ADMINISTRATIVE COMMITTEE

 

5.

RECEIVE PENSION REPORTING STANDARDS GOVERNMENT ACCOUNTING STANDARDS BOARD STATEMENT NO. 68 ACCOUNTING VALUATION REPORT

 

Meeting Date:

December 5, 2016

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 December 5, 2016 and recommended _________.

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.The District complied with this requirement with the FY 2014-2015 Annual Financial Report.

 

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 planís 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 2017-2018 pension payments and rates, is scheduled to be released late November/December 2016. 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 November actuarial reports are based on current calendar year employee census data.

 

The Districtís 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 2015-2016 Annual Financial Report.

 

Districtís Net Pension Liability as of June 30, 2015 is estimated at $3,548,843.See calculation below:

 

 

Miscellaneous Risk Pool

Allocation

Factor

MPWMD

Share

Total Pension Liability

$13,639,503,084

0.00119296

$16,271,382

Risk Pool Fiduciary Net Position

$10,896,036,068

0.00116763

$12,722,539

Net Pension Liability/(Asset)

$2,743,467,016

 

$3,548,843

 

In comparison, Districtís Net Pension Liability as of June 30, 2014 was estimated at $3,410,615.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 Districtís Fiduciary Net Position (Districtís 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 7.65%), 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 Districtís annual budget process will continue to use the pension liability figures that are provided by CalPERS in the actuarial valuation report in the November 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 Districtís 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 employeeís pension benefits would not be affected, and the unfunded liability would be spread across the larger CalPERS pool.

 

At a later date, staff will be bringing report relative to funding strategies to the Board to address the GASB 68 liabilities and GASB 45 (Other Postemployment Benefits) liabilities.

 

EXHIBIT

5-A††††† GASB 68 Accounting Valuation Report

 

 

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