GASB 67-68 frequently asked questions

General Information

For accessible versions of files on this page, contact ADACoordinator@CalSTRS.com.

General information

What is GASB?

Governmental Accounting Standards Board is an independent, non-profit, non-governmental regulatory body charged with setting authoritativCalSTRS fiscal year 2019-20 financial statements, which are within the ing school employers. GASB accounting standards are the primary source of Generally Accepted Accounting Principles for state and local governments (including CalSTRS and school employers).

What are GASB Statement Nos. 67 and 68 and why are they important?

Statements No. 67 and 68 may be the most significant change to pension accounting standards in about 20 years.

Statement No. 67 replaces the requirements of GASB Statement No. 25 and specifically affects pension plans like CalSTRS.

Statement No. 68 replaces GASB Statement No. 27 and applies to employers who participate in pension plans, as well as entities that make contributions to pension plans, but are not actually employers. The most significant impact of these statements is that they change the way the liability for pensions is calculated and require employers and the state (as a non-employer contributing entity) to recognize a portion of the liability in their financial statements. Under the new standards, the Net Pension Liability recognized by employers could be very significant, affecting their credit ratings and ability to issue debt.

When do the new pension accounting standards go into effect?

Statement No. 67 replaces the requirements of Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, and is effective for fiscal years beginning after June 15, 2013. CalSTRS implemented the new requirements in its financial statements for the year ended June 30, 2014.

Statement No. 68 replaces the requirements of Statement No. 27, Accounting for Pensions by State and Local Governmental Employers. This reporting requirement applies to the GAAP-based financial statements of employers and is effective for fiscal years beginning after June 15, 2014, or for the fiscal year ending June 30, 2015.

Where is information on how to incorporate CalSTRS Net Pension Liability into employer Financial Statements?

Please refer to GASB 68 Educational Material.

Does my school employer have to implement Statement No. 68?

Per Education Code § 41010, all Local Educational Agencies are subject to the California School Accounting Manual, as approved by the State Board of Education and furnished by the Superintendent of Public Instruction. The California School Accounting Manual requires most school employers to prepare their financial statements in accordance with Generally Accepted Accounting Principles. GASB standards, including Statement No. 68, are the primary source of GAAP for most school employers. Conformity with GAAP allows comparability among school employers. Being out of compliance with GAAP may impact the audit opinion of the school employer’s financial statements.

Do GASB 68 requirements apply to charter schools?

Any participating employer that is a member of one of the state’s defined benefit plans will have to implement GASB 68, including local governments, public authorities, local school systems. Not for profit Charter Schools that use the full-accrual basis of accounting may need to report these amounts in their fund statements.

Do Statement Nos. 67 and 68 establish requirements for how governments should fund their pensions?

No, the new reporting standards break the link between actuarial funding and financial accounting for pensions. Previous GASB standards required pension plans to calculate the annual required contribution (ARC) and report payments toward the ARC. This measured the plan’s funding of the pension obligation. The new standards consider only how plans and employers account for and report pension costs.

How is the pension liability calculated differently under Statement Nos. 67 and 68 as compared to the previous standards?

The Unfunded Actuarial Accrued Liability (UAAL) was the pension liability calculated under the old standards. The UAAL was disclosed in the notes to CalSTRS financial statements, but it was not recorded in the CalSTRS, school employers’, or the State of California’s statement of net position. The UAAL was similar to the Unfunded Actuarial Obligation in CalSTRS funding actuarial valuations for the Defined Benefit, Defined Benefit Supplement, and Cash Balance Benefit programs. The Net Pension Liability is the pension liability calculated under the new standards. The UAAL was presented separately for each program, while the NPL is calculated for the State Teachers’ Retirement Plan as a whole.

Statement Nos. 67 and 68
(new standards)
Statement Nos. 25 and 27
(old standards)
Total Pension Liability (TPL)
Less: Fiduciary Net Position
Net Pension Liability (NPL)
Actuarial Accrued Liability (AAL)
Less: Actuarial Value of Assets (AVA)
Unfunded Actuarial Accrued Liability (UAAL)

One significant change is that the new standards require the use of a 20-year municipal bond rate to discount future benefit payments past the point where the STRP net assets are exhausted. Discounting future cash flows to their present value is a widely used practice in the actuarial field, accounting, and finance that accounts for the time value of money and allows the measurement of future cash flows in today’s dollars. The rate used to discount future cash flows to their present value is called the discount rate. There is an inverse relationship between the discount rate and the liability. In other words, the higher the discount rate used, the smaller the liability.

Under the previous standards the discount rate was equal to the assumed rate of future investment returns. Under the new standards, the assumed rate of return on investments can only be used up to the point in the future where the STRP has assets to pay benefits. After the point at which net assets are exhausted, a 20-year municipal bond rate must be used to discount future benefit payments. The 20-year municipal bond rate may be much lower than the assumed investment rate of return. For example, CalSTRS’ assumed investment rate of return for the STRP was 7.1% (net of investment expenses) at June 30, 2020. However, the 20-year Bond Municipal General Obligation Index from Bondbuyer.com had a yield of 2.21 at the same date.

