Social Insurance

Project Objective:

The object of this project is, first, to reconsider the FASAB liability definition and specifically its application to social insurance programs. At the same time the Board will consider developing an asset definition to replace the current working asset definition in the Consolidated Glossary . Subsequently the Board will consider recognition, measurement and display of social insurance obligations.

The project will:

  1. Describe the current FASAB liability definition and its application in SFFAS 17;
  2. Describe liability and asset definitions established by other standard-setters;
  3. Develop possible alternative concepts, definitions, recognition points, etc., for liabilities and asset;
  4. Develop alternative potential social insurance liability measures;
  5. Develop alternative displays for the balance sheet, statement of net cost, and/or other statements, and
  6. Explore and analyze issues.

HISTORY OF BOARD DELIBERATIONS (reverse chronology)

February 24-25, 2010 Board Meeting
At its meeting on December 16, 2009, the Board discussed the final draft of the social insurance standard presented by staff. After making editorial changes to paragraphs 25, A87, and other paragraphs and illustrations in the standard, the Board approved the standard. Staff anticipates that SFFAS 37, Social Insurance: Additional Requirements for Management’s Discussion and Analysis and Basic Financial Statements, will be issued as final in April 2010 following a 90-day review period by FASAB’s sponsors.

December 16-17, 2009 Board Meeting
At its meeting on December 16, 2009, the Board discussed the final draft of the social insurance standard presented by staff. After making editorial changes to paragraphs 25, A87, and other paragraphs and illustrations in the standard, the Board approved the standard.  Staff anticipates that SFFAS 37, Social Insurance: Additional Requirements for Management’s Discussion and Analysis and Basic Financial Statements, will be issued as final in April 2010 following a 90-day review period by FASAB’s sponsors.

Issue Paper for December 2009 (PDF)

November 25, 2009
At the upcoming meeting, the Board will conduct final balloting regarding the proposed accounting standard for social insurance. The briefing material supporting this discussion is available below.

Memorandum for Social Insurance for the December 2009 meeting (PDF)

October 21-22, 2009 Board Meeting
At the October 2009 meeting the staff presented a draft social insurance standard for the Board’s consideration.  The draft reflected what the staff believed the members agreed to through August 2009.   The draft social insurance standard represented a compromise that the members support.  The two remaining issues for the Board’s consideration involve the questions of (1) whether the table specified in the standard for the management’s discussion and analysis section should be required or optional; and (2) whether the note disclosure of an accrued benefit obligation should be required.

In prior meetings the Board agreed to move forward with what it had previously approved.  Initially the Board had voted to develop a new financial statement but decided to consider the issue of display – of financial statements – as part of a reporting model project.

The Board discussed how prescriptive the standard should be.  Some thought the standard was too prescriptive.  The move from the exposure draft’s optional table in MD&A to a required table was part of the compromise that eliminated any balance sheet or operating statement reporting.  The table provides line items that link all of the financial statements.  Like financial statements, the table is an effective tool for communicating the summary information, more so than note disclosures.  It complements and illustrates the MD&A narrative.

The Board discussed the value of linking information in the MD&A table to the partially unarticulated financial statements.  The Board discussed the unique federal reporting model that contains basic financial statements that do not articulate with each other.  One of the primary purposes of the MD&A proposal in the social insurance standard is to link the unarticulated financial statements.

The Board approved the MD&A standard with certain clarifying amendments.

The Board next discussed note disclosure of an accrued benefit obligation, which was required in paragraph 34 of the proposed standard.   The disclosure originated with a prior Board member who had received many requests for the number from the public.  The respondents to the exposure draft had been fairly evenly divided on the requirement.  One of the objections of those who did not favor the disclosure was the potential for confusion with multiple numbers.

The Board discussed the nature of the disclosure, including its applicability to Medicare, Parts B and D, where participants make a decision to participant upon reaching age 65.  The Board decided not to require the disclosure.

October 9, 2009

At the upcoming meeting, the Board will consider the remaining issues regarding the proposed amendments to the accounting standard for social insurance. The briefing material supporting this discussion is available below.

Issue Paper for October 2009

August 26-27, 2009 Board Meeting
At its August 2009 meeting, the Federal Accounting Standards Advisory Board (“Board”) discussed two remaining issues – Issue #1 and Issue #6 – regarding the proposed social insurance (“SI”) accounting standard. The staff memoranda for the April and June, 2009, Board meetings had discussed nine issues involving reporting options and other issues from the exposure draft (ED). The August staff memorandum referenced the same nine-issue framework.

Issue 1 involved the question of a new basic financial statement. At its April meeting, the Board had voted in favor of a new statement, and had discussed sub-issues regarding format and other subjects without formally voting on them. The members expressed tentative format preferences in April and directed the staff to further develop two options.

At the August meeting, the staff asked the Board whether it wanted to reconsider creating a new basic financial statement via the SI project or, alternatively, to re-focus on management’s discussion and analysis (“MD&A”). The staff noted that the SI ED had required the preparer to discuss key measures in the MD&A, and had included an optional “Key Measures Table.” Building on that option, in June, 2009, Mr. Dacey introduced a “where-we-are-now-and-where-we-are-headed” table (the “Bob Dacey Table”) that could be part of MD&A; several members had expressed interest in the revised table. Staff mentioned that the Board’s on-going project on the reporting model will analyze fundamental questions, and finalizing the components of the new SI standard on which the members agreed might be desirable at this juncture. A new basic statement would entail another ED and another cycle of due process for the SI project.

The Board discussed the merits of and formats for a basic financial statement and/or a table or schedule in the MD&A, and the procedure for reconsidering this issue in light of the prior affirmative vote. Regarding procedure, Mr. Allen explained that, in order to reconsider the question of a basic statement, a member who had voted in the majority would have to move to reconsider the question.

Having established that there were members who had voted in the majority on the question of a new basic financial statement who favored re-considering the issue, the Board voted, regarding Issue 1 and related sub-issues, to issue the SI standard with all deliberate speed, without a new basic financial statement, and integrate the work on a new basic financial statement with the reporting model project.

The other issue presented by staff, Issue 6, involved footnote disclosure of an accrued benefit obligation. This Board did not address this issue at its August meeting.

Staff will present a “track changes” draft SI standard reflecting what the members have agreed to and identifying any remaining issues at the October meeting.

Issue Paper for August 2009 (PDF)

August 14, 2009
At the upcoming meeting, the Board will consider comments received on and issues identified regarding the social insurance exposure draft, “Social Insurance Accounting, Revised.” The briefing material supporting this discussion is available below.

Memorandum for Social Insurance for the August 2009 meeting (PDF)

June 17-18, 2009 Board Meeting
At the June 2009 FASAB meeting six members indicated preferences for a new basic financial statement.  Four members preferred an MD&A presentation. Staff will return in August with options.

