New financial reporting procedures

October 2, 2014

OAK BROOK, Ill. — The Illinois Municipal Retirement Fund (IMRF) has modified how it reports its financial position to comply with new reporting requirements from the Governmental Accounting Standards Board (GASB).

The accounting rule changes required by GASB Statement No. 67, which apply to pension plans such as IMRF, are reflected in IMRF’s Comprehensive Annual Financial Report for the year ending Dec. 31, 2013.

Many IMRF employers — including municipalities, park districts and county governments — will now change how they report their financial position to conform with GASB Statement No. 68, which applies to local units of government participating in pension plans. The new accounting rules for those employers will take effect in the fiscal year that ends June 30, 2015 or thereafter.

The new GASB requirements only impact how IMRF and its employers report their financial position. These new accounting rules have no impact on IMRF’s assets ($33.2 billion as of Dec. 31, 2013) or its funded status (96.7 percent). These new guidelines also have no impact on how much IMRF collects from its employers and members, how it invests these funds or how much it distributes to retirees.

"Adjusting the way we now report financials does not affect the financial position or health of our plan," IMRF Executive Director Louis Kosiba. "Over a 30-year time horizon, our total rate of return on investments has been 10.38 percent – well in excess of our goal. We will continue to collect the required contributions from our employers and members, invest them prudently and pay modest benefits. IMRF calculations always have conformed with generally accepted accounting principles, and they will continue to do so."

For IMRF employers, the most notable change will occur on the "statement of net position" (i.e., balance sheet). Instead of recording a plan’s unfunded actuarial liability in the footnotes, an employer will list it on the balance sheet. The amount of the liability will not change.

GASB believes the new rules — which will also prohibit "smoothing" of investment returns in financial reporting and will require plans to recognize pension expenses as they occur — will increase the transparency, consistency and comparability of pension information across state and local governments. While GASB is not a federal agency, it sets standards of financial accounting and reporting for state and local governments.

Other financial report modifications that GASB Statement 67 required of pension plans, such as IMRF as of Dec. 31, 2013, include:

  1. Changing the calculation of liabilities for each employer’s pension plan;
  2. In some instances, reporting assets and liabilities "as of" a consistent measurement date (e.g., the last day of its fiscal year);
  3. Helping the local government pension plan determine whether to discount pension liabilities using the long-term assumed rate of return on investments, or by a blended rate involving the assumed rate of return and a municipal bond rate.

Other financial report modifications that GASB Statement 68 requires of local government employers as of June 30, 2015 or thereafter include:

  1. Starting to report the unfunded actuarial liability for its pension on the balance sheet, rather than in its footnotes;
  2. Utilizing a combination of the long-term assumed rate of return on investments and a municipal bond rate to discount future pension liabilities;
  3. Stopping the reporting of the annual required contribution as an expense;
  4. Continuing to include the liability-calculation factors for expected future service and future salary increases and any ad hoc post-retirement benefit increases, including cost-of-living-adjustments (COLAs), if those will be substantially automatic;
  5. Reporting assets and liabilities "as of" a consistent measurement date (e.g., the last day of its fiscal year).