We are providing this information because of a difference between the unfunded pension liability provided by CalPERS through the Actuarial Valuation Reports for funding purposes and the unfunded pension liability that is required to be reported in the Comprehensive Annual Financial Report (CAFR) under the accounting standards.
CalPERS provides detailed annual Actuarial Valuation Reports specific to the City of Bellflower’s plans for funding purposes using generally accepted actuarial standards. Included in the report is the City’s Unfunded Accrued Liability (UAL) which is calculated by deducting the Plan’s Market Value of Assets from the Entry Age Normal Accrued Liability.
Effective with the CAFR for the fiscal year ended June 30, 2015, the City has implemented the new Governmental Accounting Standards Board (GASB) Statement No. 68 to report the City’s Net Pension Liability (NPL) on the balance sheet rather than in the footnote as previously required by GASB Statement No. 27. The City must comply with these new accounting and financial reporting standards to disclose the pension liability while CalPERS is not bound by the same standards for its annual Actuarial Valuation Reports prepared for funding purposes.
While UAL and NPL may be similar in concept, GASB 68 standards for the NPL calculation for CAFR can be different than how the UAL is determined under the actuarial standards for the CalPERS Actuarial Valuation Reports. In addition, for CAFR reporting purposes, the actuarial valuation that is available and can be used is generally dated one year prior to the CAFR report date due to the delayed availability of the CalPERS data (i.e., one-year lag). In certain situations, NPL can be based on two-year old valuation data with roll forward adjustments and may have used a different discount rate. As a result, the City’s UAL and NPL amounts are different as shown below:
The reporting of the unfunded pension liability does not mean the amount is due immediately and the City’s essential services will be adversely affected. The liability is a snapshot as of a valuation date and the amount can increase or decrease depending on various factors including investment earnings and other performance gains and losses. CalPERS allows for the funding of the unfunded liability over a 20/30-year period; however, the City may opt to accelerate the funding to a shorter period and/or prepay amounts annually to reduce the unfunded liability. We expect the City’s funding of the pension liability to continue to be manageable. The City’s plans are solely for miscellaneous employees and are not affected by the magnitude of the financial burdens imposed through enhanced benefits, especially for public safety employees.
Additional information regarding GASB 68 can be found at: