Final answer:
Public Employee Retirement Systems should indeed use the modified accrual basis of accounting, as it provides a clearer financial picture and complies with accounting practices for public entities. Additionally, regulations are in place to discourage underfunding of pension plans and increase transparency for employees.
Step-by-step explanation:
The statement that Public Employee Retirement Systems should utilize the modified accrual basis of accounting is generally true. Under the modified accrual basis, revenues are recognized when they are both measurable and available, and expenditures are recognized when the related fund liability is incurred. This accounting method is particularly suitable for public sector entities, including public employee retirement systems, as it provides a more accurate reflection of the entity's financial position and the flow of funds.
Moreover, legislation that penalizes firms for underfunding their pension plans aims to protect employees by ensuring that the funds necessary to meet future pension obligations are adequately maintained. Such regulations also typically require firms to provide more information about pension accounts to employees, promoting transparency and allowing for better future planning by both employees and employers.