Good news on pension funding might mean changes for government financial reporting. SAO has guidance on how to report it

Nov 3, 2021

The Department of Retirement Systems's (DRS) 2021 Participating Employer Financial Information (PEFI) report showed that six out of eight state-sponsored pension plans are fully funded. While this means that these plans are in a better position to provide pension benefits to employees who are enrolled in them, it also means that many more governments will be reporting a net pension asset this year instead of a net pension liability.

Since reporting a net pension asset can be cumbersome and complex for governments that haven't had to do this previously, the pension experts at the State Auditor's Office have compiled some guidance on how to report it in your financial statements. This article identifies which pension plans are reporting a net pension asset and explains how to report your restricted net position and a negative pension expense.

Plans reporting a net pension asset

The tables below show that only PERS Plan 1 and TRS Plan 1 report a net pension liability. All of the other state-sponsored pension plans report a net pension asset.

Plan Name PERS Plan 1 PERS Plans 2/3 SERS Plans 2/3 PSERS Plan 2
Pension Liability (Asset) $1,221,234,000 ($9,961,609,000) ($1,073,697,000) ($229,739,000)
Plan Name TRS Plan 1 TRS Plans 2/3 LEOFF Plan 1 LEOFF Plan 2
Pension Liability (Asset) $673,298,000 ($2,748,807,000) ($3,425,562,000) ($5,808,414,000)

Since PSERS Plan 2, LEOFF Plan 1 or LEOFF Plan 2 have been fully funded for a few years, governments that participate in these plans are already familiar with reporting a net pension asset. However, governments that participate in PERS Plan 2/3, SERS Plan 2/3 and TRS Plan 2/3 may be reporting a net pension asset this year for the first time. As governments prepare to report a net pension asset on their financial statements, they'll need to understand how to calculate their restricted net position and how to report a negative pension expense.

Net pension asset and reporting a restricted net position

There are three options for reporting restricted net position, below we provide SAO's preferred method. For additional methods see GAAP BARS

Reporting your restricted net position related to your net pension asset is not as easy as simply reporting the net pension asset amount on your financial statements as restricted net position. You will need to include the deferred inflows and deferred outflows related to those pension plans in your calculation of restricted net position.

Here's an example to help your government make this calculation. Let's say your government participates in PERS Plans 1 and 2/3, and you have the following amounts:

FS Component PERS Plan 1 PERS Plans 2/3
Net Pension Liability (Asset) $375,591 ($3,631,604)
Deferred Outflow $0 $181,689
Deferred Inflow $416,780 $3,337,593
Pension Expense (Income) ($69,000) ($822,874)

You'll use your PERS Plans 2/3 amounts to calculate your restricted net position. The PERS Plan 1 amounts are not included in this calculation because that plan has a liability, and therefore, does not have a related restricted net position. As the table below demonstrates, you'll first add your amounts for net pension (asset) and deferred outflow, then subtract your amount for deferred inflow. The final number will be your restricted net position.

FS Component Add or Subtract Amount
Net Pension (Asset) Add $3,631,604
Deferred Outflow Add $181,689
Deferred Inflow Subtract $3,337,593
Restricted Net Position Total $475,700

Reporting a negative pension expense

The pension expense you report on your financial statements will most likely be negative (a credit amount). Pension expense is the net effect of all the changes to pension liabilities/assets (which include contributions to DRS) and deferred outflows and inflows related to pensions.

Pension expense is included in wages and benefits expense in the financial statements. When net pension expense ends up as a negative (credit) amount, financial statement preparers are sometimes confused about how to report it. Should it be reported as a revenue? Should the accrual adjustments to the pension accounts be separated from the contributions expense?

The answer is that there's no change to reporting. Negative pension expense is still reported as a component of wages and benefits. In other words, the adjustment is posted as a credit to the expense accounts for the wages and benefits. This may cause significant variances in this line item between years, but management discussion and analysis (MD&A) can help explain these variances.

In future years, pension plans may flip back to a net pension liability. This flip-flop is common for plans that are so close to being 100 percent funded. It may require a little more attention to reporting for financial statement preparers, but it's a great problem to have!


DRS is available to respond to questions related to the PEFI, DRS employer reporting, funded status of plans and more. Contact DRS at

Questions on accounting and pension reporting can be directed to the SAO HelpDesk in the client portal at