal Accounting Standards Advisory Board 

Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting 

Gains and Losses from Changes in Assumptions, and 

 Selecting Discount Rates and Valuations Dates 

October 14, 2008 

being funded or on other long-term assumptions (for example, the long-term 

Federal government borrowing rate) for unfunded plans. The administrative 

entity should disclose the assumptions used.

95. The employer entity should recognize an expense and a liability for OPEB 

when a future outflow or other sacrifice of resources is probable and 

measurable on the basis of events occurring on or before the reporting date. For 

example, a reduction in force may require an employer entity to make 

severance payments, unemployment reimbursements, or other payments in 

future periods. Similarly, an injury on the job may require the employer entity to 

make short- or long-term reimbursements to the federal workers’ compensation 

program. A long-term OPEB liability should be measured at the present value of 

future payments. This will require the employer entities to estimate the amount 

and timing of future payments, and to discount the future outflow using the 

interest rate on marketable Treasury borrowing rate for securities of similar 

maturities to the period over which the payments are to be made. The discount 

rate assumption for present value measurements of OPEB liabilities 

should be developed in accordance with paragraph 66 of this standard.

157. Second, assumptions ought to be consistent across federal employee 

pension, other retirement benefit, and other postemployment benefit

systems. Assumptions need not be identical because the conditions facing each 

plan may objectively differ, but they should be rationally related (thus, the 

standard calls for financial reports to be prepared on the basis of the best 

available reasonable estimates for actuarial assumptions). Also, the standard 

allows the smaller plans to use the assumptions provided by any of the three 

primary plans or to use their own assumptions if they explain how and why they 

are different from one of the major plans.

SFFAS 7

38. This Statement also affects current standards that use the term “best estimate.” SFFAS 

7, Accounting for Revenue and Other Financing Sources ..., is amended as follows: 

67.1 Entities that collect taxes and duties should provide the following 

supplementary information relating to their potential revenue and custodial 

responsibilities: 

67.1 The estimated realizable value, as of the end of the reporting 

period, of compliance assessments and, if reasonably estimable, 

preassessment work in process. The amounts furnished should 

represent management’s best estimate of additional revenues 

reasonably expected likely to be collected from compliance 

assessments and from pre-assessment work in process, appropriately 

qualified as to their reliability. A range of amounts may be provided for 

pre-assessment work in process if estimable. The change in the total(s) 

of compliance assessments and of pre-assessment work in process 

during the reporting period also should be provided. 
 Accounting Standard 13

Federal Accounting Standards Advisory Board 

Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting 

Gains and Losses from Changes in Assumptions, and 

 Selecting Discount Rates and Valuations Dates 

October 14, 2008 

67.2 If reasonably estimable, other claims for refunds that are not yet 

accrued but are likely to be paid when administrative actions are 

completed. If estimated, unasserted claims for refunds should be 

provided separately from claims filed and may be expressed as a range 

of amounts. The amounts furnished should represent management’s 

best reasonable estimates, appropriately qualified as to their reliability. 

The change in the total of these amounts during the reporting period also 

should be provided.

SFFAS 17

39. Paragraphs 24-27 and 32-33 of SFFAS 17 provide the standard for required 

supplementary information (sub-paragraph 27(3) and 32(3) were re-classified as basic 

information by SFFAS 26, Presentation of Significant Assumptions for the Statement of 

Social Insurance: Amending SFFAS 25). Paragraph 25 of SFFAS 17 is changed as 

follows: 

25. The projections and estimates used should be based on the entity’s best

reasonable estimates of demographic and economic assumptions, taking each 

factor individually and incorporating future changes mandated by current law. 

Significant assumptions should be disclosed.

40. Paragraph 27(2) of SFFAS 17 requires the ratio of contributors to beneficiaries as 

supplementary information. Paragraph 27(2) is changed as follows: 

27(2) Ratio of Contributors to Beneficiaries - With respect to the OASDI and HI 

programs, the ratio of the number of contributors to the number of beneficiaries 

(commonly called the “dependency ratio”) during the same projection period as 

for cashflow projections (e.g., 75 years), using the program managers’ best

estimate. At a minimum, the ratio should be reported for the beginning and end 

of the projection period. [footnote omitted]

41. Paragraph 27(4) (a) of SFFAS 17 requires sensitivity analysis as supplementary 

information. The phrase “best estimate cost” before the word “assumptions” is changed 

as follows: 

27(4) (a) For all programs except UI illustrate the sensitivity of the projections 

and present values required by paragraphs 27(1) and 27(3) to changes in the 

most significant individual assumptions. For example, using the entity’s “best 

estimate” reasonable cost assumptions as a baseline, show the effect of 

varying several significant assumptions .... 

 

Effective Date 

42. This Statement is effective for fiscal years beginning after September 30, 2009. 

The provisions of this Statement need not be applied to immaterial items. 
Appendix A: Basis for Conclusions 14

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Appendix A: Basis for Conclusions 

This appendix discusses factors considered significant by Board members in reaching the 

conclusions in this Statement. It includes the reasons for accepting certain approaches and 

rejecting others. Individual members gave greater weight to some factors than to others. The 

standards enunciated in this Statement---not the material in this appendix---should govern the 

accounting for specific transactions, events or conditions. 

Comments Received

A1. The Board did not rely on the number in favor or opposed to a given position. Information 

about the respondents’ majority view is provided only as a means of summarizing the 

comments. The Board considered the arguments in each response and weighed the 

merits of the points raised. The respondents’ comments are summarized below. 

A2. Eight written responses were received from the following sources: 

FEDERAL 

(Internal) 

NON-FEDERAL 

(External) 

Users, academics, others 2 

Auditors 1 

Preparers and financial managers 5 

Summary of Comments

Display

What the Exposure Draft Proposed regarding Display

A3. During its consideration of long-term obligations the Board discussed how financial 

statement display might be modified to show the fluctuations in cost caused by changes 

in assumptions. Some of the most significant changes in amounts on the operating 

statement for the Financial Report of the United States Government (CFR) and on the 

statement of net cost for some component entities often result from gains and losses 

from changes in assumptions. Note 118

 to the FY 2006 CFR disclosed that the expense 

for military employee pension benefits was $112.2 billion. Of this amount $20.1 billion 

was for changes in assumptions, and $6.1 billion was from differences between actual 

experience and what was assumed. And even more dramatically, Note 11 in the CFR for 

FY 2005 disclosed that of the $123 billion expense for post-retirement healthcare benefit 

for military personnel, $53 billion was attributed to changes in assumptions and $5 billion 

was from differences between actual experience and what was assumed. 

A4. The issue of volatility in reported annual expense was first brought to the Board’s 

attention with respect to year-to-year volatility in veterans’ compensation expense 

 

8

 See Appendix D for Note 11. 
Appendix A: Basis for Conclusions 15

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October 14, 2008 

amounts reported by Department of Veteran’s Affairs (DVA). Large percentage changes 

in net cost resulted from DVA’s need to estimate future outflow for veteran’s 

compensation benefits based on complex assumptions and cost models. Other agencies 

need to make similar estimates. Small changes in the discount rate assumption, for 

example, produce large fluctuations. 

A5. The Board decided to propose a general standard rather than focus solely on DVA and 

other employee compensation liabilities because many programs are affected by 

changes in long-term assumptions. Although pension, ORB, and OPEB programs 

employ long-range assumptions to estimate liabilities and periodic expense, other 

programs also involve long-term assumptions for liability and cost estimates the dollar 

amounts of which are very large relative to other financial statement items. For example, 

environmental liabilities require the use of long-term assumptions. 

