Funding future pension obligations

Utilities in Indiana and throughout the United States are facing growing liabilities related to unfunded pension obligations for their current and future retirees.  GASB 67 and 68 (as amended) address how utilities should account for the liability and the related deferred inflows and outflows on the financial statements -- but planning to fund these future costs is another matter.  Funding future costs is different than funding day-to-day operations.

Consider, for example, funding employees’ pension plans. The aging workforce makes future pension costs an expense that needs to be proactively addressed. The American Water Works Association’s 2016 Benchmarking Survey estimated that 20 percent of the workforce at water and wastewater utilities could be eligible to retire by 2021. Similar surveys suggest the same.

So how can utilities begin to plan for these future expenditures? One option is to include future pension expenses in your utility’s current rates and charges. No one likes to increase rates, but by including these expenditures in your rates and charges now, you will be able to build up reserves to fund future pension costs.  In many cases, it may even make sense to set-up a dedicated account to restrict the use of these funds to future pension expenditures. While budgeting for future pension costs may seem like a relatively new idea, Baker Tilly has assisted numerous utilities in calculating and planning for their future pension obligations.

If you have any question or if we can be of any assistance in helping you identify and begin planning for your future pension obligations, please contact us.