GASB Statement 75 OPEB and Deja Vu Prepared

GASB Statement 75: OPEB and Deja Vu Prepared and Presented by Frank Crawford, CPA Chris Pembrook, CPA, MBA, CGAP, CRFAC www. crawfordcpas. com frank@crawfordcpas. com chris@crawfordcpas. com @fcrawfordcpa (Twitter)

To add some fun to today and tomorrow’s presentations, we will be doing some live polling with you all having the ability to participate anonymously. Here is how to participant with any laptop, smartphone, smart tablet or smart device: Via texting, you simply text fcrawford 041 to the number 22333, or Via the internet, go to www. pollev. com/fcrawford 041 Either way will allow you to participate today and tomorrow in our live polling If you have any trouble, let Chris or I know and we will come help you register 2

Here is what you will see if you use the text option: 3

Here is what you will see if you use the internet address option: 4

And here is what the web page looks like after registering via the internet option: 5

OPEB Overview GASB 74 (Plans) & 75 (Employers) are nearly identical to GASB’s new pension standards. ◦ ◦ GASB 67 (Plans) GASB 68 (Employers) GASB 71 (transitional implementation issue) GASB 73 (Employers w/o “irrevocable trust”) Some tweaks for OPEB ◦ Implicit Rate Subsidy – discussed in later slides ◦ Alternative method for small OPEB plans

Statement 74 & 75, and some of 85 - OPEB Addresses both OPEB Plans Administered through trust & not administered through trust ◦ Same trust criteria Requires reporting of liability in the F. S. ◦ Trust: Total OPEB Liability (TOL) – FNP (fiduciary net position) = NOL (net opeb liability) ◦ Not trust: TOL = NOL (net opeb liability) So you report the TOL Effective Date: ◦ 74 (plan) – fiscal years beginning after June 15, 2016 ◦ 75 (employer) – fiscal years beginning after June 15, 2017 ◦ 85 – fiscal years beginning after June 15, 2017 10

What is OPEB? OPEB ◦ Other postemployment benefits – all postemployment benefits promised to employees other than pensions Medical, dental, vision separately or through a pension plan. ◦ Principally, retiree health insurance – but also life insurance, disability, legal services, and other benefits Provided separately from a pension plan. Includes: ◦ Payments made to insurance companies on behalf of retirees, ◦ Payments directly to retirees, and ◦ Subsidizing retiree premiums by allowing them to be insured in the same group as active employees Implicit Rate Subsidy What about termination benefits? ◦ GASB 47 11

Is It OPEB? Q—An employer provides retirees with retirement income, as well as life insurance and long-term care benefits, all of which are administered through a defined benefit pension plan. Should each benefit be accounted for as pensions or as OPEB?

Is it OPEB? A—All of the benefits should be accounted for as pensions. In accordance with Statements No. 68, Accounting and Financial Reporting for Pensions, No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68, and 75, postemployment benefits (with the exception of postemployment healthcare benefits, which always are accounted for as OPEB) should be accounted for as pensions if they are provided through a defined benefit pension plan.

Is it OPEB? 4. 14. Q—A city’s defined benefit pension plan for firefighters provides a health insurance subsidy in the form of an additional monthly cash payment to each pension recipient. There is no limitation on the use of the additional cash payment by recipients. Should the health insurance subsidy be classified as OPEB or as an additional pension for financial reporting purposes?

Is it OPEB? A—In this circumstance, the use of the health insurance subsidy that is provided as an additional monthly cash payment to retirees and beneficiaries is not limited to payment of healthcare costs. Therefore, the subsidy should be considered retirement income. All retirement income should be classified as pensions.

Is it OPEB? 4. 15. Q—The terms of a postemployment benefit plan provide that those who retire from service will receive an amount, defined in terms of dollars or a formula, that may be used only (a) to offset the retiree’s cost of premium payments for participation in the employer’s healthcare insurance group with active employees or (b) for reimbursement of other healthcare costs, if the plan members provide proof of healthcare insurance costs or direct healthcare claims that are not reimbursed by others. Should the benefit be classified as OPEB for financial reporting purposes?

Is it OPEB? A—Yes. Even though the benefit is defined in terms of a dollar amount or formula, because the benefit is limited to the provision of postemployment healthcare, it should be classified as OPEB for financial reporting purposes.

Is it OPEB? 4. 19. Q—Each year, an employer makes a single contribution to a trust that is used to administer a pension plan, as well as to provide postemployment healthcare benefits (OPEB) under the provisions of Internal Revenue Code (IRC) Section 401(h). A determination has been made that the Section 401(h) account meets the criteria in paragraph 3 of Statement 74 and that the pension partition of the trust meets the criteria in paragraph 3 of Statement 67. For financial reporting purposes, is it necessary to separate the assets held in the pension partition of the trust from the assets held in the Section 401(h) account within the trust?