The single discount rate that combines the assumed investment rate of return with the 20-year municipal bond rate is referred to as a blended discount rate. If the 20-year municipal bond rate is lower than the assumed investment rate of return and a blended discount rate is required, then the blended discount rate will be lower than the assumed investment rate of return. Benefit payments are projected more than 30 years into the future, so small changes in the discount rate can have a large impact on the pension liability.

In addition to the change in the guidance on the discount rate, the calculation of the NPL uses the market value of assets instead of the actuarial value of assets. The actuarial value of assets smoothed investment gains and losses over three years, whereas the investment gains and losses are recognized immediately in the market values of assets. The market value of assets is more volatile than the smoothed actuarial value of assets; therefore, it makes the NPL more volatile than the UAAL.

Did CalSTRS use a blended discount rate to calculate the Net Pension Liability for the State Teachers’ Retirement Plan at June 30, 2020?

An analysis of future cash flows including contributions, investment returns, administrative expenses, and benefit payments was performed by CalSTRS external actuary. The actuary determined that CalSTRS assets will be sufficient to pay all future benefit payments. Therefore, a blended discount rate was not used to calculate the NPL at June 30, 2020 and the assumed investment rate of return, gross of administrative expenses, was used to discount all future benefits.

Do Statement Nos. 67 and 68 change my contributions?

No. Statutory contribution rates for participating State Teachers’ Retirement Plan employers are determined by the legislature, which has given the Teachers’ Retirement Board limited authority to adjust employer contribution rates from July 1, 2021 through June 2046 in order to eliminate the remaining unfunded actuarial obligation related to service credited to members prior to July 1, 2014.

Does the Net Pension Liability affect the unfunded liability for the Defined Benefit program?

No. The NPL is an accrual accounting measurement calculated in conformity with Statement Nos. 67 and 68. The unfunded liability is a funding measure calculated according to Actuarial Standards of Practice.

The purpose of the NPL is to comply with GASB’s financial reporting requirements, while the intent of the unfunded liability for CalSTRS programs is to provide useful information for policy makers in setting contribution rates. The GASB standards do not render a useful figure for governments or entities struggling with how to address unfunded pension liabilities.

In fact, GASB has communicated that it does not intend for policy makers to use the new accounting requirements as part of the governmental budget process. CalSTRS will continue to have separate actuarial valuations performed to calculate the unfunded liability of the Defined Benefit, Defined Benefit Supplement and Cash Balance Benefit programs.

Net Pension Liability

What is the Net Pension Liability for the State Teachers’ Retirement Plan at June 30, 2020?

The Net Pension Liability for the State Teachers’ Retirement plan as of June 30, 2020, is $96,909 million.

What is the State Teachers’ Retirement Plan? How is it related to the Defined Benefit program?

The STRP includes the following programs—Defined Benefit, Defined Benefit Supplement, Cash Balance Benefit, Teachers’ Replacement Benefit, and Purchasing Power Protection. The Defined Benefit program makes up about 94% of the net assets of the STRP, with the other programs making up the other 6%.

Why is there a single Net Pension Liability for the State Teachers’ Retirement Plan instead of a separate Net Pension Liability for the Defined Benefit, Defined Benefit Supplement and Cash Balance Benefit programs?

CalSTRS has determined that, for accounting purposes, the Defined Benefit, Defined Benefit Supplement, Cash Balance Benefit, Teachers’ Replacement Benefit, and Purchasing Power Protection programs are all part of a single plan—the State Teachers’ Retirement Plan. Statement No. 67 requires financial statements be presented by plan, not program. If all assets accumulated in a defined benefit pension plan for benefit payments may legally be used to pay benefits to any plan members then a single plan exists, regardless of whether separate actuarial valuations are performed or reserves maintained for specific groups of members.

Statement No. 67 indicates that one criteria for determining whether a separate plan exists is whether there is more than one class or group of public employees involved. Examples of different classes of employees are public safety, judges, legislators, and miscellaneous. CalSTRS members are all teachers and school administrators. This homogeneity implies that a single class, and therefore a single plan, exists.

Where in the fiscal year 2019-20 financial statements can I find the Net Pension Liability, pension expense, and deferred inflows and outflows of resources for the State Teachers’ Retirement Plan? How do I obtain the information needed for this reporting?

The net pension liability is presented in multiple places in the financial statements.

Page references are for the fiscal year 2019-20 Comprehensive Annual Financial Report:

p. 58 – Note 3 (Net Pension Liability of Employers and Nonemployer Contributing Entity)

p. 83 – Schedule I (Schedule of Changes in Net Pension Liability of Employers and Nonemployer Contributing Entity)

p. 84 – Schedule II (Schedule of Net Pension Liability of Employers and Nonemployer Contributing Entity)

Page references are for the fiscal year 2019-20 Other Pension and Postemployment Benefits Information:

p. 49 – Schedule B (Schedule of Aggregate Pension Amounts for Employers and Nonemployer Contributing Entity)

Deferred inflows and outflows of resources are presented on p. 49 in Schedule B.

How does CalSTRS calculate its Net Pension Liability relating to Teachers Retirement Plan?

