Accounting practices led to pension mess

Letter writer Rosemary Colbert recently complained that how the pension mess came about has not been explained. I will answer, as I have been answering since 1983. It is mainly the fault of accountants — specifically, the National Council on Government Accounting, since 1968, and its successor since 1984, the Governmental Accounting Standards Board. They made the rules that allowed significant portions of pension liabilities to be kept “off balance sheet” (read that as “off shore, like Enron”). Out of sight, out of legislative policy!

These two rule-making boards have been preponderantly funded, since 1968, by the Government Finance Officers Association of the United States and Canada. This association has consistently maintained a position that significant portions of pension liabilities be kept “off balance sheet.” These accounting rules have been followed by public accounting professionals in preparing audited financial statements.

The fundamental accounting theory of conservatism (read that as “Accounting 101”) requires anticipating no gains and reserving for all losses (read that as liabilities). Bond rating agencies have long accepted the above practices in rendering their ratings. Only recently have these agencies begun to lower governmental bond ratings. These above practitioners enabled legislative bodies to increase pension benefits and, thus, pension liabilities without transparent accountability. As a result, public employee and teacher organizations accepted higher future benefits in lieu of higher current wages.

It is important to note who is not responsible for the pension mess: the vast majority of rank and file public employees and teachers, and all taxpayers except certified public accountants and government finance officers. It is now up to this “class” of citizens to take “action” that “suits” the fraud that has been perpetrated. Search the Web for the Institute for Truth in Accounting.

Richard H. Skiba Jr.

Palatine