Also at the June 2009 the Board:

  • Voted unanimously to approve the MD&A standard with changes to sub-paragraphs 27c and 27e to reflect the change in focus from the closed group measure to the open group measure and other clarifying changes.  Also voted 6-4 to require discussion of the closed group measure in the MD&A.
  • Voted 7-3 to require a summary section in the statement of social insurance. The staff will research the question of presenting the summary in terms of percentages of GDP or other normalized numbers rather than dollar amounts.
  • Unanimously approved a new “statement of changes in social insurance amounts.”
  • Did not make a decision regarding the disclosure of an accrued benefit obligation. The staff will research the availability of information to develop an accrued benefit obligation for Medicare.
  • Unanimously affirmed its decision not to require a line item on the statement of net cost for the change in social insurance amounts during the period.
  • Unanimously decided to adopt a requirement on sensitivity analysis after dropping the reference to stochastic analysis.

Issue Paper for June 2009 (PDF)

June 5, 2009
At the upcoming meeting, the Board will consider comments received on and issues identified regarding the social insurance exposure draft, “Social Insurance Accounting, Revised.” The briefing material supporting this discussion is available below.

Memorandum for Social Insurance for the June 2009 meeting

April 22-23, 2009 Board Meeting
At the February 26 FASAB meeting, the Board directed staff to explore options for reporting social insurance and possibly other critical information in association with the balance sheet. The Board was particularly interested in the “Overall Perspectives” table in the FY 2004 Financial Report.  In addition, the Board directed staff to consider deferred revenue accounting.

The staff memorandum for the April 23 FASAB meeting discussed the pro forma reporting options, the other issues, and accounting for deferred revenue, and provided recommendations.

Regarding Issue 1, Section I, which asked “Should the Staff Develop a New Basic Statement”, the staff recommended that a new statement be developed. The Board voted in favor of the staff recommendation, 7-3.  Regarding the format for the new statement, the members expressed tentative preferences and directed the staff to further develop two options.  One would be where sustainability amounts are reported separately immediate below the balance sheet.  The other approach would have two columns, one for the balance sheet and one for social insurance amounts.  Future deliberations with include the questions of format.  There was strong support among the members for keeping the balance sheet format as it is and combining it with social insurance amounts.

Regarding the question “Should the statement include more than social insurance amounts, especially … the ‘rest of government’ …”. The Board did not support including non-social insurance amounts in the new basic statement.

Regarding Issue #2, “Should the Standard “Feature” the Closed Group Measure …”, the Board voted in favor of the staff recommendation that the open group measure be “featured” instead of the closed group measure.  The effect of this is to require:

  1. Emphasis on the open group measure in the MD&A. However, the closed group measure will be required to be included in MD&A discussion of social insurance.
  2. The use of the open group measure for the statement of changes in social insurance amounts.
  3. In addition, the closed group measure will continue to be a subtotal in the summary section of the SOSI, as proposed in the ED.

Regarding the other issues, the Board partially addressed Issue 3, “Should the Standard Require Key Measures to be Presented in the MD&A …”. For Issue #3, the staff recommended that the proposed MD&A standard [ED paragraphs 26-30] be approved as written except for paragraph 27c, which deals with the MD&A discussion of the closed group measure, and 27e, which deals with the MD&A discussion of the fiscal gap.  Staff recommended changing these sub-paragraphs.  The Board approved the part of Issue #3 dealing paragraph 27c of the ED.  Sub-paragraph 27e regarding the MD&A discussion of “fiscal gap” will need to reflect what the Board decides to require in the MD&A regarding the “fiscal gap” in light of the final fiscal sustainability presentation and possibility other information that the Board may want to include there.

Regarding Issue 4, “Should the Standard Require the SOSI to Have a Summary Section as Described in the Exposure Draft …”, the Board  supported the staff recommendation. The staff recommended that the SOSI have a summary section as described in the ED.

Regarding Issue 5, Section II, “Should the Standard Require a New Basic Statement that Explains Changes to the Closed or Open Group Measure …”, the staff recommended that the new statement be approved and that the open group measure replace the closed group measure.  The Board supported this recommendation.

Other issues will be addressed in June and subsequent FASAB meetings.

Issue Paper for April 2009 (PDF)

April 9, 2009
At the upcoming meeting, the Board will consider comments received on and issues identified regarding the social insurance exposure draft, “Social Insurance Accounting, Revised.” The briefing material supporting this discussion is available below.

Memorandum for Social Insurance for the April 2009 meeting

February 26, 2009
At the Board meeting on February 26th the Board briefly reviewed the comments received in response to the exposure draft Accounting for Social Insurance, Revised, and considered issues raised by respondents.  The vote tallies from the comments received as of February 18, 2009, although merely “raw” data, indicated three “broad issues” that constitute the respondents’ main areas of disagreement with the proposed standard, and with each other. They involve the appropriateness of (1) the closed group measure for social insurance, as a concept, (2) its display on the balance sheet or any basic financial statement or, indeed, anywhere in a financial report; and (3) the note disclosure of the accrued benefit obligation.

The closing date for comments on the social insurance ED had been very recent, and the staff had accelerated consideration of the social insurance issues in order to have a joint hearing for both EDs.  Thus, a full staff analysis of all the social insurance issues was not possible.  On the other hand, the Board had considered many of the issues previously. The exposure draft included an extensive basis for conclusions that explores the main issues raised by the respondents.

The Board discussed options for basic financial statement presentation. It directed the staff will explore some options. An early draft of the “options paper” will be sent to all Board members for comment and those members that have comments will provide them before the April meeting.

The Board voted not to go forward with either a liability recognized on the balance sheet, other than that based on the “due and payable” approach; or a line item on the balance sheet for social insurance commitments as proposed in the exposure draft. Other issues with be addressed in due course.

The Board also asked the staff to provide feedback on the proposal that the statement of changes in social insurance amounts focus on the open group measure rather than the closed group measure. This will be a component of the options paper.

Issue Paper for February 2009

February 13, 2009
At the upcoming meeting, the Board will hear testimony and review and consider comments on the social insurance exposure draft, “Social Insurance Accounting, Revised.” The briefing material supporting this discussion is available below.

Memorandum for Social Insurance for February 2009 meeting

December 17-18, 2008 Board Meeting
Comments are requested by February 9th on the exposure draft, Accounting for Social Insurance, Revised. See /pdffiles/socialins_exposurefinal.pdf.

October 22-23, 2008 Board Meeting
The Board reviewed and approved the social insurance exposure draft for publication.  Five affirmative ballots and one negative ballot were submitted at the meeting. [A sixth affirmative ballot was received on October 29, 2008.]

Issue Paper for October 2008

October 3, 2008
At the upcoming meeting, the Board will review and consider approving the social insurance exposure draft for publication. The briefing material supporting this discussion is available below.