CalSTRS calculates NPL by subtracting State Teachers’ Retirement Plan fiduciary net position from total pension liability for STRP. Please refer to Note 3 of the Basic Financial Statements (p. 58) and Schedule I (Schedule of Changes in Net Pension Liability of Employers and Nonemployer Contributing Entity) of Required Supplementary Information (p. 83) of CalSTRS fiscal year 2019-20 Comprehensive Annual Financial Report.

Is my school employer’s portion of the Net Pension Liability due and payable immediately? How can my school employer reduce its NPL?

No, the NPL is an accrued liability, similar to accrued vacation or other employment benefits that have been earned by employees, but are payable sometime in the future. Contribution rates are set in statute and there is currently no mechanism for employers to make contributions in addition to those required by law. Therefore, school employers have no mechanism for reducing their liability directly. Only by reducing the NPL for the State Teachers’ Retirement Plan as a whole can the pension liabilities of individual school employers be reduced.

What is being done to address the Net Pension Liability for the State Teachers’ Retirement Plan?

Legislation enacted on June 24, 2014, in Chapter 47, Statutes of 2014 (Assembly Bill 1469-Bonta) fully funds the CalSTRS Defined Benefit Program by 2046 through shared contribution increases among the program’s three contributors: CalSTRS members, school district employers and the State of California. With the enactment of AB 1469, actuarial projections now indicate that assets are not projected to be depleted, and will be sufficient to pay benefits in future years. Thus, CalSTRS is not required to use the blended discount rate under the GASB standards.

Read more information about AB 1469.

Proportionate share calculation

Where can I find my district’s proportionate share of contributions for fiscal year 2019-20?

Schedule A (Schedule of Proportionate Share of Contributions for Employers and Nonemployer Contributing Entity) on p. 3 – p. 48 of CalSTRS fiscal year 2019-20 Other Pension and Postemployment Benefits Information. The schedule shows each employer’s contributions to the nearest dollar as calculated by CalSTRS for fiscal year 2019-20. It also shows the corresponding contributions as a percentage of total employer contributions for the year. The percentage is displayed to three decimal places, which is five decimal places in whole numbers. This is an important point to remember when using the proportionate share to calculate your school employer’s portion of the NPL.

The fiscal year 2019-20 OPPEBI report also includes SB 90 supplemental contributions allocated to employers. For additional information on SB 90 contributions, refer to the Impact of supplemental contributions on proportionate share calculation section of these FAQs.

The schedule is organized by the County Office of Education through which employers report their contributions. Employers within each COE are listed by their 5-digit employer reporting numbers. Some employers report their Defined Benefit program contributions through their COE, but their Cash Balance Benefit program contributions separately. Those employers appear twice on the Schedule A and should add all of their contributions together to determine their proportionate share of State Teachers’ Retirement Plan contributions. Otherwise, they will understate their proportionate share and their portion of the NPL.

Was the Schedule of Proportionate Share of Contributions for Employers and Nonemployer Contributing Entities (Schedule A) audited?

Yes, a separate audit opinion was issued on the Schedule A and “Schedule of Aggregate Pension Amounts for Employers and Nonemployer Contributing Entities (Schedule B).” It is at the beginning of the section titled “Other Pension Information—State Teachers’ Retirement Plan” on p. 1 of CalSTRS fiscal year 2019-20 Other Pension and Postemployment Benefits Information.

CalSTRS external auditor performed testing at a sample of school employers in the spring and summer of 2020 in order to render an opinion on the Schedule of Proportionate Share. Specifically, they tested active member census data and payroll information at approximately 100 school employers.

CalSTRS external auditor will perform this audit work annually. Your school employer’s external auditor may choose to rely on the audit opinion of CalSTRS external auditor to support their opinion on the school employer’s financial statements.

How did CalSTRS calculate my school employer’s contributions for fiscal year 2019-20?

CalSTRS calculates current year contributions due based on current year creditable earnings for active members as reported by employers. Since cash remittances of contributions due are received from employers prior to reports of creditable earnings by member, CalSTRS accrues employer contributions due monthly based on estimates. In addition, CalSTRS recognizes contributions and adjustments to contributions reported in the current year for service performed in a prior year as they are reported by employers.

The specific types of contributions included are:

  • Monthly contributions, including accruals, to the Defined Benefit program for the CalSTRS 2% at 60 under Education Code §§ 22950 and 22951
  • Monthly contributions, including accruals, to the Defined Benefit program for the CalSTRS 2% at 62 formula under Government Code § 7522.30
  • Excess service contributions, including accruals, to the Defined Benefit Supplement program under Education Code § 22905(b)(1)
  • Employer contributions to the Cash Balance Benefit program under Education Code §§ 26503 and 26503.5
  • Employer contributions to the Defined Benefit Supplement program for limited-term compensation increases under Education Code § 22905(b)(3)
  • Employer contributions for members who participate in the reduced workload program under Education Code § 22713(e)
  • Employer contributions for members which serve as an elected officer in an employee organization under Education Code § 22711(a)(3)
  • Employer contributions redirected to the Medicare Premium Payment program under Education Code § 22950(c)
  • Employer contributions redirected to the Teachers’ Replacement Benefits program under Education Code § 24260(d)