A6. The exposure draft proposed that gains or losses from changes in assumptions, if any, 

should be presented as discrete line items not assigned to programs on the statement of 

net cost (SNC). The Board believed that this disaggregation would enhance the 

usefulness of the information provided on the statement of net cost. Separate display 

highlights the effects of changes in assumptions, which can be significant. Expenses 

assigned to programs would be distinguished from the gains and losses from changes in 

assumptions. The user would be better able to understand the operating performance of 

the entity as well as the role of gains and losses from changes in assumptions. 

A7. The Board believed that the discrete display of such gains and losses would enhance 

users’ understanding of liabilities and periodic expense. Users, including entity 

managers, would understand more about how liabilities and expense are measured; 

about the uncertainty of the measurement of individual liabilities; and about what causes 

changes in liabilities. Managers would benefit from having information about the volatility 

of assumptions in their programs. Extreme volatility might indicate the assumptions 

chosen and/or the assumption-selection process needs re-evaluation. Volatility may 

affect the entity’s funding requests and long-term planning. It will at least raise a flag for 

further investigation. 

A8. The proposed Statement provided certain exceptions to the display requirement. 

Assumptions used to estimate receivables, payables, inventory and related property and 

other short-term assumptions were excepted because they will be proved or disproved 

within a relatively short period of time. Also, those assumptions used for direct loans and 

loan guarantees were excepted because the FASAB has already provided accounting 

procedures. 

Respondents’ Comments regarding Display

A9. Most respondents agreed that the separate display of gains and losses from changes in 

assumptions on the SNC would be informative and useful. One respondent 

recommended displaying more detail about assumption changes on the face of the SNC, 

for example, the nature of the assumption change, within a category of assumptions 

(i.e., economic, demographic, etc.) and the amount of change. 
Appendix A: Basis for Conclusions 16

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A10. Most of the respondents who commented on the question about the criteria for short – 

and long-term assumptions found the 5-year criteria useful. One respondent commented 

that there is some ambiguity in the wording and suggested the following three 

improvements: (1) explicitly allow display of gains/losses from assumption changes 

involving estimates for less than five years, (2) include the size of the gain/loss relative 

to the actuarial liability as part of the guidance in the proposed standard (ED paragraph 

21) as another criterion for deciding what to display, and (3) include a discussion of the 

need to distinguish between benefit changes and assumption changes in the basis for 

conclusions. Another respondent commented that the glossary should be clearer 

regarding what is meant by long-term assumptions. 

A11. One respondent did not believe the 5-year division is appropriate “to define liabilities.” In 

addition, this respondent thought there would be situations where changes in short-term 

assumptions could result in material gains and losses. 

A12. Another respondent commented that the proposed standard did not provide satisfactory 

guidance based on their belief that it (1) would apply to a very limited federal audience, 

(2) uses high-level generalities, and (3) should be directed to the administrative entities 

for the primary federal employee benefit programs. 

A13. Several respondents commented that the proposed standard is not clear with respect to 

how it applies to non-actuarially prepared liability estimates. For example, one 

respondent thought that it may not be feasible to identify separate components of an 

annual change in non-actuarial liabilities. Another respondent asked for more guidance 

with respect to paragraph 21 in the exposure draft, which directed the preparer to use 

judgment in selecting the long-term assumptions for which gains and losses from 

changes are to be displayed individually on the statement of net cost. 

The Board’s Conclusions regarding Display

A14. The Board decided to limit the standard to federal employee pension, ORB, and OPEB 

liabilities. This decision is based on the Board’s desire to address more immediately its 

primary concern, which is to display the effect of assumption changes on employee 

compensation liabilities. The Board considered the requests from some respondents for 

more guidance regarding how the standard would apply to other than pension, ORB, and 

OPEB activities. Although in principle a broader application is desirable, the Board 

believes that developing additional guidance would significantly delay implementation of 

a broad standard. Therefore, the Board concluded that limiting the scope to pension, 

ORB, and OPEB liabilities would address the specific issue presented at this time. In 

addition, the need for information about the effect of assumption changes is more acute 

for pension, ORB, and OPEB liabilities than for other liabilities where the combination of 

factors that the preparer would have to consider is more complex. Legal contingencies, 

for example, involve an array of considerations that are not as clear-cut as for employee 

benefits. 

A15. This decision effectively renders moot several of the respondents’ concerns. First, it 

addresses the concern of some respondents that the guidance was not specific enough 

with respect to which assumptions are subject to the standard. Second, it addresses the 
Appendix A: Basis for Conclusions 17

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concern that the disclosure requirement of ED paragraphs 22-23 were too pensionoriented and preparers may be confused regarding how to classify annual changes in, 

for example, environmental cleanup liabilities or contingent liabilities. 

A16. Narrowing the scope of the standard also meant that the examples of liabilities to which 

the standard does not apply were not necessary. Paragraph 14 now explicitly states that 

the standard applies exclusively to pensions, ORB, and OPEB. The Board decided that 

the ED paragraphs containing examples of other liabilities to which the standard would 

not apply (e.g., liabilities that employ long-term assumptions where the FASAB has 

specifically provided standards such as loans and loan guarantees, or to assumptions 

that are short-term in nature, including estimates or receivables, payables inventory, and 

claims incurred but not reported) were redundant and potentially confusing, and they 

have been removed. 

A17. With respect to concern that the proposed standard did not provide satisfactory guidance 

regarding how it applies to administrative and employer entities as defined in SFFAS 5, 

specific guidance has been added. The standard now states that, in cases where an 

entity does not report the pension, ORB, or OPEB liability, that entity is not responsible 

for reporting gains and losses from changes in assumptions. For example, most civilian 

federal employees participate in either the Civil Service Retirement System (CSRS) or 

the Federal Employee Retirement System (FERS) pension plans, which are 

administered by the Office of Personal Management (OPM). Federal reporting entities 

whose employees participate in CSRS and FERS (other than OPM itself) report only a 

portion of the annual cost of the employee benefits. This portion is called the “normal 

cost” (or, “service cost’). The OPM reports the liability and all costs components, as 

described in SFFAS 5. Thus, the OPM, which is called the “administrative agency” in 

SFFAS 5, is responsible for reporting the gains and losses from changes in assumptions 

as a discrete line item on its SNC. 

 

A18. An entity may function both as an employer and an administrator entity. For example, it 

may administer a pension benefit for its employees rather than participate in CSRS or 

FERS. In such instances, that entity would report the liability and all costs. Thus, that 

entity would report gains and losses from changes in assumptions, if the conditions in 

paragraphs 19-20 are satisfied. The Board believes that the display of the effect of 

changes in assumptions will be meaningful for all entities that report a pension, ORB, or 

OPEB liability. 

A19. The Board considered the applicability of this standard to the Federal Employees 

Compensation Act program. The Board concluded that it was not appropriate or 

necessary for the Department of Labor to provide the information concerning gains and 

losses from changes in assumptions to the employer agencies, nor for the employer 

agencies to separately report or disclose such information. Under the particular 

circumstances of FECA accounting and reporting, the Board decided that the value of 

the FECA information provided pursuant to this standard would not offset the burden and 

cost of providing it. 

