AgdaPkt 2014-02-10 Closed and Regular

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8.A. - Page 1 REPORT To the Honorable Mayor and City Council From the City Manager February 10, 2014 SUBJECT Government Accounting Standards Board (GASB) issued Statement No. 68 - Accounting and Financial Reporting for Pensions RECOMMENDATION Review information and provide policy direction as deemed appropriate. BACKGROUND In June 2012 the Government Accounting Standards Board (GASB) issued Statement No. 68, Accounting and Financial Reporting for Pensions (GASB 68.). GASB 68 applies to all state and local governments that offer defined benefit pension plans such as the plans the City offers through the California Public Employees Retirement System (CaIPERS). Generally, a defined benefit retirement plan is one in which the employee is promised a defined benefit for the balance of their life upon retirement. The primary alternative to a defined benefit retirement plan is a defined contribution plan which provides the employee, upon retirement, the value of whatever contributions the employee and/or employer have made and the investment earnings (or losses) that have accumulated up to the point of the employee's retirement. The primary goal behind GASB 68 is to improve the transparency and comparability of pension costs incurred by state and local government agencies by moving the financial reporting practices of pension plans closer to those followed by the private sector. GASB 68, which for Redwood City will become effective in FY 2014-15, will significantly change how government agencies account for and report the financial results of their defined benefit pension plans. GASB 68 has already had at least some impact upon participating CaIPERS agencies as this was one of the factors influencing the changes to the amortization and smoothing formulas that CaIPERS adopted in the spring of 2013. GASB 68 is a complex statement (almost 250 pages in length) that staff is just beginning to learn about. We are consulting a number of sources — credit rating agencies, actuaries, investment bankers, and our independent auditor— to learn more about how this will change our accounting and financial reporting practices.