CalSTRS excluded the following contributions from Schedule A because they are separately financed obligations paid in installments, or do not reflect the employers’ long-term contribution effort:

  • Employer contributions to the Supplemental Benefit Maintenance Account and the Defined Benefit program for retirement incentives (golden handshake) under Education Code §§ 22714 and 22715
  • Employer contributions for the purchase of one-year final compensation under Education Code § 22135(f)
  • Employer contributions for service credit awarded for excess unused sick leave under Education Code § 22718
  • Employer contributions for additional service credit under Education Code § 22801(d)
  • Employer contributions for military service credit under Education Code § 22852

The June 30, 2020, OPPEBI report also allocates each employer a proportionate share of supplemental contributions made by the state of California pursuant to SB 90. Refer to the Impact of supplemental contributions on proportionate share calculation within these FAQs for additional information on the presentation and treatment of these supplemental contributions.

Do I have to use the proportionate share of contributions provided by CalSTRS? What are my other options?

No, school employers are not required by the new accounting standards to use the proportionate share calculated by CalSTRS. According to Statement No. 68, the basis for the employer’s portion of the Net Pension Liability, pension expense and deferred items should be consistent with the manner in which contributions to the State Teachers’ Retirement Plan are determined.

However, Statement No. 68 does not specify exactly who is responsible for calculating the employer’s proportionate share of contributions. CalSTRS has decided to provide this information as a courtesy to our employers to assist them in implementing Statement No. 68. School employers may calculate their own proportionate share using a different methodology than CalSTRS. One advantage to using CalSTRS calculation is that it has been audited.

How do I validate CalSTRS contribution calculation for my school employer?

To help employers understand the amount presented for their school district in the Schedule of Proportionate Share (Schedule A), CalSTRS has provided a Reconciliation of Employer Contributions report through the Contributions Account Portal. To get to the report, school employers must log into the Secure Employer Website and then follow this path:

Contribution Account Portal ➤ Financial Reporting ➤ Reconciliation of Employer Contributions

There is a job aid on the ‘Help’ page on the Contributions Account Portal that explains in detail how to run the report. A link to the job aid is also posted on CalSTRS.com.

The Reconciliation of Employer Contributions report reconciles contributions presented in the “Schedule of Proportionate Share (Schedule A)” to contribution reports submitted by employers. The amounts in the report should align with monthly contribution settlement information currently provided through the CAP.

The June 30, 2020, OPPEBI report includes an allocated amount of supplemental contributions made by the state of California pursuant to SB 90. Employers should exclude consideration of this amount if trying to reconcile employer contributions to contributions shown on the Secure Employer Website reports.

How do I obtain access to the Secure Employer Website and the Contributions Account Portal?

The Contributions Account Portal can only be accessed through the Secure Employer Website. Each County Office of Education has a SEW administrator. Contact your COE and ask them who is the SEW administrator and what the process is to get access to SEW and the Contributions Account Portal.

How do I calculate my school employer’s portion of the Net Pension Liability?

Please refer to GASB 68 Educational Material.

Impact of supplemental contributions on proportionate share calculation

What is SB 90?

California Senate Bill 90, Chapter 33, Statutes of 2019 (SB 90) was signed into law in June 2019 and appropriated approximately $2.2 billion in fiscal year 2018-19 from the state’s General Fund as contributions to CalSTRS on behalf of employers. This bill provides short-term rate relief to employers by supplanting or replacing some of the contribution amounts employers are required to remit to CalSTRS. Specifically, the bill reduced the amounts employers had to remit to CalSTRS by 1.03% and 0.70% for fiscal years 2019-20 and 2020-21. The remaining portion of the contribution (approximately $1.6 billion) was apportioned to reduce the employers’ share of the unfunded actuarial obligation of the DB program.

Additionally, SB 90 appropriated future supplemental state contributions to reduce the state’s portion of the unfunded actuarial obligation of the DB Program in fiscal years 2019–20 through 2022–23. For fiscal year 2019-20, CalSTRS received $1.1 billion of supplemental state contributions pursuant to SB 90.

What is AB 84 and how does it relate to SB 90?

California Assembly Bill 84, Chapter 16, Statutes of 2020 (AB 84) was signed into law in June 2020 and revised certain provisions of Teachers’ Retirement Law enacted by SB 90. AB 84 did not provide new supplemental contributions, rather, it repurposed approximately $1.6 billion already contributed through SB 90 that was originally intended to reduce employers’ long-term liabilities, by further supplanting employer contributions through fiscal year 2021–22.

Through the passage of AB 84, employers received additional short-term rate relief as this bill further reduced the amounts employers are required to remit to CalSTRS as required by statute. SB 90 originally reduced the employer contribution rate for fiscal year 2020-21 by 0.70%, which was further reduced by AB 84 to 2.95%. AB 84 also provides employers with rate relief of 2.18% for fiscal year 2021-22. It should be noted that AB 84 did not change the rate reduction of 1.03% for fiscal year 2019-20 as stipulated by SB 90.

