[Federal Register Volume 62, Number 196 (Thursday, October 9, 1997)]
[Notices]
[Pages 52793-52794]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-26869]


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OFFICE OF MANAGEMENT AND BUDGET


Interpretation Number 3 Related to Statement of Federal Financial 
Accounting Standards Number 5

AGENCY: Office of Management and Budget.

ACTION: Notice of interpretation.

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SUMMARY: This notice includes an interpretation of Statement of Federal 
Financial Accounting Standards (SFFAS), adopted by the Office of 
Management and Budget (OMB). This interpretation was recommended by the 
Federal Accounting Standards Advisory Board (FASAB) and adopted in its 
entirety by OMB.

FOR FURTHER INFORMATION CONTACT: James Short (telephone: 202-395-3124), 
Office of Federal Financial Management, Office of Management and 
Budget.

SUPPLEMENTARY INFORMATION: This notice includes an interpretation of 
Statement of Federal Financial Accounting Standards (SFFAS) Number 5, 
adopted by the Office of Management and Budget (OMB). This 
interpretation was recommended by the Federal Accounting Standards 
Advisory Board (FASAB) and adopted in its entirety by OMB.
    Under a Memorandum of Understanding among the General Accounting 
Office, the Department of the Treasury, and OMB on Federal Government 
Accounting Standards, the Comptroller General, the Secretary of the 
Treasury, and the Director of OMB (the Principals) decide upon 
standards and concepts after considering the recommendations of FASAB. 
After agreement to specific standards and concepts, they are published 
by OMB in the Federal Register and distributed throughout the Federal 
Government.
    An Interpretation is a document, originally developed by FASAB, of 
narrow scope which provides clarification of the meaning of a standard, 
concept or other related guidance. Once approved by the designated 
representatives of the Principals, they are published by OMB in the 
Federal Register.
    This notice, including the third interpretation of SFFAS, is 
available on the OMB home page on the Internet

[[Page 52794]]

which is currently located at http://www.whitehouse.gov/WH/EOP/omb, 
under the caption ``Federal Register Submissions.''
G. Edward DeSeve,
Controller.

Interpretation Number 3 of Statement of Federal Financial Accounting 
Standards Number 5

Measurement Date for Pension and Retirement Health Care Liabilities: An 
Interpretation of SFFAS No. 5

Introduction
    1. The Federal Accounting Standards Advisory Board (FASAB) was 
asked to endorse use of an actuarial valuation as of the beginning of 
the fiscal year to measure the pension and retirement health care 
liabilities in general purpose financial reports prepared pursuant to 
Statement of Federal Financial Accounting Standards Number 5 (SFFAS 
5).<SUP>1</SUP> This has been the practice in some of the special 
purpose financial reports on pension plans that are prepared pursuant 
to Pub. L. 95-595.<SUP>2</SUP> OMB and GAO issue instructions for 
preparing the reports required by P.L. 95-595.
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    \1\ Statement of Federal Financial Accounting Standard Number 5, 
``Accounting for Liabilities of the Federal Government.''
    \2\ Pub. L. 95-595, ``Federal Government Pension Plans.''
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    2. The plan reports called for by P.L. 95-595 receive scrutiny from 
Congressional staff. Based on past experience, some actuaries were 
concerned that differences between actuarial measurements used in 
different reports would cause problems and confusion.
    Some people who support using a beginning-of-year valuation also 
were concerned about the potential for disagreements between auditors 
and preparers if projections or estimates were used instead of a full 
actuarial valuation.
    Other people, on the other hand, believed that measurements for 
recognizing liabilities in financial statements prepared pursuant to 
SFFAS 5 should be as of the end of the reporting period, and that a 
measurement based on a projection or ``roll forward'' of a full 
actuarial valuation would be appropriate if it were not feasible to 
perform a full actuarial valuation as of year end.
Interpretation
    3. Pension and retirement health care liabilities in general 
purpose Federal financial reports prepared pursuant to SFFAS 5 shall be 
measured as of the end of the fiscal year (or other reporting period if 
applicable). This measurement shall be performed following the end of 
the period reported, but does not have to be based on a full actuarial 
valuation as of the end of the reporting period. The measurement shall, 
however, reflect the best available estimates of the major factors that 
would be reflected in a full actuarial valuation, such as the actual 
pay raise, the actual cost of living adjustment, and known material 
changes in the number of employees covered (enrollment) that cause a 
change in the liability.
    4. This measurement may be based on an actuarial valuation 
performed as of an earlier date during the fiscal year, including a 
beginning-of-year actuarial valuation, with suitable adjustments for 
the effects of changes during the year in major factors, such as the 
pay raise, cost of living adjustment, etc. This is sometimes referred 
to as a measurement based on a ``projection'' or ``roll-forward'' of 
the most recent available actuarial valuation. In evaluating the effect 
on the liability caused by changes in enrollment for plans that cover 
employees of more than one reporting entity (e.g., CSRS, FERS), 
materiality shall be assessed at the plan level. In evaluating the 
effect on the liability caused by changes in enrollment for plans that 
cover employees of only one reporting entity (e.g., Coast Guard, 
Department of State), materiality shall be assessed at the reporting 
entity level.
Scope of Interpretation
    5. This interpretation applies to pension and retirement health 
care liabilities recognized in accordance with SFFAS 5 in general 
purpose Federal financial reports, such as financial statements 
prepared pursuant to the Chief Financial Officers Act of 1990, as 
amended. It does not apply to reports on pension plans pursuant to the 
requirements of P.L. 95-595.
Effective Date
    6. This interpretation shall be applied for reporting periods that 
end on or after September 30, 1997.
Appendix: Basis for Conclusions
    7. SFFAS 5 defines standards for recognition and measurement of 
pension and retirement health care liabilities, which are reported as 
of the balance sheet date. Although SFFAS 5 does not explicitly discuss 
the measurement date, its provisions implicitly call for measurement at 
year end. ``Measurement'' implies estimation based on the best 
available information at the time, but does not necessarily require a 
full actuarial ``valuation'' as that term is used by actuaries.
    8. To avoid potential confusion, ambiguity, or conflict with 
auditors, some people would prefer to use a beginning-of-year valuation 
(which is permitted by private sector standards for plan reporting 
pursuant to SFAS 35 <SUP>3</SUP>), or at least would prefer to use 
beginning-of-year enrollment while updating the valuation for other 
changes during the year (e.g., interest rate assumptions, COLAs, salary 
increases), which generally are more significant.
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    \3\ Statement of Financial Accounting Standard No. 35 (SFAS 35), 
``Accounting and Reporting by Defined Benefit Pension Plans.''
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    9. Changes in enrollment during the year will rarely lead to a 
material change in the liability, and that such changes will, 
therefore, not be a factor in some years. Nevertheless, in those years 
when a material change in the liability does arise because of a change 
in enrollment during the year, that change should be reflected in the 
measurement. Conceptually there is no reason to treat enrollment 
differently from other factors used in the measurement. Precise 
enrollment data may not be readily available soon after year end, when 
the measurement is to be performed. However, this should not normally 
present a problem because absolute precision regarding enrollment 
should not be necessary, given a reasonable definition of materiality.

[FR Doc. 97-26869 Filed 10-8-97; 8:45 am]
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