ITEM:		CONSENT CALENDAR
3.	RECEIVE PENSION REPORTING STANDARDS – GOVERNMENT ACCOUNTING STANDARDS BOARD STATEMENT NO. 68 ACCOUNTING VALUATION REPORT
Meeting Date:			October 21, 2024	Budgeted:	N/A
From:			David J. Stoldt,	Program/	N/A
			General Manager	Line Item No.:
Prepared By:			Nishil Bali	Cost Estimate:	N/A
General Counsel Review: N/A
Committee Recommendation: The Finance and Administration Committee reviewed this item on October 14, 2024, and recommended approval.
CEQA Compliance: This action does not constitute a project as defined by the California Environmental Quality Act Guidelines Section 15378.

SUMMARY: In 2012, the Government Accounting Standards Board (GASB) approved Statement No. 68 to improve the financial reporting of pensions by local governments. GASB 68, formally titled Accounting and Financial Reporting for Pensions, established new accounting and financial reporting standards for local governments that provide their employees with pensions. This standard requires government agencies to report pension information to increase transparency about pension costs and to help decision-makers factor in the financial impact of total pension obligations. This Statement established standards for measuring and recognizing liabilities, deferred outflows and inflows of resources, and expense/expenditures including the methods and assumptions that should be used for defined benefit pensions to project benefit payments and discount projected benefit payments to their actuarial present value. 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.

The District participates in the CalPERS cost-sharing multiple-employer defined benefit pension plan. The District’s Net Pension Liability as of June 30, 2023 (latest available measurement date), is estimated at $7,591,672. See table below:

	Miscellaneous Risk Pool	Allocation Factor	MPWMD Share
Total Pension Liability	$22,693,312,153	0.0012125	$27,515,641
Risk Pool Fiduciary Net Position	$17,692,895,076	0.0011261	$19,923,969
Net Pension Liability/(Asset)	$5,000,417,077		$7,591,672

In comparison, the District’s Net Pension Liability as of June 30, 2022, was estimated at $7,088,606. 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 decreases from the projected annual rate of investment return (currently set at 6.8%) as was the case for this period, the unfunded Net Pension Liability increases for the same future pension obligation.

The District’s outside auditing firm, CliftonLarsonAllen, will provide a final opinion on the appropriateness of the GASB 68 allocation that will be presented in the FY 2023-2024 Annual Comprehensive Financial Report. The pension liability that is reported in the Annual Comprehensive 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 July of each year. This report provides the employer contribution rate that is used to determine the annual pension cost for the District.

The District budget starting with fiscal year 2018-2019 has included an additional $100,000 set aside towards pension reserve funds. The pension reserve balance as of 06/30/2024 was $600,000.

Details of existing employees in the District plan are as follows:

Classic Plan (hired prior to 01/01/2013) 9 employees

PEPRA Plan (hired after 01/01/2013) 16 employees

RECOMMENDATION: The Finance and Administration Committee recommends that the Board receive the GASB 68 Accounting Valuation Report.

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 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.

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 last actuarial report, which informs the District of its FY 2024-2025 pension payments and rates, was released in July 2023. There may be minor discrepancies 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 reducing the amortization schedule through increased annual contributions over and above the annual contribution calculated by CalPERS, paying portions of the liability as a lump sum over time, and issuing bonds to increase the District’s market value of assets, which would require annual debt repayments. These approaches do not ensure the unfunded liability would not continue to vary based on market performance over time.

The District has been setting aside funds for the unfunded pension and other post-employment benefits. With each budget cycle, staff will continue to recommend adding additional funds to these reserve accounts. Eventually, the District may also consider setting up a Section 115 trust fund – a tax-exempt trust that prefunds post-retirement employee benefits including pensions.

EXHIBIT

3-A GASB 68 Accounting Valuation Report

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