In November, the State Auditor’s Office (SAO) released guidance on how changes in the “fully funded” status of several state-sponsored pension systems will change the reporting requirements with which local government employers must comply. As more pension plans become “fully funded” (currently,
6 of 8 state plans are now fully funded) local governments will need to begin reporting net pension assets instead of net pension liabilities. Reporting assets can be complex for governments that haven’t done it previously, hence SAO is releasing
the guidance now.
According to SAO, only PERS plan 1 and TRS plan 1 still show pension liabilities. That means that cities that participate in PERS 2/3, SERS 2/3, and PSERS 2/3 will need to report them as net pension assets and must understand how to calculate their restricted
net position and report negative pension expenses (i.e. an asset). As the SAO guidance states, cities will need to show their deferred inflows and deferred outflows related to the fully funded pension plans in their restricted net position calculation.
Additionally, cities with a negative pension expense (i.e. a credit) should continue to report it as a component of wages and benefits.
According to SAO, in future reporting years cities may once again have to report a liability on these plans. This flip-flopping between assets and liabilities is common for plans that are close to 100% funded. Cities will need to keep a closer eye on
their pensions so they can correctly report each year.
Cities can reach out to DRS staff here with further questions about pension reporting.