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Helping Citizens Understand

Old Mendocino County Courthouse Around 1915

California County Pension Debt

 

End of Government Pension Financial Reporting "Fraud"



When Do Pension Expenses Happen?



End of Pension Accounting "Fraud"


Choices -

Major Reform - GASB 68

Bill Gates-"It's Fraud!" Was He Right?

When Pension Expense Happens

GASB's Basic Principle Retirement Benefits

Fatal Flaw GASB's Old Rules

Major Changes Government Financial Statements

Three Ongoing Impacts Balance Sheets

Pension Expenses

Footnotes - Required Supplemental Information

GASB68 Prior Year Adjustment Important!

 

Understanding When Employees Really Earn Their Pensions

What the County and Its Employees Give Each Other

The essence of what employees give the their employer government is their time on the job.

In exchange the government gives its employees a bunch of things - salary, time off for holidays and vacations, sick pay, health insurance, and the right to receive a pension when they retire. All these are called "Compensation" - they "compensate" employees for their time.

Employees "receive" this compensation in two time-frames. They get their salary, holidays and vacations, sick pay, employee health insurance etc. while they are working. But they receive their retirement benefits when they retire in the future. The term for this kind of compensation is "Deferred Compensation".

As we saw on the last page when you pay for an expense isn't necessarily the same time you incur the expense. Expense is when you consume or dispose of something of value. You can pay for an expense before you incur it, when you incur it, or after you incur it.

Clearly - employees get paid their pensions when they retire. But - when does the County incur the expenses of their pension? The answer determines when these expenses should be reported and when We the People - and everyone else - should see their impact on government finances and services.

Wimpy Offers Pensions in the Future as Part of Inducement for Employees to Work Today

Two observations:

  • INDUCEMENT TO WORK NOW: The reason the County offered to pay pensions in the future - along with all the other compensation - was to convince prospective employees to take the job and work NOW. Therefore the cost of future pension payments is a cost of that inducement while employees are working.
  • LABOR IS NOT RETRIEVABLE: When employees leave work they will never get those hours of their lives back - they're gone. The clock only runs in one direction. The County completely consumed those hours. What employees earn is ENTIRELY EARNED as they give their labor to their employer government.

And that means ALL EXPENSES INCURRED BY THE COUNTY FOR THOSE EMPLOYEES HAPPENS WHILE THEY ARE WORKING. It's a cost of providing services today. And so the County must record and report the TOTAL COMPENSATION provided to employees while they are working - regardless of when any particular form of compensation is actually paid.

What Employees Earn

Take a closer look at what the County gives employees as compensation.

County employees receive most of the value of their Compensation each year. But the payment of one element of Compensation is deferred until after they retire - their pensions.

Employees don't receive their pensions while they are working. But they receive the County's legal obligation to pay them in the future.

Pension IOUIn effect - every payday one of the several items in their pay envelop is a "Pension IOU".

Employees Cash In Their Pension IOUs When They Retire.

They'll save up all those Pension IOUs - and then when they retire they'll go into the Retirement Office with all the IOUs they collected through the years and "cash them in". If they were paid every other week and worked for 30 years they'll have 780 IOUs. (There really aren't things called Pension IOUs - but in effect employees do get them as they work.)

But instead of receiving a fixed amount - they will get a pension for the rest of their lives, however long that may be.

Major Point!

Employees earn their future pensions while they are employed. The County incurs an obligation - a debt - to pay a certain amount of an employee's future pension every day the employee works.

The County's pension expense happens while its employees are earning the right to their future pensions - not when the County pays for them.


 
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