Issue Memorandum for Social Insurance for October 2008 meeting

August 20-21, 2008 Board Meeting
At its August 2008 meeting, the Board voted for the closed group measure to be the focus of new social insurance information to be proposed in an exposure draft coming soon. The measure will be highlighted in the management’s discussion and analysis (MD&A), along with other key measures from the entity’s financial statements; it will be reported separately on the balance sheet below assets, liabilities, and net position and not part of the totals for those categories; it will be a line item in a proposed new summary section of the statement of social insurance (SOSI); and, it will be the subject of a proposed new “statement of changes in social insurance amounts.” The SOSI will display both the closed and open group measures.

In addition, the Board voted in favor of focusing on Statement of Federal Financial Accounting Standards (SFFAS) 17, Accounting for Social Insurance, for the proposed standard. SFFAS 17 will be amended to require the additional information, from social insurance entities only, including an analysis of key financial statement amounts in the MD&A. SFFAS 15, Management’s Discussion and Analysis, will not be amended to apply the social insurance MD&A requirements generally to other federal entities.

With respect to the upcoming exposure draft, the Board decided to add questions for respondents about the relative merits of the closed and open group measures, and about sensitivity analysis.

Issue Paper for August 2008

August 8, 2008
At the upcoming meeting, the Board will review specific components of additional social insurance reporting. The briefing material supporting this discussion is available below.

June 5, 2008
The objective for the June meeting was to approve specific components of additional social insurance reporting as outlined in this memorandum, after which staff would develop an exposure draft. With respect to a summary of key financial information for a highlights display, the Board decided to require all the major line items on the pro forma highlights table in the June briefing book to be displayed, analyzed and discussed in the entity’s MD&A section, excepting the open group measure. The major line items are the key items the Board would like to see discussed in a summary highlights section. The standard will amend SFFAS 15 under the MD&A category “financial statements.” The standard will not require specific sub-line items like “federal employee benefits.” The standard will neither require nor preclude tabular format. Accompanying examples may include a non-mandatory table.

With respect to the questions about a new line item on the balance sheet for the net present value of social insurance commitments, a new summary section of the statement of social insurance, a new statement of changes in social insurance, and a note disclosure of a liability-type number, the Board answered affirmatively.

Question six, regarding the reconsideration of a line item on the operating statement for the change in the social insurance commitment during the reporting period, was answered negatively. There were no objections to including a discussion of the issue in the basis for conclusions and a question for respondents on the subject.

As the exposure draft is developed, the basis for conclusions section will include a discussion and analysis of due process responses received during the preliminary views phase of the project and of the rationale for the compromise position. There will be an explicit and extensive discussion of why certain Board members concluded that this was not a liability before the due and payable date and others thought that it was.

Issue Paper for June 2008

June 5, 2008
At the upcoming meeting, the Board will review specific components of additional social insurance reporting. The briefing material supporting this discussion is available below.

Issue Memorandum for June 2008 meeting

April 16-17, 2008 Board Meeting
The objective for the April meeting was to decide whether to approve the staff’s proposal for a revised social insurance (SI) accounting standard and proceed to an exposure draft. The staff proposed that the standard require two new financial statements, new line items for current statements, and continuation of all Statement of Federal Financial Accounting Standards (SFFAS) 17 requirements. The proposed new statements would be designated “basic information.”

A majority favored requiring highlights information in management’s discussion and analysis as required supplementary information. The Board was more evenly divided about the balance sheet line items. However, a majority opposed line items on the operating statement.

For the next meeting in June 2008 the staff will continue to work on the statement of changes in SOSI amounts and MD&A, structure a more formal vote on the other parts of the proposal and develop some other alternatives regarding display.

In addition, staff will provide a matrix showing the members’ views on the various proposals – highlights, statement of changes, balance sheet, etc.

Issue Paper for April 2008

March 28, 2008
At the upcoming meeting, the Board will discuss the staff’s proposal for a social insurance exposure draft. The briefing material supporting this discussion is available below.

Issue Memorandum for April 2008 meeting

December 4-5, 2007 Board Meeting
The Social Insurance (SI) project has focused on the adequacy of the SFFAS 17 approach to SI liability and expense.  Two familiar and opposing views on that issue have come to the fore: on the one hand there is the view represented by SFFAS 17 (and SFFAS 25-26) approach, which provides that the SI expense is the cash outflow in the period, plus or minus the net change in the “due and payable” liability; on the other hand, there is the view that expense and liability ought to be recognized much earlier in the participants’ work in covered employment.  Both views would require a new basic statement displaying the causes of the change in statement of social insurance (SOSI) net present values during the period, as well as a rich display of required supplementary information (RSI), including cash flow projections as a percent of GDP and taxable payroll, the dependence ratio, and sensitivity analysis.

The Board is discussing a “compromise” position regarding recognition and display.  In September, the Board began a general discussion about essential information and display, and that discussion continued in December.

The staff memorandum for December presented two issues: (1) what is essential social insurance information and (2) how should it be displayed.  Regarding information on accrued cost, the September discussion included the following:

  • The total change in SOSI, which is change in the open group net present value (NPV) over 75 years.
  • The closed group portion of the SOSI NPV.
  • The portion of the closed group NPV representing the accrued benefits from past work in covered employment.

In this regard, there had been support among some FASAB members for considering a measure currently used by the Social Security Trustees (“Trustees”) and/or the Social Security Administration (SSA).  In their Annual Report, the Trustees’ use the terms – “unfunded open group benefit obligation,” and “unfunded closed group benefit obligation.” In its periodic Actuarial Note, SSA uses the term “accrued benefit obligation” and “maximum transition cost.”

Based on the Board’s September discussion and its subsequent research, the alternatives for obligation and “cost” as follows:

  1. Accrued benefit obligation, which essentially involves the closed group population and past work in covered employment. The term “accrued benefit obligation” is defined in SSA’s Actuarial Note, along with the “maximum transition cost” (MTC) (see below).  This term appears likely to be understandable.  For example, it would be more understandable than “maximum transition cost.”  Also, the Trustees’ use the term “unfunded obligation” in their Annual Report.
  2. The MTC, which is the accrued benefit obligation less the Treasury securities held.
  3. The FASB pension concepts of the “accumulated benefit obligation” (ABO) and “projected benefit obligation” (PBO).
  4. The closed and open group NPVs from the SOSI, which include revenue and benefits attributable to future work in covered employment.

Staff presented two recommendations:

  1. SI information to include SOSI, SFFAS 17’s RSI, a statement of SOSI changes, and an “accrued benefit obligation.”
  2. A general approach for display featuring a highlights table for the MD&A, new line items for the basic statements (with possible notes), a statement of SOSI changes, and current SFFAS 17 RSI.

At the December meeting the FASAB members discussed the staff’s recommendations without voting on either. The Board directed the Social Insurance Project staff to continuing working on display options.  A vote on SI accounting and reporting will follow the Board’s work on fiscal sustainability.

