Some changes that reduce a reported pension liability are substantive; others are merely cosmetic. A state government, concerned that one of its defined benefit pension plans is severely underfunded, is considering measures, some substantive, others merely cosmetic, that would enable it to reduce the reported pension liability and pension expense on its government-wide financial statements.

For each, indicate the impact that the change would have on both the reported liability and expense.

Also, indicate whether the change would substantively improve the government’s fiscal condition (e.g., reduce retiree benefits or increase plan assets) or merely improve the look of the financial statements.

1. Reduce the percentage of final year’s pay in the formula used to calculate benefits

2. Increase the discount rate

3. Increase the amount it contributes each year to the pension plan

4. Invest in higher yielding, but more risky, securities

5. Change the actuarial assumptions to decrease the estimated life expectancy of plan members

6. Delay paying benefits to retirees that are due the last day of the plan’s fiscal year until the first day of the next fiscal year

7. Increase the age at which employees are eligible to receive benefits.