GASB 45 Other than Pension Post Employment Benefits

GASB 45 Other (than Pension) Post Employment Benefits Date Here Presented by: Name Here

Discussion Agenda § What is OPEB? § Why OPEB? § How Big is the Liability? § Implicit Rate Subsidy § Effective Dates § Why pay attention now? § Alternative Measurement Method § Funding 2 6/17/2021

What is OPEB? § The Governmental Accounting Standards Board (GASB) has issued two statements for Other (than pension) Post Employment Benefits (OPEB) § GASB 45 applies to the retiree benefit plans that we provide § GASB 43 would apply to a trust that we might establish to funds those benefits 3 6/17/2021

Other Post Employment Benefits (OPEB) are: § Retiree Health Benefits (pre and post 65) § Post Employment Benefits – Health insurance – Life insurance – Dental – Long-term care – Vision – Prescription drugs 4 6/17/2021

Why OPEB? § OPEB is part of total compensation for services rendered by employees § Benefits are “earned” during each period of employment § Employers must recognize the cost of the obligation over the period of employment § OPEB and pension benefits should be subject to consistent accounting rules (i. e. , accrual accounting) 5 6/17/2021

How Big is the Liability? § Many variables involved (e. g. , pre 65 coverage only versus both pre and post 65 coverage) § Often between 10 to 100 times the annual cost of benefits (e. g. , if current annual benefit cost is $250, 000, OPEB liability might be between $2. 5 million and $25 million 6 6/17/2021

What is an Implicit Rate Subsidy? § Retirees might pay 100% of the blended active/retiree rate but the true cost for the retirees is higher than the average cost § Retiree experience is melded with actives § Actives subsidize the retirees § Difference between rates and expected retiree claims utilization is an implicit rate subsidy 7 6/17/2021

Implicit Rate Subsidy $12, 000 $10, 000 Premium Amount $8, 000 $6, 000 $4, 000 $2, 000 0 25 30 35 40 45 50 55 Age True Cost of Medical Benefits 8 6/17/2021 COBRA Premium 60 65

When is OPEB effective? § Three phases based upon total annual revenues for first fiscal year after 6/15/99 (just like GASB 34): – Phase 1 -Revenues in excess of $100 million GASB 45 is effective fiscal year beginning after December 15, 2006 – Phase 2 -Revenues in excess of $10 million but less than $100 million GASB 45 is effective fiscal year beginning after December 15, 2007 – Phase 3 -Revenues less than $10 million GASB 45 is effective fiscal year beginning after December 15, 2008 – Effective date is one year earlier for funded plans (GASB 43) 9 6/17/2021

Why Pay Attention Now? § The Valuation is Necessary for Financial Reporting Purposes, but if performed early you can: – Get an idea of the magnitude of the numbers – Plan for the cash flow needed in coming years – Examine ways in which the overall cost of providing medical benefits can be reduced. GASBhelp. com subscribers receive a white paper with ideas that can reduce the cost of retiree benefits – Evaluate the cost impact of proposed benefit changes in the context of union negotiations 10 6/17/2021

Alternative Measurement Method § Must Qualify (fewer than 100 plan members) § Approach developed by GASB § Approximately 20% to 30% of the cost of a full actuarial valuation § GASBhelp. com 11 6/17/2021

Funding § The Unfunded Accrued Actuarial Liability (UAAL) can be amortized over (as much as) 30 years. § Funds contributed to the OPEB cost in excess of the current year’s cost must be placed in an irrevocable trust (or similar vehicle) in order to get the benefit of a higher discount rate (which lowers the UAAL and subsequent payments) § Failure to pay the amortized amount will result in a liability § Refer to the GASBhelp. com sample report for further details 12 6/17/2021

Next Steps § Check eligibility for using Alternative Measurement Method (test available on GASBhelp. com) § Gather Required Data for using GASBhelp. com (list available on GASBhelp. com) § Enter Data on GASBhelp. com and Print Report 13 6/17/2021

QUESTIONS ?