For the purpose of these FAQs, references to the state’s supplemental contributions are referred to as contributions made pursuant to SB 90, while references to employer contribution rate reductions are referred to as rate reductions pursuant to AB 84.

How do contributions made pursuant to SB 90 and rate reductions pursuant to AB 84 impact the current fiscal year’s Schedule of Proportionate Share?

Consistent with GASB requirements, CalSTRS’ policy is to prepare the Schedule of Proportionate Share of Contributions for Employers and Nonemployer Contributing Entity (Schedule A) using contributions that reflect the long-term funding commitments of employers and the state. The supplemental contributions made by the state pursuant to SB 90 and the resulting reduction in employer contribution rates pursuant to AB 84 are temporary on-behalf contributions that do not reflect long-term funding commitments of employers or the state.

CalSTRS updated the presentation of Schedule A as of June 30, 2020, to reverse the impacts of contributions made pursuant to SB 90 . This was done by presenting a CalSTRS-calculated estimate of the current year contributions for each employer supplanted by the state’s contribution. As a result, the fiscal year 2019-20 Schedule of Proportionate Share has two new columns: SB 90 contributions allocated to employer and Total calculated and allocated contributions, the latter is used as the basis for calculating values within the Employer proportionate share of total calculated and allocated contributions column. The following is an example of how Schedule A looks with the additional columns for fiscal year 2019-20:

example table of schedule of proportionate share of contributions

Amounts in the SB 90 contributions allocated to employer column represent CalSTRS’ estimates of the current year contributions supplanted by the state for each employer. These amounts were determined by calculating the ratio of the rate set by the CalSTRS Funding Plan for fiscal year 2019-20 to the reduced rate stipulated by SB 90, and then applying that ratio to the current year contributions calculated by CalSTRS for those employers that remitted contributions to the DB Program.

The following example shows how CalSTRS calculated the ratio for fiscal year 2019-20, which was applied to gross-up employer contribution amounts to reflect what employers would have remitted to CalSTRS without the supplanted contributions pursuant to SB 90:

[A] Employer contribution rate for fiscal year 2019-20 per the CalSTRS Funding Plan 18.13%
[B] LESS: Reduction to employer contribution rate for fiscal year 2019-20 pursuant to AB 84 1.03%
[C] = [A] - [B] Effective employer contribution rate for fiscal year 2019-20 after rate reduction 17.10%
[D] = [A] / [B] Gross-up ratio to be applied to fiscal year 2019-20 CalSTRS-calculated employer contributions 106.02%

The ratio is then applied to each employer’s CalSTRS-calculated employer contributions to determine the total calculated and allocated contributions, which represents what employers would have remitted to CalSTRS had SB 90 not been enacted. Based on this amount, the schedule backs into SB 90 contributions allocated to each employer. The following is an example of these calculations based on CalSTRS-calculated employer contributions from Unified School District #1 above:

[E] CalSTRS-calculated educator contributions for Unified School District #1 $1,151,559
[D] Gross-up ratio 106.02%
[F] = [E] x [D] Total calculated and allocated contributions for Unified School District #1 $1,220,883
[F] - [E] SB 90 contributions allocated to Unified School District #1 $69,324

How is my current year Proportionate Share calculation impacted? 

For fiscal year 2019-20 through 2021–22, the proportionate share calculations will include actual and allocated contributions that are attributed to each employer. Contributions pursuant to SB 90 only impacted the Defined Benefit Program. All employers that report Cash Balance Benefit Program contributions separately to CalSTRS do not have an allocation for the SB 90 supplanting contributions. 

Deferred inflows/outflows

How do I calculate my school employer’s pension expense, deferred inflows of resources, and deferred outflows of resources?

Please refer to GASB 68 Educational Material.

What are deferred inflows and outflows of resources?

Deferred inflows and outflows of resources are a relatively new accounting concept. A traditional balance sheet consists of assets and liabilities; however, GASB felt these categories were insufficient to describe certain transactions and therefore, two new categories were needed. GASB first introduced the idea of deferred inflows and outflows of resources in Concepts Statement No. 4, which defines deferred outflows of resources as a consumption of net assets that is applicable to a future reporting period. Concepts Statement 4 defines deferred inflows of resources as an acquisition of net assets that is applicable to a future reporting period. Deferred outflows of resources have a positive effect on net position, similar to assets, and deferred inflows of resources have a negative effect on net position, similar to liabilities. Typically, when assets and liabilities are recorded they have a corresponding revenue or expense that is recognized in the current period, whereas when deferred items are recorded the expense or revenue will be recognized in future periods, similar to a prepaid expense or deferred revenue.

In Statement No. 68, GASB defines the following items as deferred inflows and outflows:

  • Differences between expected and actuarial experience 2
  • Changes in assumptions
  • Difference between projected and actual earnings on plan investments
  • Changes in proportionate share
  • Contributions subsequent to the measurement date
  • Difference between an employer’s proportionate share and actual contributions

Instead of being recognized in pension expense in the current period, the change in Net Pension Liability related to the items above is recognized as pension expense in future periods as these items are reduced.

2 Also referred to as actuarial gains and losses

Over what period should I reduce my deferred inflows and outflows of resources? Can similar types of deferred inflows and outflows be netted together?