A20. Regarding the distinction between “short-term assumptions” and “long-term 

assumptions,” the Board believes the standard provides sufficient guidance. 
Appendix A: Basis for Conclusions 18

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Gains and Losses from Changes in Assumptions, and 

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October 14, 2008 

Assumptions are considered long-term if the underlying event about which the 

assumption is made will not occur for five years or more. If the event is one of a series of 

events, the entire series should be considered the event and, thus, projected payments 

may commence within one year but would be required to extend at least five years. 

Otherwise, assumptions would be considered short-term. The Board believes that 

limiting the scope of the standard to federal employee pensions, ORB, and OPEB will 

reduce the potential for misunderstanding. 

A21. Regarding the comment that information about changes in short-term assumptions might 

be informative, the Board agrees that there might be instances where the display of 

gains and losses from changes in assumptions that are by definition “short-term” in 

nature might be informative. Although it does not require such display, the final standard 

does not preclude displaying the effect of changes in short-term assumptions (see 

paragraph 16). 

A22. Regarding the comment about the propriety of the 5-year criteria for distinguishing longterm liabilities, the proposed standard did not define “long-term liabilities.” It used that 

term generally to describe the types of liabilities for which components of expense 

should be disclosed and for which estimates are undertaken using “long-term 

assumptions.” The proposed standard defined long-term assumptions as those where 

the underlying event about which the assumption is made will not occur for five years or 

more. The Board understands the respondent’s comment to involve a question about the 

sufficiency of the general usage of “long-term liability” in the standard. The Board 

believes that the usage of “long-term liability”, along with the specific focus on 

assumptions involving events of 5 years or more, is sufficient. However, in order to make 

the standard as clear as possible, in the final standard the Board uses the word “longterm” primarily to modify the word “assumption” and does not apply it to the word 

“liability.” Rather, the standard refers to liabilities and/or estimated liabilities that involve 

long-term assumptions. 

Note Disclosures 

What the Exposure Draft Proposed regarding Disclosure

A23. The proposed standard required certain note disclosures. First, the components of 

expense associated with liabilities involving long-term assumptions were to be disclosed. 

The Treasury Department and other users advocated a disclosure that will allow 

increased comparability between federal civilian and military employee and veteran 

benefits programs. The Board believed that disclosing the components of expense will 

provide information about the government’s annual accrued costs and about increases 

and decreases in the associated liability that will be useful for decision-making. The 

Treasury Department prepares the CFR and must explain any wide swings in certain 

liabilities. For some time Treasury has sought to improve the disclosure for federal 

employee and veteran benefits payable and currently discloses the information shown in 

Appendix D. The desire for more transparency in this regard is not only the goal of the 

Treasury Department but also apparent in comments from other CFR users, most 

notably the Federal Reserve. Most of the information required in this Statement is 
Appendix A: Basis for Conclusions 19

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October 14, 2008 

already presented in the CFR but some data is missing. The proposed standard was 

intended to fill these gaps. 

A24. In addition to the components of expense, the exposure draft proposed disclosure of 

market rates for Treasury securities with 10-, 20-, and 30-year maturities. The Board 

believed that market rates would be a useful benchmark for comparison with the 

discount rate(s) the entity is using. The discount rate affects expense and liability 

amounts and a comparison with market rates would provide useful context. The Board 

considered but decided not to require the note disclosure to include the entity’s analysis 

of the effect on expense and liability amounts of using current market rates. The burden 

of such a requirement on some preparers was deemed to outweigh the benefits of the 

information provided. However, the proposed note disclosure would allow interested 

parties to begin such an analysis. 

Respondents Comments regarding Disclosure

A25. Most respondents commented that the note disclosure would be informative. One 

respondent recommended more detailed information about gains and losses from 

assumption changes. For example, display the type of assumption within a category of 

assumptions (i.e., categories are economic, demographic, discount rates, etc.) and the 

amount of each change. Another respondent recommended disclosure of (1) the 

assumed rate of return on the plan assets, if the reporting entity has such assets – that 

is, not just the return on Treasury securities, (2) the specific maturities for the Treasury 

securities, and (3) the allocation of the fund’s assets by asset general category. Another 

respondent recommended requiring the reporting entity to determine its financial position 

using both the discount rate on Treasury securities and the discount rate on the actual 

assets of the fund, if any, to show the actual impact of these different rates. 

A26. Another respondent commented that the disclosure would be neither meaningful nor 

informative. They found the standard too vague to determine whether long-term 

construction contacts or procurements would be included. They cited issues involving 

their Standard General Ledger accounts and accounting system. 

A27. One respondent commented that the disclosure of market rates would be informative 

and provide transparency. However, another respondent found the benchmark 

comparisons unnecessary and potentially confusing. This respondent favored merely 

stating the basis for selecting assumptions in the notes; for example, that a board of 

experts decided the rates are appropriate. 

A28. One respondent commented that the proposed standard appeared to eliminate the 

requirement in SFFAS 5, par. 88, for disclosure of gains and losses due to changes in 

the medical trend assumptions as a separate item because it could be included in 

disclosure of all other such gains and losses. The Board notes that this is not the case; 

the requirement in par. 88 is not affected by this standard. 
Appendix A: Basis for Conclusions 20

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October 14, 2008 

The Board’s Conclusions regarding Disclosure

A29. With respect to the suggestion that more detail be disclosed, the proposal in the 

exposure draft did not require as much detail on the face of the financial statement or as 

much disclosure as recommended by some respondents. The Board’s decision to limit 

the scope of the final standard to pensions, ORB, and OPEB reduces the need for 

additional detail. At the same time the Board added a requirement for disclosure of 

information about non-Treasury assets, if any. As noted above, the exposure draft did 

not and the standard does not preclude display or disclosure of short-term gains and 

losses or other material components. 

A30. Regarding the comments about disclosing current market rates for certain Treasury 

securities, the Board decided to eliminate this requirement. Some believe that this 

disclosure would be a useful benchmark for comparison with the discount rate used by 

the entity. They note that current market rates are used in many other contexts. 

Moreover, others believe that the current market rate for Treasury securities is the best 

indicator of the government’s borrowing cost. However, others question the usefulness 

of the disclosure for several reasons. First, they note that the exposure draft did not 

require the entity to provide an analysis of the effect of using current market rates on the 

entity’s liability and periodic cost, because the Board concluded that the benefit of such 

an analysis was outweighed by the burden of producing it. Second, the entity was not 

required to disclose the average historical Treasury rates it was using for discounting 

and therefore a direct comparison would not be possible. Finally, some believe that the 

disclosure is not a good benchmark because the Board is requiring another discount 

rate; and, if a benchmark were to be disclosed, it should be closer to what the Board is 

requiring. The Board decided that, given the lack of unanimity on its information value, 

the disclosure should not be required. 

A31. Similarly, a respondent recommended using both the discount rate on Treasury 

securities and the discount rate on the actual assets of the fund, if any, to show the 

impact of these different rates. The Board believes this disclosure would be informative 

but concluded that its informational value did not clearly overcome the burden that 

preparing two calculations would have imposed on the preparer, and therefore reporting 

such information should be optional. 

A32. Regarding the request for more guidance about administrative and employer entities, the 

standard now explains that, as indicated in paragraphs A17-A18 above, the entity that 

reports the pension, ORB, or OPEB liability should display the gains or losses from 

changes in assumptions and disclose the relevant liability components. 