Is it OPEB? A—Yes. Assets should be allocated between the pension plan and the OPEB plan. This requires, in part, allocation of the employer’s total contribution between the pension plan and the OPEB plan and separate reporting of each plan’s fiduciary net position. Statement 74 does not specify the manner in which the allocations should be made because that depends on the specific circumstances, including the benefit structure and terms and the method(s) of financing the pension and postemployment healthcare benefits. Therefore, an accounting policy should be adopted and applied consistently from period to period.

Is it OPEB? Q—A government offers an early retirement incentive in the form of healthcare benefits for 5 years to any employee with at least 20 years of service but does not otherwise provide healthcare benefits to employees that terminate active service. Should this benefit be accounted for as OPEB?

Is it OPEB? A—No. The benefit described is in the form of healthcare benefits to be given after employment. However, in determining how to classify and account for benefits given in the form of healthcare, it also is necessary to consider the purpose for which they are given. In the situation described, the fact that the healthcare benefits are conditioned on an employee’s acceptance of the employer’s early termination offer and are provided as an incentive for the employee to do so indicates that the benefit is provided in exchange for the early termination of services (a termination benefit), rather than as compensation for the employee’s years of service (a postemployment benefit). Further, because the employer does not otherwise provide postemployment healthcare benefits, the termination benefit does not enhance existing defined benefit OPEB…

Is it OPEB? Q—In addition to preexisting postemployment healthcare benefits provided to eligible retirees that are age 65 or older, a government offers an early retirement incentive in the form of healthcare benefits for 5 years to any employee with at least 20 years of service. Acceptance of the employer’s early termination offer would extend the duration of the preexisting postemployment healthcare benefits to also include ages 60− 64. Does the early retirement incentive affect the amounts reported by the employer for its OPEB liability?

Is it OPEB? A—Yes. Although the benefit in this scenario is a termination benefit, Statement 47 as amended, and Statement 75 require that in the case of a termination benefit that is given in the form of an enhancement of the terms of an existing postemployment benefit (for example, by extending the period of time for which retiree healthcare will be provided, as in the situation described), the effects of that incentive on the existing postemployment benefit be included in the measure of the defined benefit OPEB liability of the employer that is required by Statement 75.

Types of OPEB Plans Through a trust: ◦ Single-employer defined benefit plans ◦ Agent multiple-employer defined benefit plans ◦ Cost-sharing multiple-employer defined benefit plans Not administered through a trust: ◦ Single-employer defined benefit plan ◦ Multiple-employer defined benefit plans Defined Contribution OPEB 24

Types of OPEB Plans Defined Benefit OPEB Plans Trust or Equivalent Single Employer Multi. Employer Agent Plan Financial Statements No Trust or Equivalent Multi. Employer Cost Sharing Single Employer PG & CU’s

GASB Definition of a Qualifying Trust Paragraph 4 of GASB 75 – three criteria ◦ Contributions from employers and non-employer contributing entities to the OPEB plan and earnings on those contributions are irrevocable. ◦ OPEB plan assets are dedicated to providing OPEB to plan members in accordance with the benefit terms. ◦ OPEB plan assets are legally protected from the creditors of employers, non-employer contributing entities, and the OPEB plan administrator. If the plan is a defined benefit OPEB plan, plan assets also are legally protected from creditors of the plan members.

Trust Considerations Reimbursement ◦ Trust reimburses employer for OPEB benefits paid as they come due Still a qualifying trust Plan considerations Amount to be reimbursed – No additional consideration in trust financials Amount not to be reimbursed – Requires additional recognition OPEB provided through a single trust with other benefits (pension or active employee health care, etc. ) ◦ Qualifying trust if OPEB portion is dedicated solely to providing OPEB Benefits.

Trust Considerations GASB Implementation Guide ◦ Trust reimburses employer for OPEB benefits paid as they come due Qualifying trust ◦ Trust agreement calls for a return of amounts remaining in trust once all obligations have been fulfilled Qualifying trust ◦ Trust agreement calls for a return of trust assets to an employer if funded status reaches a specified level Not a qualifying trust

Stand-alone Financial Statements For f. s of a government & c. u. participating in same single or agent plan should follow the single and agent requirement of 75 If stand-alone statements are issued, each government would account for and report its participation in the single or agent-employer plan as if it were cost-sharing. ◦ Similar treatment for those not in administered through a trust 29

Allocation of OPEB to Funds GASB Implementation Guide 2015 -1, 5. 161. 2 ◦ For proprietary and fiduciary funds, consideration should be given to National Council on Governmental Accounting (NCGA) Statement 1, Governmental Accounting and Financial Reporting Principles, paragraph 42, as amended, which requires that longterm liabilities that are "directly related to, and expected to be paid from" those funds be reported in the statement of net position or statement of fiduciary net position, respectively.