The reduction period for the difference between projected and actual earnings on plan investments is five years. The reduction period for all other deferred items is the average remaining service life of plan members. The average remaining service life of plan members includes active members and retirees, whose remaining service life is zero, but excludes inactive members.

Except for the difference between projected and actual earnings on plan investments, deferred inflows and outflows must be separately recognized and reduced in the financial statements. They cannot be netted together. For example, if there is a deferred outflow of resources of $200 and a deferred inflow of resources of $500 related to changes in assumptions, they cannot be combined and shown on the balance sheet as a $300 net deferred inflow of resources for changes in assumptions. However, deferred inflows and outflows for the difference between projected and actual earnings on plan investments is an exception and can be netted together.

What is the average remaining service life of State Teachers’ Retirement Plan members?

CalSTRS calculated the average remaining service life of STRP members at June 30, 2020, to be 7 years. This is disclosed in a footnote on p. 49 in the “Schedule of Aggregate Pension Amounts (Schedule B)” in CalSTRS fiscal year 2019-20 Other Pension and Postemployment Benefits Information. School employers are not required to use the average remaining service life of STRP members calculated by CalSTRS and may use their own calculation instead.

Will employers need to maintain schedules for deferred outflows of resources and deferred inflows of resources?

CalSTRS will maintain schedules for deferred inflow of resources and outflowed resources at the collective level. However, employers will need to maintain schedules for deferrals arising from changes in the employer’s proportionate share and contributions subsequent to the measurement date. The reasoning behind this approach is that CalSTRS is not calculating deferrals specific to individual school employers.

How do I account for my cash contributions under Statement No. 68?

Under GASB 71, Pension Transition for Contributions Made Subsequent to the Measurement Date – an amendment of GASB Statement No. 68, if a school employer chooses a measurement date of June 30, 2020, then cash contributions subsequent to that date should be recorded as a deferred outflow of resources.

On-behalf contributions

What are on-behalf contributions?

On-behalf contributions refer to the contributions made by the State of California (the “State”), pursuant to Sections 22954 and 22955.1 of the Education Code and Public Resources Code Section 6217.5, to CalSTRS on behalf of Local Educational Agencies members or school employers.

GASB 68 refers to this as a special funding situation which occurs when a nonemployer entity (the State) is legally responsible for making contributions directly to a pension plan that is used to provide pensions to the employees of another entity or entities and either of the following conditions exists:

  • The amount of contributions for which the nonemployer entity legally is responsible is not dependent upon one or more events or circumstances unrelated to the pensions.
  • The nonemployer entity is the only entity with a legal obligation to make contributions directly to a pension plan.

What is the required accounting for the State’s on-behalf contributions?

The accounting treatment for on-behalf payments for cost-sharing employers in a special funding situation (such as CalSTRS employers) depends on the measurement focus and basis of accounting applicable when preparing financial statements. That is, whether the financial statements are prepared based on an economic resources measurement focus and accrual basis of accounting or based on a current financial resources measurement focus and modified accrual basis of accounting.

Prior to the issuance of GASB 68, recognition and measurement of on-behalf payments were included in Statement No. 24, Accounting and Financial Reporting for Certain Grants and Other Financial Assistance.

While GASB 68 provides the guidance for the recognition and measurement of the effects of on-behalf payments in financial statements prepared using the economic resources measurement focus and accrual basis of accounting, it did not provide guidance for financial statements prepared using the current financial resources measurement focus and modified accrual basis of accounting.

Accordingly, GASB issued Statement 85 Omnibus 2017 (GASB 85), which addressed several topics including guidance on the recognition and measurement of on-behalf payments in financial statements prepared using the current financial resources measurement focus and modified accrual basis of accounting.

How do I account for State’s on-behalf contribution in financial statement prepared using the economic resources measurement focus and accrual basis of accounting?

For financial statements prepared using the economic resources measurement focus and accrual basis of accounting, cost-sharing employers in a special funding situation (which is the case for CalSTRS employers) are required to account for on-behalf payments in accordance with GASB 68. Based on the guidance in paragraphs 94 and 95 of GASB 68, employer should:

  1. Recognize pension expense for the State’s proportionate share of the STRP collective pension expense that is associated with each respective employer.
  2. Recognize revenue in an amount equal to the expense recognized for the State’s proportionate share of the STRP collective pension expense.

How do I calculate my proportionate share of the State’s on-behalf contributions under GASB 68?

The amount recognized as on-behalf contributions when preparing financial statement using the economic measurement focus and accrual basis is based on the collective pension expense of the State. Below is a mock illustration of the calculations to perform to determine on-behalf payments for a school employer (Employer X) in accordance with the guidance in GASB 68.

  1. Employer reporting year is FY 2019-20.
  2. Reports to use:
    1. FY 2019-20 Comprehensive Annual Financial Report
    2. FY 2019-20 Other Pension and Postemployment Benefits Information (OPPEBI)
  3. Determine the Collective Pension Expense for FY 2020-21 using the information on the Schedule of Aggregate Pension Amounts for Employers and Nonemployer Contributing (Schedule B) of the OPPEBI Report:
    Change in NPL recognized immediately in pension expense ($260,000,000)
    Add total current year reduction of deferred outflows $4,065,000,000
    Less total current year reduction of deferred inflows $775,000,000
    STRP Collective Pension Expense 1 $3,030,000,000
  4. Determine the State proportionate share using Schedule A of the OPPEBI. Total contributions for the State are $3,329,835,536 and its proportionate share of total CalSTRS-calculated employer contributions is 34.015%.