Selecting Discount Rates 

What the Exposure Draft Proposed regarding Discount Rates

A33. The Board became aware of an issue affecting preparers with respect to the selection of 

discount rates for present value measurements of expense and liability amounts. A 

preparer noted that, with respect to OPEB accounting, SFFAS 5 requires that the liability 

be estimated using as the discount rate the U. S. Treasury borrowing rate for securities 
Appendix A: Basis for Conclusions 21

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Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting 

Gains and Losses from Changes in Assumptions, and 

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October 14, 2008 

of similar maturity to the period over which the payments are to be made.9 The preparer 

asked whether the discount rates should be based on a single day’s interest rates, or 

were other alternatives acceptable, such as an average of interest rates over a period of 

time. The preparer currently uses one-day Treasury “spot” rates consistent with the 

expected timing of future cash flows relating to the program, believing that that is what 

the Board intended by the standard in SFFAS 5, paragraph 95. As a result, its liabilities 

have been susceptible to extreme volatility. 

A34. Several current FASAB standards require present valuations and discounting. For 

example, federal civilian and military employee pensions, ORB, OPEB, including 

veterans’ compensation, require discounting. Federal activities that incur such liabilities 

typically involve similar types of demographic and economic assumptions. 

A35. The FASAB standard for federal civilian and military employee pensions and ORB 

includes general guidance with respect to assumptions.10 These standards state that 

federal pension plans should be guided by Actuarial Standards of Practice (ASOP), e.g., 

ASOP 4, Measuring Pension Obligations, and ASOP 27, Selection of Assumptions for 

Measuring Pension Obligations, as revised from time to time by the Actuarial Standards 

Board (ASB). The ASB is a board associated with the American Academy of Actuaries 

that sets professional standards of actuarial practice in the United States. The Board 

referenced ASB standards because it considers them accepted actuarial practice. 

A36. Consistent with ASOPs, SFFAS 5, paragraph 65 requires actuarial assumptions to be 

based on the actual experience of the covered group and to emphasize expected longrange future trends rather than give undue weight to recent past experience. Although 

emphasis should be given to the combined effect of all assumptions, the standard 

requires that the reasonableness of each actuarial assumption should be considered 

independently on the basis of its own merits and its consistency with each other 

assumption. 

A37. With respect to discount rates for pension and ORB accounting, SFFAS 5 requires the 

interest rate used for discounting to be based on 

an estimated long-term investment yield for the plan, giving consideration to the 

nature and the mix of current and expected plan investments and the basis used 

to determine the actuarial value of assets; or if the plan is not being funded, 

other long-term assumptions (for example, the long-term federal government 

borrowing rate). ...11

A38. The FASAB standard for OPEB differs somewhat from that for pensions and ORB. For 

OPEB, SFFAS 5 requires employer entities to estimate the amount and timing of future 

payments and to discount the future cash flows using the Treasury borrowing rate for 

securities of similar maturity to the period over which the payments are to be made.12 

This difference is attributable to the fact that, unlike most federal civilian and military 

 

9

 SFFAS 5, par. 95. 

10 See SFFAS 5, pars. 65 and 83, respectively, for pensions and ORB. 11 SFFAS 5, par. 66. 12 SFFAS 5, par, 95. 
Appendix A: Basis for Conclusions 22

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October 14, 2008 

employee pension and ORB plans, the federal employee OPEB generally are not funded 

and thus the long-term yield on investments was not thought to be relevant. For plans 

that are not funded the standards have been essentially the same: the objective is an 

expected long-term rate that reflects the government’s expected borrowing costs. 

A39. The Board concluded in SFFAS 5 that the discount rate for pensions and ORB, which 

are funded, should reflect the long-term expected return on plan assets. The Board 

explained that the expected long-term rate reduces volatility, reflects the actual 

experience and expectations of the primary federal plans, and is consistent with the 

assumptions used in the budget.13

A40. As previously stated, current FASAB standards provide two approaches for selecting 

discount rates. The first approach is the expected long-term return on plan assets. The 

second approach involves unfunded plans where an expected long-term return on plan 

assets is not available and a Treasury borrowing rate is required. The proposed 

standard employed one approach for all instances not otherwise expressly provided in 

FASAB standards: discount rates for present value measurements of estimated liabilities 

that involve long-term assumptions should be the interest rate on marketable Treasury 

securities of similar maturities to the cash flows of the benefit payment for which the 

estimate is being made. 

A41. The Board believed that discount rates for present value measurements of expense and 

liability amounts should be average historical rates for marketable Treasury securities 

because they reflect the government’s borrowing cost with the public. Also, expected 

long-term rates reduce volatility, reflect the actual experience and expectations of the 

primary federal plans, and are consistent with the assumptions used in the budget. 

A42. The proposed standard eliminated the plan’s investment yield as an option for discount 

rates for present value measurements of expense and liability amounts. The discount 

rate assumption for liabilities is used most significantly to calculate the present value of 

the obligation and the annual cost increments of net periodic cost, for example, the 

normal cost component of pension expense. Both of those uses are conceptually 

independent of a plan's assets, if any. If two employers have made the same benefit 

promise, the FASAB believes the annual cost increments and the present value of the 

obligation should be the same even if one expected to earn an annual return of 6 

percent on its plan assets and the other had an unfunded plan. 

A43. The Board noted that the Pension Protection Act of 200614 requires fund managers to 

focus on long-term interest rates instead of their particular asset holdings. The Act 

requires them to calculate pension liabilities based on current bond rates rather than the 

expected rate or return from an asset portfolio. Thus, high expected gains from stock 

holdings will no longer be able to help diminish benefit liabilities since they will no longer 

be part of the calculation. 

A44. The FASAB believes that the objective of discount rates is to reflect the time value of 

money. The time value of money should reflect the single amount that, if invested at the 

 

13 SFFAS 5, par. 159. 14 PL No. 109-280 
Appendix A: Basis for Conclusions 23

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October 14, 2008 

measurement date in risk-free investments with maturities like those of the future benefit 

payments being measured, would generate the necessary cash flows to pay the benefits 

when due. Marketable U.S. Treasury securities are deemed risk free because they pose 

neither uncertainty in timing nor risk of default to the holder. This single amount is the 

gross liability. It would equal, conceptually, the current market value of a portfolio of 

Treasury zero coupon bonds whose maturity dates and amounts would be the same as 

the timing and amount of the expected future benefit payments. In the absence of a 

portfolio of such zero coupon Treasury securities, however, the federal preparer should 

incorporate in assumed discount rates the re-financing rates expected to be available on 

marketable Treasury securities in the future, which should be extrapolated from historical 

experience. 

A45. With respect to Treasury rates the Board considered average historical rates as well as 

current market rates as of the reporting date. Some prefer current market rates, arguing 

that interest rates can move significantly from year to year and the use of interest rates 

from a prior year (or smoothing this year’s rates with those from prior years) can 

therefore result in significant misstatements about the current value of future cash flows. 

They argue further that changing interest rate assumptions annually would result in more 

accurate but also more volatile estimates of liabilities and changes in net cost than the 

current actuarial practice in the federal government of revisiting interest rate 

assumptions every 3 to 5 years. They argue that the proposed display standard is the 

best way to deal with volatility, i.e., by reporting on a separate line changes in net cost 

due to changes in actuarial assumptions. 

A46. The FASAB decided to propose average historical rates rather than single-day or market 

rates on the reporting date. The Board believed that single-day rates would not reflect 

the long-term orientation of most federal programs. 

A47. The proposed standard was not intended to change the Board’s preference, expressed 

in SFFAS 5 and elsewhere, for expected future trends rather than giving undue weight to 

recent past experience. With respect to assumptions in general, FASAB standards have 

emphasized expected future trends. 

