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New expenditure per pupil reporting requirements

Original post made by Jack Hickey, Woodside: Emerald Hills, on May 5, 2016

Those of you who have been following the numbers in the MPCSD Parcel Tax topics will be happy to know that the district's share of debt service for the state's $15,000,000,000 bailout of the CalSTRS will soon be reported in the district's financials.

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California Department of Education Tom Torlakson, State Superintendent of Public Instruction
July 2, 2015
Sent by electronic mail
Dear County and District Chief Business Officials and Charter School Administrators:


The two recent pension accounting standards issued by the Governmental Accounting Standards Board (GASB) make fundamental changes to how state and local governments account for their costs and obligations relating to employee pensions. This letter augments the considerable body of information about the new standards that is available from other sources, and discusses certain implications for California local educational agencies (LEAs).

The guidance in this letter supersedes the guidance in the 1996 Management Advisory 96-03 from the California Department of Education (CDE) relating to accounting for on- behalf pension payments made by the state.


GASB Statement 68 (GASB 68), Accounting and Financial Reporting for Pensions—an amendment of GASB Statement No. 27, introduces new requirements for accrual-basis recognition by state and local governments of employer costs and obligations for pensions. Although GASB 68 relates to accrual-basis financial statements, for California LEAs there are implications for governmental fund statements as well.

GASB Statement 71 (GASB 71), Pension Transition for Contributions Made Subsequent to the Measurement Date—an amendment of GASB Statement No. 68, amends the transition provisions of GASB 68 to eliminate a potential misstatement in the year of implementation.

Under previous accounting standards, employers participating in a cost-sharing defined benefit pension plan—such as the CalSTRS and CalPERS plans in which California LEAs participate—recognized annual pension expense only to the extent of their contractually required contributions to the plan. In their fund statements and their government-wide statements, LEAs recognized a pension liability only for the difference, if any, between contributions required and contributions made.

Under the new accounting standards, if the present value of benefits earned by all employees participating in the CalSTRS or CalPERS pension plan (the plan’s total pension liability) exceeds the resources accumulated by the pension plan to pay benefits (producing a net pension liability), LEAs must now report in their government-wide financial statements their proportionate share of the plan’s net pension liability. At present, both CalSTRS and CalPERS have a net pension liability.

LEAs must also report their proportionate share of accrual-basis pension expense, and their proportionate share of deferred items for unamortized changes in the plan’s total pension liability due to factors such as changes in actuarial assumptions or differences between actuarial assumptions and actual experience.

An LEA’s proportionate share of the plan’s net pension liability, pension expense, and deferred items is based on the LEA’s proportionate share of total employer contributions to the plan. The information LEAs need to determine their proportionate share of total employer contributions, and to determine the plan’s net pension liability, pension expense, and deferred items, are provided by CalSTRS and CalPERS.

Comments (1)

Posted by Jack Hickey
a resident of Woodside: Emerald Hills
on May 5, 2016 at 10:25 am

Jack Hickey is a registered user.

Recognition of state’s on-behalf STRS contributions in governmental funds.

The new conversion entries rely on LEAs having recognized in their governmental funds the state’s contribution to CalSTRS on behalf of LEA employees. Historically, most California LEAs have not recognized the state’s contribution for the reasons described below. For most LEAs, this will necessitate a change of accounting practice.

GASB Statement 24, Accounting and Financial Reporting for Certain Grants and Other Financial Assistance (GASB 24), has long required employers to recognize in their governmental funds any on-behalf contributions to pension plans made by a non- employer contributing entity, such as a state. The on-behalf contribution is recognized by debiting pension contribution expenditures and crediting revenue, similarly to how any grant or financial assistance is recognized.

Longstanding practice in California is that most LEAs have not recognized the state’s on-behalf contributions to CalSTRS or, in the past, the state’s on-behalf contributions to CalPERS. In 1996, when GASB 24 took effect, the CDE issued Management Advisory 96-03, Accounting for Pass-Through Grants and On-Behalf Payments. Management Advisory 96-03 advised LEAs that while CDE understood the intent of GASB 24, the CDE believed it was not necessary for LEAs to recognize the on-behalf revenue and expenditures in their financial statements because the CDE was able to identify the contributions to the pension plans and to fully disclose K–12 education resources statewide without LEAs doing so.

Aside from the departure from GAAP, this practice hasn’t had serious implications before now. However, the new government-wide conversion entries relating to the pension reporting requirements of GASB 68 rely on LEAs having recognized the state’s on-behalf pension contribution in their funds. Effectively, GASB 68 is now forcing LEAs to follow the GAAP requirement. The guidance in this letter therefore supersedes the guidance in Management Advisory 96-03 relating to accounting for on-behalf payments.

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