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ITEM: |
CONSENT
CALENDAR |
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7. |
RECEIVE
PENSION REPORTING STANDARDS GOVERNMENT ACCOUNTING STANDARDS BOARD STATEMENT NO.
68 ACCOUNTING VALUATION REPORT |
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Meeting
Date: |
January 23, 2020 |
Budgeted: |
N/A |
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From: |
David J.
Stoldt, |
Program/ |
N/A |
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General Manager |
Line Item No.: |
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Prepared
By: |
Suresh
Prasad |
Cost Estimate: |
N/A |
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General Counsel Review: N/A |
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Committee Recommendation: The Administrative Committee reviewed this item on January 15, 2020 and recommended the Board receive the GASB 68 Accounting Valuation Report prepared by CalPERS. |
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CEQA Compliance: This action does not constitute a project
as defined by the California Environmental Quality Act Guidelines Section
15378. |
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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. The District complied with this requirement with the FY 2014-2015 Comprehensive Annual Financial Report (CAFR). It is noteworthy to mention that the GASB 68 standard only applies to reporting the liability and does not stipulate any requirement for funding the liability.
District’s Net Pension Liability as of June 30, 2018 is estimated at $5,114,655. See calculation below:
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Miscellaneous
Risk Pool |
Allocation Factor |
MPWMD Share |
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Total Pension Liability |
$16,891,153,209 |
0.0011712 |
$19,782,918 |
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Risk Pool Fiduciary Net Position |
$13,122,440,092 |
0.0011178 |
$14,668,263 |
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Net Pension Liability/(Asset) |
$ 3,768,713,117 |
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$ 5,114,655 |
In comparison, District’s Net Pension Liability as of June 30, 2017 was estimated at $5,202,822. 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%), then for the same future pension obligations, the unfunded Net Pension Liability would go down.
The District’s outside auditing firm, Hayashi & Wayland, provided staff with guidance on how to conform to the GASB 68 requirements. Hayashi & Wayland provided a final opinion on the appropriateness of the GASB 68 allocation that was presented in the FY 2018-2019 Comprehensive Annual Financial Report.
The pension liability reported in the Annual Financial Report for GASB 68 purposes does not impact the District’s budget. The District’s annual budget process will continue to use the annual pension costs that are provided by CalPERS in the actuarial valuation report in the July timeframe each year. This report provides the employer contribution rate that is used to determine the annual pension cost for the District.
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 actuarial report, which informs the District of its FY 2020-2021 pension payments and rates, was released in July 2019. 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 July actuarial reports are based on current calendar year employee census data.
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.
Beginning with the fiscal year 2018-2019 budget, District has started setting aside funds towards the unfunded pension and other postemployment benefits (OPEB). With each budget cycle, staff will continue to recommend adding additional funds to these reserve accounts.
7-A GASB 68 Accounting Valuation Report
U:\staff\Boardpacket\2020\20200123\ConsentCalendar\07\GASB 68 Report
2018-2019.docx