A48. Regarding the method of discounting cash flow in future years, the FASAB believed that 

discount rates used to measure the present value of the annual cost increments of 

expense should be selected that are applicable to the various benefit periods in 

question. The Board believed that annual cost increments will be more 

representationally faithful if individual discount rates applicable to various benefit deferral 

periods are selected. For future years extending beyond the last for which Treasury 

rates are available, e.g., beyond 30-year maturities, the proposed standard required the 

preparer to incorporate in the assumed discount rate expected re-financing rates 

extrapolated from historical Treasury borrowing rates. However, the proposed standard 

allowed that a single average discount rate may be used for all projected future 

payments if the resulting present value is not materially different than the resulting 

present value using multiple-rates, or for cases in which discount rates have limited 

influence on current liability estimates. 
Appendix A: Basis for Conclusions 24

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A49. The proposed standard provided for the discount rates to be reviewed at each annual 

reporting date and changed if materially different from the existing rate. However, the 

Board preferred a stable discount rate that would result from applying historical 

averages, rather than current market rates. The Board stated that current market rates 

produce a degree of volatility that is not a faithful representation of the time value of 

money in long-term federal programs. The Board also stated that implicit in the notion of 

stable rates is the fact that the discount rate normally would not change every year. The 

preparer would change the rate based on a significant change in the historical average 

Treasury rate, as determined by the preparer, which would reflect long-term 

expectations rather than the current market rate. Thus, the proposed standard neither 

required nor precluded annual changes in the discount rate. Current Office of Personnel 

Management practice is to maintain a constant discount rate for civilian pensions and 

other retirement benefits for five years. The Board does not anticipate that the proposed 

standard would necessarily affect that practice because Treasury borrowing rates 

normally change very slowly. 

A50. The discount rate standard in the proposed Statement did not apply to instances where 

the FASAB has required or permitted a discount rate to capture risk, i.e., to be other than 

the risk-free Treasury borrowing rate. However, the proposed standard did apply to all 

instances where risk-free Treasury borrowing rates are appropriate. 

Respondents Comments regarding Discount Rates

A51. The majority of respondents commented that long-term Treasury rates are appropriate 

for discounting liabilities the estimates for which involve long-term assumptions. One 

respondent favored current market rates over average historical Treasury rates, 

believing them to be a better reflection of the cost of issuing Treasury securities to 

extinguish liabilities at the financial statement date. In addition, this respondent believes 

current market rates would provide more comparability and would be consistent with fair 

value accounting; but if average historical rates are used, this respondent believes the 

time period allowed for average historical Treasury rates should be limited to 5 years, 

which would better reflect the current market than longer horizons. 

A52. One respondent commented that it uses statutory rates and that such rates supersede 

SFFASs. 

A53. One respondent found the requirement (ED paragraphs 27 and A33) to use year-specific 

discount rate “fundamentally” inconsistent with the Aggregate Entry Age Normal (AEAN) 

cost method required by SFFAS 5. The current FASAB pension and ORB standards for 

selecting cost attribution methods (paragraphs 63 and 82, SFFAS 5, respectively) direct 

the preparer to use AEAN (or other actuarial cost methods if the results are not 

materially different). The AEAN method is one of several cost attribution methods 

available. The private sector pension standard, SFAS 87, used another approach called 

“projected unit credit” (PUC). The primary reason given in SFFAS 5 for directing the use 

of AEAN was that the major federal pension plans at OPM and DoD were using it, and 

the Board was advised by actuaries that the results would not be substantially different 

than the unit benefit approach required by SFAS 87 (see SFFAS 5, par. 153). 
Appendix A: Basis for Conclusions 25

Federal Accounting Standards Advisory Board 

Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting 

Gains and Losses from Changes in Assumptions, and 

 Selecting Discount Rates and Valuations Dates 

October 14, 2008 

A54. In addition, the respondent did not believe that allowing a single rate if the “result” is not 

materially different, as was done in the ED paragraph 27, would sufficiently address the 

cost attribution method issue. This respondent did not believe that year-specific discount 

rates should be required, even if the Board wants to allow them. 

A55. This respondent also commented that the perspective of the government’s borrowing 

cost with the public is not necessarily relevant from the point of view of the employer 

entity in the case of a funded plan. Although this respondent’s plan is a federal plan 

holding federal securities, from this respondent’s perspective, the plan is funded. 

Therefore, this respondent believes the investment yield perspective for the discount 

rate has relevance. From the employers’ perspective, this respondent did not believe 

the statement in paragraph A25 of the exposure draft about the equivalence of two plans 

with the same benefit provisions (one funded and one not), is necessarily correct. 

A56. This respondent stated that, from the overall federal government perspective, it is not 

clear what constitutes the best basis for the discount rate assumption. This respondent 

believes the statement in paragraph A24 of the exposure draft that the rationale for using 

marketable Treasury securities for the discount rate is that they reflect the government’s 

borrowing cost with the public is questionable. This respondent asserted that a private 

company would not value a given future obligation at its own borrowing cost. 

A57. This respondent acknowledged that, in the sense that Treasury securities represent riskfree investments (as described in paragraph A27, of the exposure draft) arguments can 

be made for their use as the discount rate basis. However, this respondent asserted that 

two circumstances make an investment yield approach preferable. First, when the entity 

employs an independent actuarial board, the respondent believes that board’s 

assumptions for the financial statement valuations make the most sense, especially 

when Congress has created the independent expert for setting the assumptions. 

Second, an investment yield approach is preferable when the funding in a trust fund is 

comprised entirely of investments that mirror marketable US Treasury securities. This 

respondent states that arguments that the discount rate should not be impacted by the 

particular portfolio of securities in a trust fund at a given time are not valid in the context 

of an alternative involving “a vague, undefined ‘historical’ average.” 

A58. Another respondent commented that the phrase “average historical Treasury rates” is 

unclear but consistent with ED paragraph 28 with respect to the need for the reporting 

entity to use judgment, and with the notion of Congressionally-established expert Boards 

for trust funds restricted to investing in securities that mirror marketable US Treasury 

securities. 

A59. Other respondents prefer more guidance regarding the time-period for and meaning of 

average historical rates. Several respondents recommended limiting the time-period to 5 

years, if average historical rates are used, feeling it would better reflect the current 

market than longer horizon and that that would be a sufficiently long period. 

A60. One respondent asked for more explanation and guidance with respect to the phrase 

“extrapolated from historical Treasury borrowing rates.” It is possible for projected cash 

flows to extend beyond the maturities for which Treasury securities are available, e.g., 
Appendix A: Basis for Conclusions 26

Federal Accounting Standards Advisory Board 

Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting 

Gains and Losses from Changes in Assumptions, and 

 Selecting Discount Rates and Valuations Dates 

October 14, 2008 

beyond the 30-year security. The proposed standard required the preparer to 

incorporate in the assumed discount rate expected re-financing rates extrapolated from 

historical Treasury borrowing rates, that is, use the historical rates as indicative of what 

future rates will be. 

The Board’s Conclusions regarding Discount Rates

A61. The Board decided to retain the average historical Treasury rate approach proposed in 

the exposure draft. Thus, the entity should employ Treasury borrowing rates associated 

with each future year involving relevant cash flow. This is sometimes called the “yield 

curve” approach. 

