Josh Barro, Columnist

Two Advances for Pension Transparency

Two developments this spring will push us toward more honest accounting of government pensions -- but will they matter?

April 24, 2013 at 6:32 PM UTC

Josh Barro is the lead writer for the Ticker, Bloomberg View's blog on economics, finance and politics. His primary areas of interest include tax and fiscal policy, state and local government, and planning and land use. Previously, Barro was a Senior Fellow at the Manhattan Institute for Policy Research and a commercial real estate banker at Wells Fargo. He holds a bachelor's degree in psychology from Harvard and lives in Queens, New York.

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One of the reasons that pension crises sneaked up on state and local governments over the past few years is that pensions are complicated and their finances are easily misunderstood. If I promise to pay you $100 in 20 years, what sort of expense should I say I incurred this year? Governments have been allowed to come up with all sorts of answers to that question, including "zero." Two developments this spring push us toward more honest accounting -- but will they matter?

One is a statement from the Bureau of Economic Analysis, which produces the national income and product accounts measuring the size and characteristics of the economy. A major component of the NIPAs is employee compensation, including pensions. The BEA had measured pensions on a cash basis: If a company or a government deposited $10,000 into its pension fund, it was counted as spending $10,000 on pension compensation. But that's a bad method -- the cash contributions might not line up with actual accrued costs for pensions because, for example, entities sometimes underfund their pension systems.