    Accordingly, the State share of the collective pension expense of the STRP is $1,030,654,500 and calculated as follows:
    [A] STRP Pension Expense $3,030,000,000
    [B] State proportionate share as of STRP Pension Expense 34.015%
    [A] x [B] State proportionate share of Pension Expense $1,030,654,500
  5. Calculate the proportionate share of Employer X in relation to other employers (i.e. not including the State) based on information in Schedule A of the OPPEBI. The calculated proportionate share percent as presented in Schedule A is based on total contributions (Employers + State) but for purposes of calculating Employer X’s proportion of the State proportionate share of the collective pension expense, the rate should be based on total calculated and allocated employer contributions.
    [A] FY 2019-20 Employer X total calculated and allocated contributions $8,349,659
    [B] Total calculated and allocated employer contributions for FY 2019-20 $6,459,427,294
    [A] / [B] Recalculated proportionate share % based on total employer contributions 0.129%
  6. Determine the State proportionate share of the collective pension expense that is associated with Employer X:
    [A] Rate to calculate State proportionate share of the collective pension expense that is associated with Employer X 0.129%
    [B] State proportionate share of STRP collective pension expense $1,030,654,500
    [A] x [B] State proportionate share of the collective pension expense and revenue that is associated with Employer X $1,332,256

Employer X will record pension expense of $1,332,256 for its share of the State’s share of the collective pension expense and corresponding revenues for the support (on-behalf payment) from the State of $1,332,256.

The example above is one way of determining an employer’s share of State on-behalf contributions, however; different calculations will yield different results. Therefore, it is recommended that each school employers come up with their own policy in estimating their on-behalf contributions from the State of California.

Although the information contained herein may help employers contributing to the STRP with the calculation and preparation of journal entries for financial reporting required by GASB 68, it has no authoritative status.

CalSTRS is not rendering legal or accounting advice with this publication but rather is providing additional instruction as to how an employer may choose to use the information published by CalSTRS in calculating on-behalf contributions.

It is recommended that the users of this information refer to GASB 68, the Guide to Implementation of GASB 68, their accounting policies, their external auditor, and other experts as appropriate to assist with their implementation.

1 The STRP pension expense calculated here is in accordance with GASB 68 Paragraph 102 and does not include each employer’s current year recognition of amounts deferred for:

  • Change in employer proportionate share
  • Employer contributions during measurement period
  • Employer contributions subsequent to measurement period

How do I account for the State’s on-behalf contribution in financial statements prepared using the current financial resources measurement focus and modified accrual basis of accounting?

For financial statements prepared using the current financial resources measurement focus and modified accrual basis of accounting, cost-sharing employers in a special funding situation (which is the case for CalSTRS employers) are required to recognize the following per paragraphs 9 and 10 of GASB 85:

  • Expenditures for on-behalf payments for pensions equal to the total of the amounts paid during the reporting period by the State to the STRP.
  • Revenue equal to the amount of expenditures determined as noted above.

How do I calculate my proportionate share of the State’s on-behalf contributions under GASB 85?

Employers preparing financial statements using the current financial resources measurement focus and modified accrual basis of accounting will report a proportionate share of contributions made by the State of California (State) during their reporting period. To perform the calculation, employers will need to determine their proportionate share of contributions in relation to other employer in addition to the amounts contributed by the State during their fiscal year.

State contributions to CalSTRS pursuant to Sections 22954 and 22955.1 of the Education Code and Public Resources Code Section 6217.5 for fiscal year 2020-21 are as follows:

General Fund Contributions (Ed. Code Section 22955.1) $2,949,196,491
Supplemental Benefit Maintenance Account Contributions (Ed. Code Section 22954) $775,022,385
School Lands Revenue (Public Resources Code Section 6217.5) $6,302,000 *
Total FY 2020-21 State Contributions $3,730,520,876

* The estimated amount of School Land contributions as provided by the California State Lands Commission.

Mock calculation

This is a mock illustration of the calculations to perform to determine on-behalf payments for a school employer (Employer X) in accordance with GASB 85. This example is based on fiscal year 2020-21.

  1. Employer reporting year is FY 2020-21.
  2. Reports to use:
    1. FY 2019-120 Other Pension and Postemployment Benefits Information (OPPEBI)
  3. Calculate the proportionate share of Employer X in relation to other employers (i.e. not including the State) based on information in Schedule A of the OPPEBI. The calculated proportionate share percent as presented in Schedule A is based on total contributions (Employers + State) but for purposes of calculating proportionate share of on-behalf contributions, the percent should be based on total calculated and allocated employer contributions.
    [A] FY 2019-20 Employer X contributions $8,349,659
    [B] Total employer contributions for FY 2019-20 $6,459,427,294
    [A] / [B] Recalculated proportionate share % based on total employer contributions 0.129%
  4. Calculate Employer X’s share of on-behalf contributions.
    [A] FY 2020-21 State contributions (unaudited) $3,730,520,876
    [B] Recalculated proportionate share % based on total employer contributions 0.129%
    [A] x [B] On-behalf contributions for FY 2019-20 $4,812,372

Employer X will record pension expense of $4,812,372 for its share of the State’s contribution to the STRP and corresponding revenues for the support (on-behalf payment) from the State of $4,812,372.