Issue Paper for December 2007

November 16, 2007
At the upcoming meeting, the Board will discuss essential social insurance information and display. The briefing material supporting this discussion is available below.

Issue Memorandum for December 2007 meeting

September 19-20, 2007 Board Meeting
At its meeting on September 19-20, 2007 the Board members discussed the economic cost of social insurance programs, essential social insurance information to communicate, and display options.

Some members said the economic cost is the change in the statement of social insurance (SOSI) amounts during the reporting period.  For example, if the net present value (NPV) of the social insurance commitments last year was $44 trillion and this year it is $45 trillion, then the economic cost would be $1 trillion.  Others defined it more narrowly as the change in the present value of future benefits attributed to work in covered employment already performed, exclusive of the present value of future benefits attributable to work in covered employment to be performed in the future.  Others had a different view.

The Board discussed the challenge of understanding multiple financial statements and the desirability of a highlights document.  Most members favored a highlights document with references to other sections of the report where more information would be available.  For example, the highlights document would capture, in one or two lines, (1) the exchange transactions, (2) net operating cost, and (3) the social commitments – without saying one is more important than the other.  Other statements could be developed that would link back to the highlights statements.

The Board also discussed possible essential information about social insurance programs.  For example, the open group actuarial liability in each of the last five years resonated with the members because it showed the growth year after year. In addition, essential information included the cross-over point when benefit payments begin exceeding tax revenue, and projected cash flow over 75 years as a percent of GDP because economists can use these numbers.  Other essential pieces of information included the cause and the amount of the changes in the closed group actuarial liability and “maximum transition cost” from year to year.

Some members felt it was very important to show these numbers for social insurance responsibilities juxtaposed against other traditional accounting concepts like net operating costs, assets, and net position of the government.

Some members argued that somewhere in the document the liability number needs to be provided to people who want to see what a liability number would be, although it need not be on the balance sheet.  The Board may use the SOSI or craft new statements to disclose this and other information; for example, information program by program and/or group by group, and then summarize it separately in a cover sheet.

For the December meeting the staff will develop a list of essential information and possible display formats. However, the Board decided to focus its attention in the near term on the sustainability project to ensure that consistent reporting formats emerge from the related projects.

Issue Paper for September 2007 –

SocialIns-Tab C
SI Exhibit A1
SI Exhibit B1
SI Exhibit C2
SI Exhibit D1
SI Exhibit E2
SI Exhibit F1

September 7, 2007

At the upcoming meeting, the Board will discuss preliminary views regarding social insurance accounting. The briefing material supporting this discussion is available below.

Issue Memorandum for September 2007

July 25-26, 2007
The Board discussed the future direction for the social insurance project at the July 2007 FASAB meeting. The staff presented a summary of comment letters and testimony and discussed a framework for moving forward.

There is a consensus among FASAB members on certain components of a draft social insurance standard. First, there is a consensus that the future exposure draft on social insurance accounting should require the current Statement of Social Insurance (SOSI) as well as a statement of changes in SOSI amounts. The exact format for the statement of changes is to be determined. There is also a consensus that sustainability reporting is necessary. There is a separate project on that subject. Finally, members agreed that the supplementary information required in SFFAS 17 should be continued.

Regarding a plan to move forward on the basic areas where the members’ views differ, the staff suggested the following alternative approaches for the Board’s consideration. They are based on ideas presented in the Preliminary Views document and/or expressed by respondents or Board members. The staff could develop any of these as the Board wishes:

  1. Primary or Alternative View – Adopt either the PV or AV as presented in the Preliminary Views document.
  2. Modify the Primary or Alternative View – Another approach would be to adopt a modified version of either the PV or the AV. One option associated with the PV is to conclude that, although the liability definition (in Elements concept statement) is satisfied when participants substantially meet the eligibility requirements for fully insured status (e.g., 40QC), the second recognition requirement (in the Elements statement) regarding measurability leads to a “threshold liability” for the balance sheet.
  3. Expansion of the Current Reporting Model – The current reporting model can be expanded, either by adding a new section to the existing balance sheet or develop a new statement. Developing additional levels for the federal balance sheet and/of statement of net cost may be appropriate for the SI project at this time. Additional levels may be useful in communicating the nature of federal liabilities. For example, liabilities arising from what have been referred to as “social contracts” by some might be distinguished from those arising from exchange-related contracts.
  4. New Element for the Existing Reporting Model – A new element could be considered that would be part of net position but not a “liability,” e.g., “obligations,” “commitments,” “responsibilities.”

The members discussed both developing meaningful sustainability reporting and financial statements display. The Board discussed expanding the traditional balance sheet and operating statements to include information about government commitments. Currently there is no differentiation in the statements regarding the changes in the amounts reported, for example, between how much of the change is due to past work in covered employment and how much to future work in covered employment. Some argue stratification would be valuable analytical information. Table 1 in the Financial Report of the United States Government has been well received.

The FASAB’s recent task force on sustainability recommended having a single focus, a “bottom line,” for better communication. People are starting to talk about the budget deficit and the “GAAP deficit.” The dilemma for many is that the GAAP deficit does not include the increase resulting from increased commitments for social insurance. That becomes incredibly confusing.

Some argue that the Board should decide whether social insurance is a liability or not before addressing sustainability. The statement of net position now purports to present the assets and liabilities of the federal government, and there are definitions of assets and liabilities.

Others doubt that the best way to portray the federal obligations, responsibilities, or liabilities is a traditional balance sheet. They do not want the Board’s thinking to be limited to a traditional balance sheet for programs that represent “social contracts.”

The most important thing for many members is to portray government’s long-term commitments in a creative way.

Some members thought it was clear from the deliberations, comments letters, and testimony that whatever is presented should be in the right context so as not to be misleading. The complexity and interrelationships of these programs must be understood. The Board voted to move ahead with both the social insurance and fiscal sustainability projects concurrently.

Issue Paper for July 2007

July 13, 2007
At the upcoming meeting, the Board will discuss comments received and future plans for the project regarding accounting for social insurance. The briefing material supporting this discussion is available below.

Issue Memorandum for July 2007

Social Insurance, Tab A – Attachment 1 – Staff Summary of Responses

Social Insurance, Tab A – Attachment 2 – Minutes of May 23 Social Insurance Hearing

Written Statement of Professor Howell E. Jackson

Attachment 4 – Table 1, Financial Report of the United States Government, Executive Summary

Social insurance, memo to Board July 2007, Attachment 5, worksheet re tabulation of respondents comments

May 23-24, 2007
A hearing was held on May 23, 2007, to receive testimony on the Preliminary Views document Accounting for Social Insurance, Revised, which had been out for comment from October 23, 2006, to April 18, 2007. Sixteen people testified. Comments received after April 18 have been and will continue to be accepted. The Board’s initial consideration of the comment letters and testimony received to date will take place at its next meeting on July 25-26.