 

A62. With respect to the attribution methods, the Board does not believe the standard is 

inconsistent with the Aggregate Entry Age Normal (AEAN) attribution method required in 

SFFAS 5. The change in the discount rate applied to a particular future cash flow would 

be a function of (1) the passage of time and (2) the market rate for each maturity, as 

evidenced by historical rates. It would not represent a change in assumption per se. In 

other words, the discount rate does not necessarily change, the period changes. There 

would be a one-year rate, a two-year rate, a 5-year rate, etc., that would not 

(necessarily) change each year. The average historical rate would change only when the 

data dictated. The mere fact that a payment that was due in 5 years is now due in 4 

years would not constitute an assumption change. The Board does not believe that the 

requirement is conceptually inconsistent with the AEAN or other provisions of SFFAS 5, 

paragraphs 63 and 82. 

A63. Regarding whether to use the entity’s investment return for determining a discount rate, 

the Board continues to believe that discount rates for present value measurements of 

federal pension, ORB, and OPEB liabilities should be average historical rates for 

marketable Treasury securities because it reflects the government’s borrowing cost with 

the public and therefore the time value of money for the government. The Board also 

believes that there should be consistency among federal entities. The discount rate is 

used to calculate the present value of the obligation and annual cost increments and 

should be the same, everything else being equal, between funded and unfunded 

pension, ORB, and OPEB programs. Moreover, overly optimistic assumptions about 

investment returns have provided inaccurate financial information about public and 

private sector pensions. 

A64. The Board believes that the average historical Treasury rate standard is clear and well 

defined. The objective is a principle-based requirement where the reporting entity would 

use its judgment when developing the rate. 

A65. The Board considered the request for more guidance regarding the number of instances 

to include in an average historical rate. The Board decided to establish a minimum 

number of five historical Treasury rates to include for the average. The exposure draft 

did not specify a minimum or maximum number of historical Treasury rates for 

developing an average. The Board believes that setting a minimum number of historical 

rates to include in the average would ensure that the discount rate captures richer 

experience and avoids undue focus on the current market rate. In addition, a standard 
Appendix A: Basis for Conclusions 27

Federal Accounting Standards Advisory Board 

Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting 

Gains and Losses from Changes in Assumptions, and 

 Selecting Discount Rates and Valuations Dates 

October 14, 2008 

requiring a minimum of five periodic rates for the average would not encourage the use 

of so many historical rates as to render the average rate antiquated. 

A66. The Board was concerned regarding the possibility that the entity would frequently 

change the number of Treasury rates included in the average rate. The Board’s believes 

that the reporting entity should be consistent from period to period with respect to the 

number of rates included in the average. SFFAC 1, Objectives of Federal Financial 

Reporting, and SFFAC 2, Entity and Display, states that consistency is one of the 

qualitative characteristic of accounting information.15 The Board concluded that the 

standard should require the entity’s accounting policy disclosure to include the policy of 

consistency in this regard, which is the intent of paragraph 31.

A67. The Board notes that a respondent criticized as vague the exception provided in the 

exposure draft allowing entities to use a single rate for discounting if the resulting 

present value is “not materially different” than the resulting present value using the 

approach in the standard. The respondent commented that the single rate would need to 

be compared to the various components of expense to not materially differ. Nonetheless, 

the Board believes that this exception may be useful to preparers. If the result of 

applying a single composite discount rate to the cash flows vs. individual rates is not 

materially different, then the preparer may use the single rate. This exception is a 

continuation of one currently in FASAB pension and ORB standards and has been in 

effect since October 1996. However, the standard now specifies that the resulting 

present value of the entity’s single rate should not be materially different than the 

resulting present value using the approach in the standard. 

A68. With respect to a respondent’s comment about the use of expert actuarial boards, the 

Board notes that such boards provide assumptions for funding and other purposes and 

presumably also would provide assumptions for general-purpose financial statements. 

However, for the latter, under the standard, they would look at the broader historical 

market for Treasury securities for context. Actuaries work with requirements appropriate 

to specific objectives. The Board concludes that the general requirement for average 

historical rates should be retained.

A69. With respect to the request for additional guidance regarding the phrase “extrapolate 

from historical Treasury borrowing rates” where projected cash flows extend beyond the 

maturities for which Treasury securities are available, e.g., beyond the 30-year maturity, 

the Board notes that there are several methods that can be applied to extend a yield 

curve for terms beyond the last available rate in the market. The International Actuarial 

Association’s Risk Margin Working Group’s (RMWG) recent exposure draft16 on 

measuring liabilities for insurance contracts mentions that the simplest approach is to 

use the last available rate (for example the 20-year rate for a 30-year cash flow), and 

that a more advanced method would be to extrapolate the yield curve with a constant 

slope assuming that the forward rate observed between the last two market rates stays 

constant. In addition, the RMWG ED states that a model can be applied to extend the 

 

15 See SFFAC 1, par. 163, and SFFAC 2, par. 109. 16 Risk Margin Working Group, Measurement of Liabilities for Insurance Contracts: Current Estimate and 

Risk Margins, March 24, 2008 (“RMWG ED”). 
Appendix A: Basis for Conclusions 28

Federal Accounting Standards Advisory Board 

Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting 

Gains and Losses from Changes in Assumptions, and 

 Selecting Discount Rates and Valuations Dates 

October 14, 2008 

yield curve and cites several examples. The Board believes these approaches are 

reasonable.17

Selecting Valuation Date

What the Exposure Draft Proposed regarding Valuation Dates

A70. The FASAB has addressed the issue of valuation dates for present valuations in various 

ways. The sections of SFFAS 5 dealing with pensions, ORB, and OPEB do not mention 

valuation dates, but the Board did address it in Interpretation 3, Measurement Date for 

Pension and Retirement Health Care Liabilities (August 1997). In Interpretation 3 the 

Board decided that pension and retirement health care liabilities should be measured for 

general purpose federal financial reports as of the end of the reporting period, and that 

such measurement should be based on an actuarial valuation within a year of the end of 

the reporting period. 

A71. In Interpretation 3 the Board had been asked to endorse use of an actuarial valuation 

date as of the beginning of the fiscal year, which had been the practice in some of 

special purpose financial reports on pension plans prepared pursuant to statutory 

provisions. Some actuaries were concerned that differences between actuarial 

measurements used in different reports would cause problems and confusion. Some 

people who supported 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. However, other people believed 

that liability measurements 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. 

A72. SFFAS 17, Accounting for Social Insurance, does address the valuation date, specifying 

that it should be as of any time within a year of the reporting date. 

A73. Although it does not explicitly discuss the valuation date, SFFAS 5 implicitly calls for 

measurement at the reporting date for pension, ORB, and OPEB liabilities, which are 

reported as of the balance sheet date. 

A74. FASB’s Statements 87 and 106 allowed preparers to use a valuation date for measuring 

pension and other postretirement liabilities up to three months earlier than the reporting 

date. However, FAS 158 published under Phase I of FASB’s pension project requires 

the measurement of plan assets and benefit obligations to be as of the date of the 

sponsoring employer’s statement of financial position. The FASB concluded that this will 

more accurately reflect the economic status of defined benefit plans and further improve 

the understandability of the financial statements.18 

 

17 RMWG ED, page 31. 18 FAS 158, par. B16. 
Appendix A: Basis for Conclusions 29

Federal Accounting Standards Advisory Board 

Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting 

Gains and Losses from Changes in Assumptions, and 

 Selecting Discount Rates and Valuations Dates 

October 14, 2008 

A75. In Statement 27 and Statement 45, the GASB did not require the valuation date to be the 

employer's balance sheet date. Statement 27 requires the expense/expenditure amount 

to be based on the results of an actuarial valuation performed in accordance with the 

parameters as of a date not more than 24 months before the beginning of the employer's 

fiscal year. Statement 45 requires that the actuarial valuation date generally should be 

the same date each year (or other applicable interval). However, in both instances a new 

valuation would be required if, since the previous valuation, significant changes occurred 

that affect the results of the valuation, including significant changes in benefit provisions, 

the size or composition of the population covered by the plan, or other factors that 

impact long-term assumptions. 

