PRESENTATION
14.	RECEIVE REPORT ON GASB 68 REPORTING REQUIREMENTS
Meeting Date:		December 14, 2015	Budgeted:	N/A
From:		David J. Stoldt,	Program/	N/A
		General Manager	Line Item No.:
Prepared By:		Suresh Prasad	Cost Estimate:	N/A
General Counsel Review: N/A
Committee Recommendation: The Administrative Committee reviewed this item on November 9, 2015 and recommended approval.
CEQA Compliance: N/A

SUMMARY: In June 2012, the Government Accounting Standards Board (GASB) approved a new reporting statement, GASB Statement No. 68 (GASB 68), that improved the financial reporting of pensions by local governments. GASB 68, formally titled Accounting and Financial Reporting for Pensions, establishes new accounting and financial reporting standards for local governments that provide their employees with pensions. The new standard requires government agencies to report pension information to increase transparency about pension costs to help decision makers factor in the financial impact of total pension obligations. GASB 68 must be implemented by June 30, 2015 and the District will comply with this requirement with the upcoming FY 2014-2015 Annual Financial Report, which presented at the December 14, 2015 Board meeting.

RECOMMENDATION: District staff recommends that the Board receive the GASB 68 Accounting Valuation Report prepared by CalPERS.

BACKGROUND: Local governments with pensions have a total pension liability, which is the obligation to pay deferred pension benefits in the future. When the total pension liability is greater than the pension plan’s assets there is a net pension liability, also known as unfunded pension liability. GASB 68 now requires governments to report their net pension liability on their government-wide financial statements, as well as in the proprietary fund statements, in the Annual Financial Report. Government-wide financial statements report information about the government as a whole without displaying individual funds or fund types. Prior to GASB 68 the net pension liability was reported in the annual actuarial report provided by CalPERS, but not in the government agency Annual Financial Report.

The new GASB 68 reporting requirements will impact the Annual Financial Report on an annual basis going forward. As with past practice, the District will continue to pay the annual required contribution for the pension liabilities as identified in the annual CalPERS actuarial report. The next actuarial report, which informs the District of its FY 2016-2017 pension payments and rates, is scheduled to be released late October/early November 2015. There will be a small discrepancy between the reports since the GASB 68 reports are based on actuarial analysis using employee census data that is two years in arrears while the October actuarial reports are based on current calendar year employee census data.

The District’s outside auditing firm, Hayashi & Wayland, provided staff with guidance on how to conform to the GASB 68 requirements. Hayashi & Wayland will provide a final opinion on the appropriateness of the GASB 68 allocation that will be presented in the FY 2014-2015 Annual Financial Report.

District’s Net Pension Liability as of June 30, 2014 is estimated at $3,410,615 as per the attached CalPERS GASB 68 Valuation Report. It is to be noted that the Net Pension Liability can change significantly from year to year based on the market conditions and the position of the District’s Fiduciary Net Position (District’s Market Value of Assets). For example, if the actual CalPERS investment earnings rate increases over the projected annual rate of investment return (currently set at 7.5%), then for the same future pension obligations, the unfunded Net Pension Liability would go down.

The pension liability reported in the Annual Financial Report for GASB 68 purposes does not impact the budget. The District’s annual budget process will continue to use the pension liability figures that are provided by CalPERS in the actuarial valuation report in the October timeframe each year. This report provides the employer contribution rate that is used to determine the annual pension cost for the District.

The annual contribution rate prescribed by CalPERS includes amortization of the unfunded Net Pension Liability. Other strategies to reduce the unfunded liability might include a borrowing to increase the District’s Market Value of Assets, which would require annual debt repayments, or increased annual contributions over and above the annual contribution calculated by CalPERS. Neither approach would ensure the unfunded liability would not continue to vary in its calculation going forward. In the simplest terms, if all employees retired tomorrow and the District dissolved, individual employee’s pension benefits would not be affected, and the unfunded liability would be spread across the larger CalPERS pool.

Staff will be bringing a report relative to funding strategies to the Board in 2016 to address the GASB 68 liabilities and GASB 45 (Other Postemployment Benefits) liabilities.

EXHIBIT

14-A GASB 68 Accounting Valuation Report

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