Home > Library > Stable Times > Volume 10, Issue 3  

GASB Derivatives Project Looks at Synthetic GICs

The Governmental Accounting Standards Board’s (GASB) Preliminary Views Document on Accounting and Financial Reporting for Derivatives may have implications for the $100 billion invested in stable value funds by state and local defined contribution and 529 plans.

GASB, which is the accounting standard-setter for all state and local governmental entities, has been working on a comprehensive standard for reporting on derivatives since 2003. The Preliminary Views, or PV, proposes placing the fair market value of derivatives in the financial statements of state and local governmental entities and increasing derivatives disclosure requirements. GASB currently requires that state and local governments disclose the value of their derivatives in the notes to their financial statements and describe their potential risk exposure to derivatives.

The PV as currently written would require stable value funds that use synthetic GICs—wrapped bond portfolios—to report fair market value rather than contract value in plan financial statements. Stable value funds use contract value, which is principal plus accumulated interest for reporting purposes. Importantly, contract value also is the amount that all participant transactions occur within a stable value fund. The SVIA filed comments and met with the GASB Board to explain why contract value is the appropriate valuation method for stable value funds.

In recognition of contract value’s importance to state and local plans and participants, the GASB Board will consider accounting for synthetic GICs at its August meeting. The SVIA Accounting Committee will continue to follow this issue and provide an update shortly.

Read Next: New Pension Law Highlighted