A76. The Board believes that the approach in Interpretation 3 is preferable. Pension, ORB, 

and OPEB liabilities should be measured as of the end of the reporting period based on 

a full actuarial valuation within a year of the end of the reporting period. Thus, “full 

actuarial valuations,” as that term is used by actuaries, can be performed as of an earlier 

date during the fiscal year than year end, including a beginning-of-year date, with 

suitable adjustments for the effects of changes during the year in major factors such as 

the pay raise and cost of living adjustment. Such adjustments are sometimes referred to 

as a measurement based on a "projection" or "roll-forward." 

Respondents Comments regarding the Valuation Date

A77. Most of the respondents who commented on the proposed valuation date standard 

commented that it was appropriate. One respondent asserted that its valuation dates are 

based on statutory requirements. 

The Board’s Conclusions regarding Valuation Date

A78. The Board continues to believe that pension, ORB, and OPEB liabilities should be 

measured as of the end of the reporting period based on a full actuarial valuation within 

a year of the end of the reporting period. 

Reasonable Estimates

What the Exposure Draft Proposed regarding Reasonable Estimates

A79. The proposed Statement also addressed an issue with respect to the meaning of “best 

estimate.” The proposed Statement provided that estimates should be reasonable under 

the circumstances (see paragraph 31). The notion of “best estimate” has been used in 

several FASAB standards, for example, in SFFAS 5, paragraph 65, SFFAS 7, 

Accounting for Revenue and Other Financing Sources ..., paragraph 67.1, and in 

various instances in SFFAS 17. However, preparers and auditors have reported 

disagreements regarding the meaning of the word “best,” which is sometimes defined as 

“excelling all others.” Thus, the Board proposed to replace the term “best estimate” in 

FASAB standards with “reasonable estimate.” 

A80. Actuarial Standards of Practice (ASOP) provide guidance regarding the meaning of “best 

estimate” in ASOP 10, Methods and Assumptions for Use in Life Insurance Financial 
Appendix A: Basis for Conclusions 30

Federal Accounting Standards Advisory Board 

Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting 

Gains and Losses from Changes in Assumptions, and 

 Selecting Discount Rates and Valuations Dates 

October 14, 2008 

Statements Prepared in Accordance with GAAP, and ASOP 27, Selection of Economic 

Assumptions for Measuring Pension Obligations. ASOP 27 instructs actuaries to select a 

specific economic assumption from within his or her “best estimate range” with respect 

to that assumption, which it defines as “the narrowest range within which the actuary 

reasonably anticipates that the actual results ... are more likely than not to fall”19

[emphasis added]. ASOP 27 provides, generally, that 

“[b]ecause no one knows what the future holds with respect to economic and other 

contingencies, the best an actuary can do is to use professional judgment to estimate 

possible future economic outcomes based on past experience and future expectations, 

and to select assumptions based upon that application of professional judgment. 

Therefore, an actuary’s best-estimate assumption is generally represented by a range 

rather than one specific assumption. The actuary should determine the best-estimate 

range for each economic assumption, and select a specific point from within that range. 

In some instances, the actuary may present alternative results by selecting different 

points within the best-estimate range” [emphasis added].20 

A81. The Board concluded that ASOP 10 and 27 apply a standard of reasonableness 

regarding “best estimate,” and that that is an appropriate approach. Therefore, 

paragraph 31 of the exposure draft called for the preparer’s estimate to reflect what is 

reasonable to assume under the circumstances, rather that the preparer’s “best 

estimate.” 

Respondents Comments regarding Reasonable Estimates

A82. One respondent objected to the proposed requirement that the preparer compare 

assumptions used for the liability estimate with assumptions generally used in the 

federal government as evidenced by independent sources, unless their actuarial board is 

considered an “independent source.” Another respondent was concerned that the 

proposed standard may prove inconsistent with the historical rates used in setting 

discount rates, because it permits the use of the entity’s own assumptions as long as 

they can be justified if they deviate from independent sources. They suggest this 

possible inconsistency be discussed in the guidance. Another respondent commented 

that the requirement is not clear regarding whether it applies to pension and actuarial 

valuations or other estimated liabilities that employ long-term assumptions such as 

environmental liabilities and, if so, as to what independent source should be used. 

The Board’s Conclusions regarding Reasonable Estimates

A83. Paragraph 35 of the standard requires the preparer to compare its assumptions with 

assumptions used generally in the federal government as evidenced by sources 

independent of the reporting entity and, if its assumptions do not reflect such data, 

explain why it is inappropriate to do so. A respondent suggested that the Board consider 

specifying a set of federal assumptions for this purpose. Some assumptions will involve 

general economic parameters while others will be particular to the entity. 

 

19 ASOP 27, Section 2.1. 

20 ASOP 27, Section 3.1. 
Appendix A: Basis for Conclusions 31

Federal Accounting Standards Advisory Board 

Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting 

Gains and Losses from Changes in Assumptions, and 

 Selecting Discount Rates and Valuations Dates 

October 14, 2008 

A84. The Board’s objective in this regard is for the entity to inform the reader about the 

reasonableness of the assumptions used in the preparation of its financial reports. With 

respect to sources for assumptions generally in use in the federal government, the 

standard offers the example of Bureau of Economic Analysis’ assumptions but does not 

require the use of these or other particular sets of federal assumptions. The Board 

decided not to change the standard in this regard. The Board believes a comparison with 

a benchmark is likely to be meaningful to users. The preparer should use its judgment to 

select assumptions used generally in the federal government that are relevant to its 

activities and estimates. In addition, the narrowing of the scope of the standard to 

pensions, ORB, and OPEB will narrow the comparison as well. 

Board Approval

A85. This Statement was approved for issuance by all members of the Board. 
Appendix B: Pro Forma Statement of Net Cost 32

Federal Accounting Standards Advisory Board 

Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting 

Gains and Losses from Changes in Assumptions, and 

 Selecting Discount Rates and Valuations Dates 

October 14, 2008 

Appendix B: Pro Forma Statement of Net Cost Displaying Separate Line Item for Gains 

and Losses Due to Changes in Assumptions 

 

Component Entity: Pro forma Statement of Net Cost for the Year Ended 

September 30, 2007

 2007 

(billions) 

ABC Program 

ABC expenses $ 223

Less: exchange revenue 24

Net expense before gain/loss from 

changes in assumptions 199

(Gain)/loss on assumption changes: 

 Discount rate assumption 

 Other assumptions 

Net (gain)/loss on assumption 

changes 

200

(50)

150

Net cost $349

Governmentwide Entity: Pro Forma Statements of Net Cost 

for the Year Ended September 30, 2007

 Gross 

Cost 

Earned 

Revenue 

(billions) 

Net Cost 

ABC Agency.......................................... $ 199 $ 24 $ 223

OPM....................................................

DVA.....................................................

XYZ..................................................... 

***

***

***

** 

** 

** 

***

***

***

* * * 

Other agencies...................................... 146 92 54

 Cost before gains/losses from 

 changes in assumptions................ 3,060 226 2,834

 

Less: loss (plus gain) from changes in 

assumptions: 

 

 ABC................................................ 

