Accounting and financial reporting for pensions

Spotlight on Illinois School Districts

No topic in government finance is more controversial right now than employee pensions. Recognizing this trend, the Governmental Accounting Standards Board (GASB) has issued Statements No. 67 and No. 68 that document upcoming changes in the accounting and financial reporting for pensions by governmental entities. While these standards will not be applicable to Illinois school districts until the fiscal year ended June 30, 2015, they are worth reviewing now given the drastic changes that will come about.

GASB Statement No. 67: Financial reporting for pension plans

This statement applies to the financial statements of the pension plan itself. Most school districts in Illinois do not have a stand-alone plan in which pensions are provided to the employees of a single district. This is defined as a single employer pension plan and will be more commonly found in other types of governments such as municipalities and counties. Instead, employees of school districts in Illinois participate in either the Illinois Municipal Retirement Fund (IMRF) or are part of the state-run Teachers’ Retirement System (TRS). IMRF is considered an agent multiple employer pension plan, which is a plan in which plan assets are pooled for investment purposes, but separate accounts are maintained for each individual employer so that each employer’s share of the pooled assets is legally available to pay the benefits of only its employees. On the other hand, TRS is defined as a cost-sharing multiple employer pension plan. In a cost-sharing plan, the pension obligations of multiple employers are pooled and plan assets can be used to pay the benefits of the employees of any employer that provides pensions through the plan. The simplest way to differentiate the three types of plans under GASB 67 is as follows:

Plan Type
Single employerDistinct and separateDistinct and separate
Agent multiple employerPooled for investmentDistinct and separate
Cost sharing multiple employerPooled for investmentCommingled


Again, GASB 67 provides guidance for the financial statements of the plans themselves. Information will be required from both IMRF and TRS in order for school districts to complete their own financial statements.

GASB Statement No. 68: Accounting and financial reporting for pensions

This statement provides guidance for incorporating the information on pensions into the financial statements of the entity providing benefits. This statement will have practical application for all districts in Illinois as it not only provides guidance for the calculation of the related liability (which will be applicable to districts on the accrual basis) but also the required disclosures on pensions in the footnotes and required supplementary information (which is applicable to all districts).

It is important to briefly review how the pension liability is currently calculated. As of now, school districts in Illinois only record a liability related to the IMRF plan as the district has a distinct and separate allocation already determined by that plan. Furthermore, this liability is limited to the amount of the district’s actuarially determined annual required contribution that is has not been funded. For many districts, this amount is zero and for many others it is a relatively small amount.

GASB 68 changes all of that. For a single or agent employer plan, an entity will be required to recognize a liability equal to the net pension liability. The net pension liability is defined as the present value of projected benefit payments to be provided through the pension plan, to current and inactive employees, that is attributed to those employees’ past periods of service (total pension liability), less the amount of the pension plan’s net position.

This amount is going to be relatively similar to what is currently known as the Unfunded Actuarial Accrued Liability (UAAL) and is only disclosed in the footnotes and in a supplementary schedule. To get a sense for how this will change the district’s statement of net position, a review of the current UAAL will be helpful. Essentially, that amount will become a liability and reduce the district’s unrestricted net assets by an equal amount. This obviously will have a substantial impact on many districts.

This statement also requires participants in cost-sharing plans, such as TRS, to recognize their proportionate share of the net pension liability of the total plan. This again, will add a liability to the district’s statement of net position that is not currently recognized. It is also going to require TRS to actuarially determine how to proportionally allocate the net pension liability of the TRS plan, something that is currently not available.

Applicability to Illinois School Districts

These new statements contain requirements related to the actuarial cost method and certain other assumptions used in the preparation of an actuarial valuation. They will require that an actuarial valuation of the total pension liability be performed at least every two years, with more frequent valuations encouraged. The statements also require disclosing certain information in the notes to the financial statements, as well as presenting certain required supplementary information (RSI) for the ten most recent fiscal years. While this information will be provided by both IMRF and TRS, it will be the responsibility of individual districts to ensure the statements are implemented in their financial statements.

How to prepare for the new pension standards

Fortunately there is some time to prepare as the standards will not be applicable for school districts in Illinois until the fiscal year ended June 30, 2015, as previously mentioned. It is still prudent, however, to begin some preparations now given the profound impact they will have once implemented. Districts should begin the process by having a conversation with their auditors about the new standards and their interpretation of them. They can assist in guiding the district on the information that is going to be needed to properly implement the standard. The districts will then need to work with IMRF and TRS to determine how this information is going to be disseminated. It will be important to understand the process and ensure that proper report is going to be received timely and accurately.


The changes proposed by GASB for the accounting and financial reporting for pensions will have a significant impact on a school district’s financial statements. These will need to be carefully navigated to ensure accurate and complete reporting is presented upon implementation.