SI Public Hearing Responses (PDF)

September 27-28, 2006
The FASAB issued a Preliminary Views document entitled Accounting for Social Insurance, Revised (PV) on October 23, 2006 . The PV presented two differing views, supported by different Board members, on accounting for social insurance. All ten Board members supported the PV.

A key difference between the two views is the point in time that a liability for social insurance benefits and related expense are recognized. Six members believe that for social insurance programs an expense is incurred and a liability arises when participants substantially meet eligibility requirements during their working lives in covered employment, and that some portion of the benefits accumulated at the balance sheet date should be recognized as a liability (Primary View). Three members believe that for social insurance programs, consistent with current reporting requirements, an expense is incurred and a liability arises when the participants have met all eligibility requirements and the benefit amount is “due and payable” (Alternative View).

Both views would present a statement of social insurance (SOSI) showing the present values of projected future program revenues and scheduled benefits, changes in such present values during the reporting period, and other sustainability disclosures; although the proposed information presented and presentation format differ.

The three members supporting the Alternative View would add to the current sustainability reporting by requiring a statement of fiscal sustainability and additional sustainability information, in the context of all federal programs, as an integral component of social insurance reporting, subject to additional refinement through a broader FASAB project on sustainability. The six members supporting the Primary View would continue the sustainability reporting required under the current standard, and agree in principle with the need to consider through a separate project a statement of fiscal sustainability and additional sustainability reporting.

One member abstained from an expression of views but supports issuance of the preliminary views so that responses can be considered.

The Board voted 10 to 0 to release the PV and the PV was issued on October 23 rd. The comment period will be open until mid-April 2007. A hearing is scheduled to coincide with the FASAB meeting in May.

Preliminary Views Document on Social Insurance Issued October 23, 2006

July 26-27, 2006
At the July meeting the Board decided to issue a preliminary views (PV) document instead of an exposure draft. Among other things a PV will avoid the perception that the Board is acting precipitously, and it affords an opportunity to consider the response to the elements ED. Although issuing a PV will delay the issuing of a standard from 120 days to a year, it will not effect the ultimate effective date for the eventual standard – FY 2010.

The plan for the social insurance project is now as follows:

  • The timeline for social insurances is as follows:
    • August 31 – alternative view circulated to members and staff for comment
    • September 13 – pre-ballot draft to members
    • September 27 – ballot draft
  • The preliminary views document will have the following features:
    • The transmittal will point up controversy and highlight points of agreement.
    • The executive summary will be balanced with the alternative view getting full coverage.
    • The questions for respondents will be scaled back. There will be at least one question. It will state that some members would accrue a liability starting with the first day of work in covered employment and some would accrue at the “due and payable” date, but that the majority supports accrual at 40 quarters and ask what the respondent agrees with and why.
    • There will be an alternative view following the standards section and before the basis for conclusions.
    • The comment period will be at least 120 days.
  • A hearing will be scheduled for March.

Issue Paper for July 2006

May 24-25, 2006
The Board reviewed the latest draft of the social insurance exposure draft (ED) using the questions for respondents that had been added since the March 2006 meeting.

The Board discussed the structure of the executive summary. Some members felt it was too one-sided while others found it appropriate.

The Board had received a letter from the Office of Management and Budget and from the JFMIP principals objecting to the social insurance exposure draft. The Board discussed balancing the current executive summary with counterarguments. Chairman Mosso had been considering including in the ED the points made in the executive summary. Although doing so would be unusual, he felt it was justified in this case due to the uniqueness of the subject matter. Traditionally an executive summary does not contain counterarguments; counterarguments are presented in an “alternative view.” SFFAS 17, Accounting for Social Insurance, presented alternative views. Some members felt that such argumentation was appropriate for the basis for conclusions but he said he did not think that that was the role of the executive summary.

The staff will further develop the questions and a balanced basis for conclusions, and therefore would be presenting new material at the July FASAB meeting rather than a pre-ballot draft ED.

Staff stated that questions 5-11 dealt with aspects of the standards and asked respondents to comment thereon. Question 8 focused on the treatment of Medicare and raised the issue of whether the Board agreed with the staff that future premiums for Medicare Parts B and D should be subtracted from the liability measure whereas payroll taxes for Medicare Part A should not. The staff reasoned that, first, the premiums are necessary only if the participants enroll in Parts B and D. Part A payroll taxes are paid well before the coverage is in effect but not afterwards and the payment of payroll taxes beyond 40 quarters has no relationship to future benefits. Once fully insured, participants receive Part A coverage whether additional payroll tax is paid or not. The premiums are also more or less a voluntary, exchange-like transaction while payroll tax is compulsory. Lastly, the budget approach for tax revenue versus revenue “earned” by the program is similar: taxes are displayed apart from expenditures whereas revenue “earned” by the program is off-set against expenditures at the program or agency level.

The Chairman polled the members regarding whether they were willing to proceed with the ED as it is but including more articulation of the opposing view and the additional to the questions discussed this morning. The Board expressed a 6 to 4 preference for proceeding with the ED.

May 2006

March 29-30, 2006
At the March 2006 FASAB meeting the Board continued to discuss the remaining questions as well as the draft exposure draft (ED) in general. Three questions dealt with Medicare as follows:

Question #19– Does the Board agree that Medicare Hospital Insurance, Part A, (HI) should be recognized at 40 quarters of work in covered employment (40 QC); or, should HI costs be spread evenly over the participant’s working years in covered employment?

Question #20 – Does the Board agree that the accounting treatment for HI and Medicare Supplemental Medicare Insurance, Parts B and D, (SMI) should be the same?

Question #21 – Does the Board agree that SMI should follow accounting standards for short-duration or long-duration insurance contracts?

With respect to question #19, the staff noted that the Board had decided at a previous meeting that an obligating event for HI occurs at 40 QC, but a question remained about cost recognition. For HI the benefit does not grow after 40 QC other than from interest on the present value obligation. A member had advocated allocating the HI cost over participants’ working years instead of, as the ED proposed, recognizing the full present value of future benefits at 40 QC.

The ED proposes characterizing social insurance programs as social benefit programs where benefits are not earned but rather conditions are met at 40 QC that constitute a liability. The Board’s rationale for the 40 QC obligating event includes the notion that “staying alive” is not an obligating condition. The liability is measured differently for Social Security than for HI because the benefits accumulate in the former program but not in the latter. Some members noted that the conditions for eligibility are the same for HI as for Social Security. Some members viewed 65 years of age as an interesting alternative obligating event for accruing these liabilities. The majority of the members voted to recognizing the full present value of the future cost of HI at 40 QC.

