It has been a decade since the implementation of GASB Statement No. 68, and for many governments, it still feels like yesterday. When GASB 68 took effect, it fundamentally reshaped how public sector organizations report pension obligations—bringing long‑standing liabilities out of the footnotes and onto the face of the financial statements.
Why GASB 68 Was a Turning Point
Prior to GASB 68, pension reporting was largely driven by a funding‑based model. Pension expense and liabilities were tied to employer contribution decisions rather than the true economic cost of benefits earned by employees. As a result, governments could carry significant unfunded obligations without reflecting them clearly in their financial position.
GASB 68 changed that by requiring governments to recognize their full net pension liability, use standardized actuarial methods, apply more realistic discount rates, and provide enhanced disclosures. The goal was transparency—giving stakeholders a clearer picture of long‑term obligations and the cost of public services.
What Changed? Everything.
For many governments, GASB 68 dramatically altered financial statement presentations. Entities that once reported positive unrestricted net position saw those balances flip to significant deficits overnight. While the accounting change did not create new liabilities, it made existing ones impossible to ignore.
Ten years later, the data shows that those liabilities have not gone away.
What the Numbers Tell Us in 2026
As part of its 2026 Client Research Study, LSL analyzed pension data from over 60 governmental clients with finalized 2025 financial statements. The results highlight several important trends:
- Cities have seen aggregate pension liabilities increase 35% since 2016, with the largest percentage growth occurring in small and mid‑size cities.
- Other governments, including special districts, experienced even steeper increases—up 78% in aggregate over the same period.
- Pension employer contribution rates have risen sharply across nearly all plan types and employee classifications, often consuming a growing share of operating budgets.
Despite these higher contributions, funded status has not kept pace, particularly for non‑city governments, where average funded ratios have slightly declined since 2016.
Is PEPRA Helping?
California’s Public Employees’ Pension Reform Act (PEPRA) has had a meaningful impact—but it is not a quick fix. Since taking effect in 2013, PEPRA has generated over $5 billion in savings in its first decade, with projections estimating $25 billion more in the next. More than 60% of active CalPERS members are now covered under PEPRA benefit tiers.
PEPRA’s lower benefit formulas, mandatory cost‑sharing, pay caps, and anti‑spiking provisions have improved long‑term sustainability and intergenerational equity. However, legacy costs remain significant, and legislative proposals that would roll back PEPRA protections pose real financial risk.
Looking Ahead: A Long‑Term Conversation
Pension liabilities are not like bonds or loans—there is no single payoff date. That makes communication with governing bodies especially important. Context matters. Comparisons to peer governments, clear discussion of trends, and a focus on key solvency and reserve metrics help decision‑makers understand both risk and progress.
Tools such as Section 115 pension trusts, supplemental payments toward unfunded liabilities, and prudent budget planning can play a role—but each option requires careful evaluation.
The Bottom Line
A decade after GASB 68, the message is clear: your organization is not alone. Pension challenges remain widespread across California governments, but transparency has improved, tools have expanded, and long‑term reforms like PEPRA are bending the curve. The path forward is measured, strategic, and informed—not reactionary
If you’d like help interpreting your organization’s pension metrics or communicating them effectively to governance, LSL’s government team is here to help. Contact us today!