The example above is one way of determining an employer’s share of State on-behalf contributions, however; different calculations will yield different results. Therefore, it is recommended that each school employers come up with their own policy in estimating their on-behalf contributions from the State of California.

Although the information contained herein may help employers contributing to the STRP with the calculation and preparation of journal entries for financial reporting required by GASB 68, it has no authoritative status.

CalSTRS is not rendering legal or accounting advice with this publication but rather is providing additional instruction as to how an employer may choose to use the information published by CalSTRS in calculating on-behalf contributions.

It is recommended that the users of this information refer to GASB 85, their accounting policies, their external auditor, and other experts as appropriate to assist with their implementation.

Reporting

Does the Net Pension Liability need to be incorporated in the Government-wide financial statements?

Yes, changes resulting from GASB 68 requirements apply only to the government-wide financial statements, enterprise and agency funds where financial statements are prepared on full accrual basis of accounting.

What is the measurement date? How does my school employer select the measurement date?

The measurement date is the date the Net Pension Liability is measured for purposes of a school employer’s financial reporting and must be consistently applied from period to period. Because the NPL is reported by CalSTRS, the measurement date must fall on June 30, CalSTRS fiscal year end.1 However, school employers can choose to use June 30 of the current fiscal year or June 30 of the prior fiscal year as the measurement date. For example, for their financial statements for the fiscal year ending June 30, 2020, school employers can use June 30, 2019, or June 30, 2020, for their measurement date.

When selecting the measurement date, school employers should consider when CalSTRS financial statements will be available in relation to when the employer plans to complete their own financial statements. Employers who choose to use June 30 of the current fiscal year as their measurement date should consider that CalSTRS June 30, 2021, financial statements will not be available until November 2021.

The diagram below reflects the timing of the STRP actuarial valuation and the selection of a June 30, 2013, measurement date for an employer’s FY 2014-15 financial statements:

diagram reflecting the timing of the STRP actuarial valuation

1 June 30 is also the fiscal year end for school employers, per the Department of Education’s California School Accounting manual

Where can I find CalSTRS fiscal year 2019-20 financial statements?

CalSTRS fiscal year 2019-20 financial statements, which are within the Comprehensive Annual Financial Report, are available on CalSTRS.com.

When does CalSTRS publish its financial statements and Comprehensive Annual Financial Report?

CalSTRS audited June 30 financial statements are approved in November and posted to CalSTRS.com in late December upon completion of the Comprehensive Annual Financial Report.

Where does CalSTRS present its assumed rate of return?

CalSTRS presents assumed rate of return in Note 3 of the “Notes to the Basic Financial Statements” section p. 58 of CalSTRS fiscal year 2019-20 Comprehensive Annual Financial Report. Assumed rate of return is an actuarial assumption. Assumed rate of return is derived net of investments expenses, but gross of administrative expenses.

What note disclosures am I required to complete? Will CalSTRS assist me?

GASB Statement No. 68 paragraphs 74-82 describe the required note disclosures and supplementary schedules for cost-sharing employers. Unfortunately, CalSTRS cannot assist employers in preparing this information as it falls outside the scope of CalSTRS fiduciary duty to our members.

Additional information

What is the likelihood of my school employer being selected for audit by CalSTRS external auditor? Does that audit replace other audits performed by CalSTRS or my school employer’s external auditor?

Some large school employers will be audited every year, while smaller employers will be selected on a less frequent basis. The nature and the extent of the work performed by CalSTRS external auditor is solely for the purposes of the audit of CalSTRS’ financial statements and Schedule of Proportionate Share and is not related to or a substitute for any audits conducted independently by CalSTRS’ Audit Services or an employer’s external auditors.

Where can I get information on the general ledger accounting entries for Statement No. 68?

Please refer to GASB 68 Educational Material. School employers also should work with their external auditors to implement Statement No. 68.

Are Statement Nos. 67 and 68 applicable to Other Postemployment Benefit plans?

No. CalSTRS OPEB plan is reported in the Teachers’ Health Benefits Fund. Postemployment healthcare benefits and termination benefits are classified as other postemployment benefits (OPEB) in accounting standards. OPEB are excluded from the scope of Statement Nos. 67 and 68 and currently fall under GASB Statement Nos. 74 and 75.

Who at CalSTRS can I contact with questions about the new reporting standards and the audit related to the Schedule of Proportionate Share?

CalSTRS cannot give specific accounting advice or guidance to employers, but for questions about Statement No. 67 and 68 please email BFatunla@CalSTRS.com. Please email audit-related questions to CalSTRSGASBProject@CalSTRS.com.