With respect to the question of whether to account for SMI the same as HI, some members preferred the insurance model because amounts recognized when claims are incurred would be much less uncertain than those at 40 QC. Some members would like to get away from any insurance analogy, feeling that the four Parts – A, B, C, and D – represent a single program that should be accounted for the same way. For one thing it would be simpler. The Board voted to treat HI and SMI the same, i.e., everything at 40 QC. [Question #21 becomes moot since all Parts of Medicare will be accounting under the Part A approach in the ED.]

The Board next discussed Question #22, “Does the Board agree that sensitivity analysis should include the liability and expense amounts as well as the SOSI present values and exclude the cashflow projections?” The sensitivity analysis in the draft ED for March 2006 had been revised to reflect comments from the Medicare actuarial staff and the Treasury Department suggesting essentially a “principle-based” approach whereby the standard would require sensitivity analysis but not any specific methodology. The Board agreed with the approach in the ED.

The Board next discussed Question #23, “Does the Board agree that expected value should be mentioned in the basis for conclusions?” After discussing the paragraphs the members decided to delete the paragraphs since they were not essential.

The Board next discussed Question #24, “Does the Board agree that the basis for conclusions ought to include a discussion of objectives? If so, are the draft paragraphs satisfactory?” The Board discussed the paragraphs and the notion of sustainability reporting. A majority of the Board voted in favor of proceeding with the current ED as amended during the March session. There was a consensus in favor of considering other words than “liability” for the social insurance programs. The ED would continue to focus on the line item on the balance sheet and that the rationale for recognizing an obligating event at 40 QC would be retained. Also, the full cost would continue to be reported on the operating statement.

There had been a request that the staff consider using the new social insurance standard or other vehicle for a governmentwide standard for display of actuarial gains and losses. The goal is to have changes in assumptions treated differently than operation costs in order for users of financial statements to be able to see the basic programmatic cost trends separate and distinct from changes in assumptions. Most of the additional cost from accrual accounting comes from actuarial projections.

The Board discussed the logistics for such a standard. A separate exposure draft would facilitate respondents’ comments, for some will focus so heavily on social insurance that display of changes in assumptions would be a minor point. A separate track would also facilitate issuing a standard because it would not be encumbered by the social insurance project. There were no objections from members to a separate standard.

The Board concluded the session with a discussion of the next step in the project, which is to be a revised draft for the meeting on May 24 th with an expectation of a pre-ballot draft shortly thereafter.

Issue Paper for March 2006

January 11-12, 2006
The Board began reviewing a draft exposure draft (ED) at the January 2006 meeting. In the draft ED, staff raised 11 questions for the Board’s consideration. The draft begins with a section on the statement of social insurance (SOSI) and then presents the liability, expense, disclosures, and required supplemental information in subsequent sections. If approved by the Board, the draft would propose changes to the SOSI format. New line items are proposed to identify the liability amount and a new SOSI section is proposed to explain changes in the present values during the reporting period, especially changes relating to the liability and expense amounts.

Regarding question #14 (Does the Board agree that SFFAS 17 should be rescinded?), the members agreed to rescind SFFAS 17 since the proposed standard would incorporate all the provisions of SFFAS 17 as well as revisions to align with the new proposal.

Regarding question #15 (Does the Board agree that the new SOSI line items and the new SOSI section … should be added?), the staff explained the modifications and changes made to the SOSI. No objections were raised to the staff approach for the SOSI.

With respect to display, the current draft ED proposes a line item on the balance sheet for the social insurance liability and a disaggregated cost presentation on the statement of net cost (SNC). The increase in the present value of participants’ social insurance benefit based on work in covered employment in the current year and the interest on the obligation would be line items under operating costs. Gains and losses from actuarial changes and/or prior service costs would be a separate SNC line item(s) below operating cost but included in the “net cost” total. The Board discussed making the requirement for a separate line item for actuarial gains and losses applicable (1) only at the component entity level and (2) government-wide. The staff was directed to consider how to accomplish it.

The Board discussed the issue of Medicare accounting. The Board agreed to characterize the social insurance liability as involving multiple obligating events: one occurs initially at 40 quarters and additional obligating events occur subsequently with the increments in the obligation due to work in covered employment.

The Board also discussed whether the accounting treatment for Medicare HI and Medicare SMI should be the same. The staff proposed providing additional analysis of the differences between Parts B and D for the March meeting. The Board agreed to consider the issue again at the next meeting.

Regarding determination of assumptions, the Board concluded that the goal with respect to assumptions should be to avoid boxing the preparers in and yet provide some reasonable constraints. Some constraints are necessary but it should be primarily from an actuary’s perspective.

Regarding the valuation date requirement, the proposed language in the draft ED would allow the preparer to use a valuation date within a year of the balance sheet date. This was the approach used in SFFAS 17 to accommodate the Social Security Trustee’s and SSA actuaries’ timeframe. The Board agreed with the staff approach.

Staff plans to revise the draft exposure draft in accordance with the Board’s decisions. In addition, further analysis of certain issues will be prepared for the March meeting.

October 5-6, 2005

At the October 2005 session on social insurance members agreed with the following staff recommendations:

Balance Sheet

A single liability line item and a reference to a revised statement of social insurance (SOSI). No changes in the “net position” section.

Statement of Net Cost (SNC)

Line items for service cost and interest on the obligation displayed as separate components of “operating cost;” and actuarial gains or losses and prior service costs, if any, be presented as a separate component after operating cost, but as part of the total cost on the SNC. The Board also agreed that the SNC should distinguish changes in actuarial assumptions from all other costs. A breakout of service cost and interest on the obligation is necessary.

Statement of Changes in Net Position (SCNP)

No changes as a result of the proposal being developed.

Statement of Social Insurance

Revising the SOSI to display an amount reported as the liability amount on the balance sheet and other new subtotals.

Disclosures

The Board tentatively decided on the following disclosures:

  • Actuarial present value of benefits accrued by participants with less than 40 quarters of work in covered employment.
  • An open group projection showing the excess of future benefit payments over resources over 75 years, i.e., the funding shortfall.
  • Components of the change in the liability account, and
  • Assumptions (for all line items and SOSI).

Issue Paper for October 2005

August 17-18, 2005
At the August 2005 FASAB meeting the staff presented 10 questions along with recommendations for each. Staff noted that most of the questions essentially are seeking agreement in principle. Details would be specified as the drafting progressed.