 OPM............................................... 

 DVA............................................... 

150

100

110

0 

0 

0 

150

100

110

Total cost ........................................... $ 3,420 226 $ 3,194
Appendix C: Pro Forma Note Disclosure 33

Federal Accounting Standards Advisory Board 

Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting 

Gains and Losses from Changes in Assumptions, and 

 Selecting Discount Rates and Valuations Dates 

October 14, 2008 

Appendix C: Pro Forma Note Disclosure of OPEB Liabilities and Expense 

Post Employment Actuarial Liabilities 

(in billions) 

 Civilian Military Veterans 

 Balance 

Sheet Total 

Beginning balance 1,496.3 1,563.0 924.8 4,062.1 

 

Expense

Normal cost 41.5 33.4 XXX 

Interest on the liability balance 92.4 96.9 XXX 

Assumption changes 0.2 58.5 XXX 

Plan amendments (prior service cost) - 25.8 XXX 

Actuarial (gain)/loss 1.9 4.6 XXX 

Other (0.2) XXX 

 Total expense 135.8 219.2 XXX 

 

Less benefits paid (67.6) (52.9) XXX 

 

Subtotal of pension and health 1,564.5 1,729.3 XXX 

 

Ending balance, other benefits 48.5 26.9 - 

Total post employment actuarial 

liabilities 1,613.0 1,756.2 

 

1,122.6 4,491.8 
Appendix D: Note 11 from FY 2006 Financial Report of the United States 34

Federal Accounting Standards Advisory Board 

Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting 

Gains and Losses from Changes in Assumptions, and 

 Selecting Discount Rates and Valuations Dates 

October 14, 2008 

Appendix D: Note 11 from FY 2006 Financial Report of the United States 
Appendix D: Note 11 from FY 2006 Financial Report of the United States 35

Federal Accounting Standards Advisory Board 

Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting 

Gains and Losses from Changes in Assumptions, and 

 Selecting Discount Rates and Valuations Dates 

October 14, 2008 
Appendix D: Note 11 from FY 2006 Financial Report of the United States 36

Federal Accounting Standards Advisory Board 

Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting 

Gains and Losses from Changes in Assumptions, and 

 Selecting Discount Rates and Valuations Dates 

October 14, 2008 
Appendix E – Glossary 37

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Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting 

Gains and Losses from Changes in Assumptions, and 

 Selecting Discount Rates and Valuations Dates 

October 14, 2008 

Appendix E: Glossary 

Actuarial Gains and Losses 

A change in the value of an estimated liability (or the benefit plan’s assets) resulting from 

experience different from that assumed or from a change in an actuarial assumption. Past 

experience is reflected in current costs through actuarial gains and losses. 

Annual Cost Increment

The annual cost increment component of expense is the actuarial present value of the future 

cash outflows for which a reporting entity becomes obligated during the reporting period. See 

Normal Cost below for pensions, ORB, and OPEB. 

Component Entity

The term “component entity” is used to distinguish between the U.S. Federal Government and 

its components. The U.S. Federal Government as a whole is composed of organizations that 

manage resources and are responsible for operations, i.e., delivering services. These include 

major departments and independent agencies, which are generally divided into 

suborganizations, i.e., smaller organizational units with a wide variety of titles, including 

bureaus, administrations, agencies, and corporations. (SFFAC No. 2, Entity and Display, pars. 

11-12). Use of “component entity” in this standard is only intended to distinguish between the 

U.S. Federal Government’s consolidated financial statements and financial statements of its 

components. 

Long-term Assumptions

Assumptions are considered long-term if the underlying event about which the assumption is 

made will not occur for five years or more. If the event is one of a series of events the entire 

series should be considered the event and, thus, the payment may commence within one year 

but would be required to extend at least five years. Otherwise, the asset or liability would be 

classified as short-term. 

Marketable Treasury Securities 

Debt securities, including Treasury bills, notes, and bonds, that the U.S. Treasury offers to the 

public and are traded in the marketplace. Their bid and ask prices are quoted on securities 

exchange markets.

Normal (or Service) Cost

The normal cost component of expense is the actuarial present value of the future cash outflows 

for which a reporting entity becomes obligated during the reporting period. For pensions, ORB, 

and OPEB, it represents that portion of the actuarial present value of benefits and expenses 

attributed to the valuation year by the benefit plan formula to work in covered employment or 
Appendix E – Glossary 38

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Gains and Losses from Changes in Assumptions, and 

 Selecting Discount Rates and Valuations Dates 

October 14, 2008 

other service rendered by the participant in the period. The normal cost is a component of the 

annual expense and liability of the program and is not affected by the funded status of the plan. 

Postemployment Benefits, Other (OPEB)

Forms of benefits provided to former or inactive employees, their beneficiaries, and covered 

dependents outside pension or Retirement Benefit, Other plans. 

Prior Service Costs 

The cost of retroactive benefits granted in a plan amendment or accomplished through 

administrative change, legislation, or other means. In some cases there will not be a formal 

“plan” per se to amend, for example, certain postemployment benefits, and a program is 

amended through other means than a formal “amendment.”

Retirement Benefits, Other (ORB) 

Forms of benefits, other than retirement income, provided by an employer to retirees. Those 

benefits may be defined in terms of specified benefits, such as health care, tuition assistance, or 

legal services, which are provided to retirees as the need for those benefits arises, such as 

certain health care benefits. Or they may be defined in terms of monetary amounts that become 

payable on the occurrence of a specified event, such as life insurance benefits. 

Risk-free Interest Rate 

The rate on risk-free monetary assets that have maturity dates or durations that coincide with 

the period covered by the cash flows. See Time Value of Money below. 

Time Value of Money

The time value of money is represented by the rate on risk-free monetary assets that have 

maturity dates or durations that coincide with the period covered by the cash flows (risk-free 

interest rate). For present value computations denominated in nominal U.S. dollars, the yield 

curve for U.S. Treasury securities determines the appropriate risk-free interest rate. U.S. 

Treasury securities are deemed (default) risk free because they pose neither uncertainty in 

timing nor risk of default to the holder.
Appendix F: List of Abbreviations 39

Federal Accounting Standards Advisory Board 

Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting 

Gains and Losses from Changes in Assumptions, and 

 Selecting Discount Rates and Valuations Dates 

October 14, 2008 

Appendix F: List of Abbreviations 

ANPV Actuarial net present value 

CFS Consolidated financial statements 

CPI Consumer Price Index 

ED Exposure draft 

FASAB Federal Accounting Standards Advisory Board 

FASB Financial Accounting Standards Board 

GAO Government Accountability Office 

GASB Governmental Accounting Standards Board 

OMB Office of Management and Budget 

OPEB Other postemployment benefits 

ORB Other retirement benefits 

PV Preliminary Views 

RSI Required supplementary information 

SFAS Statements of Financial Accounting Standards 

SFFAC Statements of Federal Financial Accounting Concepts 

SFFAS Statements of Federal Financial Accounting Standards 
FASAB Board Members 

Tom Allen, Chairman 

Robert F. Dacey 

John A. Farrell 

Norwood Jackson 

Robert Murphy 

James M. Patton 

Robert N. Reid 

Alan H. Schumacher 

Harold I. Steinberg 

Danny Werfel 

FASAB Staff 

Wendy M. Payne, Executive Director 

Richard L.. Fontenrose, Assistant Director