  1. What attribute should be measured for social insurance? Staff recommended present value.
  2. Should OASDI and Medicare liabilities include projected amounts in excess of the current statutory limit? The staff recommended including the full cost and full liability to the participants.
  3. What assumptions should be used in projecting cash flow? The staff recommended a general requirement as in SFFAS 5 with a reference to actuarial standards of practice.
  4. How should uncertainty be illustrated? In addition to the recommendations regarding display, disclosure and RSI, the staff recommended exploring the use of “expected present value” as an alternative to present value based on the “best estimate.”
  5. What should be recognized as social insurance expense or “cost”? The staff recommended four components for Social Security and Medicare Hospital Insurance (Part A) and, for Medicare Supplemental Medical Insurance (Parts B and D), the staff recommends essentially using insurance accounting.
  6. What should be recognized as the social insurance liability? The staff recommended that liability be the accumulated cost.
  7. What should be displayed for social insurance on the statement of net cost, balance sheet, and other statements? The Social Insurance project staff recommended a total amount for cost on the statement of net cost and liability on the balance sheet representing all components of accrued cost and liability. The totals could be disaggregated by, for example, age cohort, and/or by degree of uncertainty, and/or by “service cost” plus interest on the liability and actuarial gains and losses.
  8. What should be disclosed about social insurance in the notes? The staff did not recommend anything at this time.
  9. What should be done with RR Retirement, Unemployment Insurance, and Black Lung Benefits? Staff recommended, for Railroad Retirement, analogizing to OASDI and SMI, and for Unemployment Insurance and Black Lung Benefits, continue to apply SFFAS 17.
  10. What is the reporting objective for social insurance? The staff recommended that the objective should be to report the costs incurred in during the reporting period based on obligating events in that period.

A majority of the Board generally agreed with the staff’s recommendations regarding questions 1 through 6 and 10. The Board did not have an opportunity to consider questions 7 through 9.

For the October meeting staff will provide:

  1. Pro forma illustrations and other analysis regarding display and disclosure alternatives as discussed in questions 7 and 8 above. Most members supported reporting the statutory limitation on payments either on the face of the financial statements, in a footnote, or elsewhere.
  2. Further discussion of annual and accumulated cost recognition at 40-quarters compared to recognizing the full future net obligation at 40-quarters. This will include consideration of how to characterize both the 40-quarters obligating event and subsequent work in covered employment that increments the obligation. For example, whether such increments should be characterized as obligating events, as in the phrase “future outflows attributable to obligating events occurring in the reporting period,” or as a function of measurement.

Issue Paper for August 2005

June 22-23, 2005
For the June 2005 FASAB meeting, the staff presented revised paragraphs on eligibility and achieving eligibility intended to reflect the Board’s position regarding the obligating event for social insurance developed at the May FASAB meeting. At the May 2005 FASAB meeting, a member requested a discussion of the reasons for rejecting the possibility that attaining age 62 was a necessary condition for liability determination, and t he staff presentation in June also explained why “attaining age 62” was rejected as a condition for eligibility.

The Board decided that the basis for conclusions for the eventual new standard on social insurance should explain the 40-quarters obligating event was superior to the beginning-work-in-covered-employment, attaining age 62, and other alternative obligating events. The Board decided that, for the argument regarding the superiority of 40-quarters obligating event over attaining age 62, there are three key pieces missing: (1) control over conditions being met not resting with the potential beneficiary; (2) conditions can relate either to being eligible for a payment or the timing of it; and (3) the notion of matching of cost.

The staff also presented a project plan for the Social Insurance Liability Project for the next several FASAB meetings – August, October, 2005, and January 2006.

The Board discussed the merits of issuing various types exposure documents, e.g., invitation to comment, exposure draft, etc., where the subject matter is controversial and/or presents technical issues. The Board did not determine which type of document to issue at this time. It discussed the possibility of issuing a document that presented the first exposure document for social insurance concurrently with the liability definition and possibility other concepts that are under development.

Issue Paper for June 2005

May 4-5, 2005
At the May FASAB meeting the staff explained that in its view the key distinction between the eligibility and performance is the emphasis on “equity.” Eligibility focuses on the terms of the program under current law – the legislative agreement between those eligible to participate in the program and the Government. Performance introduces a notion of fairness by describing the reasonable expectations induced by the program and the reliance of the participants on a future payment being made in return for their current actions. The staff explained that in its view the equity notion introduced in the performance characteristic may be relevant to members if they believe the likelihood that the Government will alter the program in the future is relevant to assessing whether a liability exists today. The strength of reliance and the “exchange-like” characteristics weigh on individual’s judgments about possible future changes. Because staff believes that changes in law that may occur in the future are not relevant, staff recommends that the equity notion embodied in the performance characteristics should not be a factor in the basis for the Board’s conclusions.

In addition to the equity notion, the performance characteristic emphasizes the connection between current effort and future compensation to a greater degree than the eligibility characteristic. The fact that work in covered employment for a set wage during the period and the worker’s future benefits are related causally is relevant to the notion that a present obligation exists as a result of a past transaction or event. Staff recommended this notion as relevant for the Board’s conclusions.

The Board agreed that the eligibility is the key characteristic. The Board approved the staff’s recommendation regarding the description of eligibility, which included the notion of achieving eligibility through fulfilling conditions. The Board directed the staff to clarify that performance meant simply to meet conditions.

The staff also presented an issue with respect to the Board’s majority view that the obligating event for Social Security liability is “threshold eligibility.” The staff noted the similarity between “threshold eligibility” and the notion of vesting. The staff explained that vesting is not an obligating event with respect to pension accounting in the private, municipal, or federal sectors. Staff asked the Board to consider whether the “threshold eligibility” obligating event missed an important element of accrual cost” that the “beginning of work in covered employment” obligating event captured. The Board discussed the concepts and affirmed its focus on the “threshold eligibility” notion.

Finally, with respect to Medicare, the staff recommended and the Board did not object to applying the “threshold eligibility” obligating event to Medicare Hospital Insurance. Also, the staff recommended and the Board did not object to the point when the participant decides to enroll as the obligating event for Supplemental Medical Insurance.

Issue Paper for May 2005

March 2-3, 2005 Meeting:
At its March 2005 meeting the Board narrowed its focus to two primary or “necessary” Social Security program characteristics that might create a “present obligation,” in conjunction with a “past obligating event,” prior to the point when benefit payments are due and payable. The characteristics are (1) “eligibility” or conditions specified in current law; and (2) performance. Other program characteristics presented by staff . e.g., specificity of benefits and benefit formulas; the ” permanence of funding ;” and direct communication benefit information . may be relevant to a decision about whether a liability definition was met but would not be necessary. The Board also considered three obligating events: (1) full eligibility, (2) threshold eligibility, and (3) beginning work in covered employment; and has begun discussing possible approaches for calculating the liability and cost amounts.

The following table summarizes the Board’s preliminary preferences regarding the obligating events:

Work In
Covered
Employment.		 Threshold Eligibility
(40 QC)		 Full Eligibility [Other]
1 61 11 3

1 One member chose two obligating events as possibility since both are predicated on eligibility.

Issue Paper for March 2005

December 15-6, 2004 Meeting:
The Social Insurance Liability Project staff presented a memorandum on the following Social Security characteristics.

  1. Eligibility is permanent : Current law provides the conditions that, once met, qualify participants “permanently” to receive a benefit without further conditions being required. If further conditions are required and the likelihood of them not being met is remote, then we would not find them relevant to the notion of a present obligation.
  2. Benefit level is specified in current law .
  3. A permanent funding source is made available under current law.
  4. Future benefit payments are legally enforceable under current law.
  5. The participants and benefits can be specifically identified well before the due and payable point.
  6. The participants are performing under the terms of the program. They are working in covered employment and the wages they earn therein determine the amount of their current dedicated taxes and future benefits.
  7. Participants may be viewed as exchanging current resources in the form of taxes for future benefits, an exchange or exchange-like transaction.
  8. Information about the participants’ accruing benefits is directly communicated to the participants.

The staff explained that these characteristics might create a present obligation because they induce reasonable expectations and reliance or for other reasons the G overnment has no realistic alternative under current law but to settle the obligation.

The staff presented the question of whether each characteristic, by itself, would create a present obligation ( in conjunction with an obligating event) prior to the point when benefit payments are due and payable; and, if not, whether it is relevant for establishing a present obligation in combination with other characteristics. The next question for determining a “present obligation” would be: what is the obligating event?

The Board discussed the characteristics. Some members preferred to discuss them in terms of whether they resulted in “little or no discretion to avoid the future sacrifice,” which is one of the three fundamental liability characteristics that the Board has tentatively agreed upon. Some members said characteristic 1, “eligibility,” is only one resulting in “little or no discretion to avoid the future sacrifice” because, for example, once a person is eligible for a benefit without further conditions being required, the government has “little or no discretion” etc. The eligibility characteristic might also support the “past event” liability characteristic; and beneficiaries’ believe there is an obligation once they become eligible.

Other members questioned the usefulness of the liability characteristic “little or no discretion” because, for the government current law is not discretionary. They view it as a legal question. The enforceability of current law does not decrease over time. Moreover, in a larger sense, Congress has ultimate discretion.

There was support on the Board to delete the word “permanent” as a qualifier for eligibility and to focus solely on meeting conditions or thresholds at a point in time.

The members discussed the notion of “legal enforceability” in relation to Social Security. Social Security obligations are not enforceable until they are due, but neither are any other financial obligations. Several members noted that characteristic 4 (“future benefit payments are legally enforceable under current law”) might be a basis, by itself, to conclude a liability existed. But, if not, other characteristics might still lead to the conclusion that the liability definition had been met. Some members noted that characteristic 4 is important because of the way the government operates.

Some members focused on the program characteristics that create participant expectations and reliance.

The Board’s discussion indicated support for characteristics 1, 2, 4, 6, and 7, with characteristics 3, 5, and 8 not being persuasive.

The Board discussed the following obligating events in relation to the characteristics, without indicating preliminary preference:

    1. Full eligibility, 62 years old for Social Security.
    2. “Threshold eligibility,” at 40 quarters of work in covered employment for Social Security; and
    3. Beginning of work in covered employment.

For the next meeting the staff will:

  • Re-shape the characteristics to reflect the members’ comments.
  • Provide an analysis of the three obligating events on page 27 of the staff memorandum addressing the pros and cons for each event. Numbers will be provided where possible to compare the relative magnitude of the options.
  • Address the impact of the three obligating events on potential cost determination when discussing the pros and cons. For example, the staff will illustrate what the effects would be for a given year on the total value of the liability, at least in terms of pluses and minuses if not with actual numbers.

Staff will approach the work in terms of having little or no discretion and also from the reasonableness of the expectations.

Issue Paper 12/15/2004: Social Insurance staff memorandum for December 2004

Minutes for 12/15-16/2004: FASAB: Minutes, December 15, 2004 [Wendy: minutes not yet posted to FASAB Web site.]

October 20-1, 2004 Meeting:
For the October meeting staff proposed three alternative obligating events for Social Security that would result in liability recognition earlier than the current “due and payable” recognition point. The Board had voted in August to consider alternatives to the “due and payable” liability for the Social Security program. The Board discussed the alternative obligating events but did not conclude on a selection of one from among them.

Regarding Social Security characteristics that may lead to the conclusion that “a present obligation exists that the government has little or no discretion to avoid” prior to the point when benefit payments are due and payable,

  • Several members said that the establishment of permanent eligibility is a critical characteristic.
  • Several members stated that participants’ paying into the systems is important for establishing that the government has “little or no discretion to avoid settling the obligation.”
  • Several members said that the exchange or exchange-like elements of the Social Security program help create a present obligation.
  • Several members noted that specificity is an important characteristic. The benefit obligation would have to be specific enough to measure its present value. Staff note: The identity of the specific individuals in the population of potential beneficiaries might be important in this regard.
  • Several members said that the government’s communication with the participant about his or her accruing benefits is very important for a present obligation.

For the December meeting, staff will sharpen the distinction between Social Security characteristics and other programs’ characteristics. Staff will compare and contrast Social Security characteristics with other programs that the Board has discussed in this and the related “application of the liability definition” project.

The staff will focus on the obligating event alternatives discussed in August: (1) “full eligibility,” e.g., 62; (2) “threshold eligibility” at 40 quarters of work in covered employment; and (3) beginning of work in covered employment. The staff will cite exchange and/or exchange-like concepts as an important characteristic.

Issue Paper 10/20/2004: Staff memorandum to the Board for October 2004

Minutes for 12/15-16/2004: FASAB: Meetings minutes for October 2004

August 25-6, 2004 Meeting:
At the August 25 meeting the staff presented a paper to the Board discussing 6 issues related to Social Security. The six issues presented were:

  1. Distinction between Present vs. Future obligations
  2. Constructive vs. Equitable obligations
  3. Discussion on current law
  4. Essential characteristics of Social Security and other Federal programs
  5. Consideration of a liability for Social Security beyond the due and payable amount
  6. Does “Fair Presentation” of Social Security require a liability beyond due and payable?

The board discussed the importance of emphasizing the existence of a present obligation for Social Security. Present obligation is one of the draft “essential liability characteristics” being developed by the Board concurrently. In regards to the second issue the Board decided that it was not necessary to develop further the concept of constructive obligations for this project. The Board also agreed that legal enforceability of liabilities is not required for recognition. The discussion on current law generated a consensus among Board members that current law is important to this project and can possibly assist in identifying an obligating event and when a present obligation exists. The comparison of other Federal programs (i.e. Medicare, TANF, Food Stamps, SSI, and Medicaid) in issue #4 helped the Board differentiate Social Security from these other programs. However, there was no consensus as to whether any of these differences were critical in determining if these programs gave rise to a liability beyond due and payable.

In regards to the last two issues, the Board voted in favor of exploring other possible presentations of the Social Security liability beyond due and payable on the face of the balance sheet as well as alternative presentations. The Board also asked the staff to collect all relevant issues regarding this project that they will likely encounter prior to issuing an exposure draft.

Issue Paper 10/20/2004: Staff memorandum to Board, August 2004

Minutes for 12/15-16/2004: FASAB Meeting minutes August 2004