Dates & Frequency Old: ◦ Actuarial valuation frequency Total membership of 200 or more – biennially Total membership of fewer than 200 – triennially Total membership of fewer than 100 – alternative method (optional) New: ◦ Measurement date As of date no earlier than end of prior fiscal year Total OPEB liability determined at this date based on an actuarial valuation or the use of update procedures ◦ Actuarial Valuation Date: As of date no more than 30 months (+1 day) prior to FYE Assumptions used should be in conformity with Actuarial Standards of Practice. Same deviation language used as in Statement No. 73 Alternative Method still an option 31

Measurement—general approach Three broad steps ◦ Project benefit payments (based on claims costs or age adjusted premiums) ◦ Discount projected benefit payments to actuarial present value ◦ Attribute actuarial present value to periods Methods and assumptions ◦ Generally, assumptions in conformity with Actuarial Standards of Practice ◦ Entry Age actuarial cost method as a level percentage of pay ◦ No changes required to actuarial methods and assumptions used to determine funding amounts Assets ◦ Market Value vs actuarial asset method (smoothed) 32

Projection of Benefits - Include Projected salary changes (if the OPEB formula incorporates future compensation levels) Service credits (if the OPEB formula incorporates periods of service) Automatic postemployment benefit changes, including automatic cost‐of‐living adjustments (COLAs) Ad hoc COLA’a (if substantively automatic) Based on claims costs or age-adjusted premiums approximating claims costs, in accordance with Actuarial Standards of Practice Taxes or other assessments expected to be imposed on benefit payments Consider legal or contractual benefit caps if determined to be effective

Discount Rate Trust: ◦ Long-term expected rate of return on pension plan investments, to the extent plan net position: Projected to be sufficient to pay benefits Plan assets expected to be invested using a strategy to achieve that return Yield or index rate for 20 -year, tax-exempt general obligation municipal bond rate to extent that conditions for LTe. Ro. R not met No Trust: ◦ Yield or index rate for 20 -year, tax-exempt general obligation municipal bond rate Rating of AA/aa or higher May be higher or lower – GASB 45 For valuations not performed annual would need monitored 34

Attribution Same as with GASB Statements 67 & 68 a single method is required: ◦ Entry age actuarial cost method Many used Projected Unit Credit for GASB 45 ◦ Attribution on an individual member by member basis ◦ Level percentage of pay ◦ Beginning attribution period is the first period the member provides service under the benefit terms (notwithstanding vesting) ◦ Services cost attributed through all exit ages

Changes in Net OPEB Liability NOL recognized in current reporting period - (NOL recognized in prior reporting period) Change in NOL for current reporting period Recognize most changes as expense in full in reporting period of change Exceptions (Deferred Inflows/Outflows): ◦ Examples: service cost, interest on TOL, benefit changes, projected earnings on plan investments ◦ ◦ Differences between expected and actual experience Changes of assumptions Difference between projected and actual earnings on plan investments Employer contributions If not in a trust formula changes and no calculation or impact related to investments 36

Changes in Net OPEB Liability Expense recognized in current and future periods ◦ Systematic and rational method ◦ Closed period ◦ Average of expected remaining service lives of all employees (active and inactive, including retirees) ◦ If a trust investments (difference) will be amortized over 5 years Portion not recognized in expense = deferred outflow of resources/deferred inflow of resources related to pensions 37

Net OPEB Liability: Employer contributions Trust: ◦ During the measurement period Directly reduce NOL (no expense impact) ◦ Subsequent to measurement date Deferred outflow of resources related to pensions Directly reduce NOL in next reporting period (no expense impact) No Trust: ◦ Deferred outflow of resources report for amounts paid by the employer for OPEB as the benefits come due subsequent to the measurement date OPEB administrative expense 38

OPEB Plans – Assets Accounting for assets accumulated for OPEB that does not meet the trust criteria: ◦ Single employer – continue to be reported as assets of the employer ◦ Multiple-employer – report the assets in an Agency Fund Exception – employer is a member of the opeb plan (agency fund should exclude the employer amounts) 39

OPEB Expense Changes in Net OPEB Liability (NOL) should be recognized in the current period for certain changes: ◦ Service Cost ◦ Interest ◦ Projected Investment earnings (if a qualifying trust) ◦ Change in benefit terms 40

OPEB Expense & Deferrals Changes in Net OPEB Liability (NOL) that are Deferred and recognized in expense over the average remaining service life (active and inactive): ◦ Difference in expected and actual experience Economic, demographic factors Changes in assumptions Employer Specific Deferred Amounts Change in Proportion (primarily – cost sharing but can occur in other) Contributions during measurement period (primarily cost-sharing) Expense over a five year period ◦ Difference between projected & actual earnings 41

OPEB Expense & Deferrals Employer contributions subsequent to the measurement date (meeting trust criteria): ◦ Deferred Outflow of Resources ◦ Immediate impact on pension expense the subsequent period Employer amounts paid as the benefits come due subsequent to the measurement date (do not meet trust criteria): ◦ Deferred Outflow of Resources ◦ Immediate impact on pension expense the subsequent period 42

OPEB Expense & Deferrals OPEB administrative expense subsequent to the measurement date (do not meet trust criteria): ◦ Deferred Outflow of Resources ◦ Immediate impact on pension expense the subsequent period 43

GASB 75 Summary

Employer Note Disclosures – Descriptions A = Trusted: Single/Agent B = Trusted: Cost-sharing C = Non-trusted: Single D = Non-trusted: PG + CU (stand-alone reports only)

Employer Note Disclosures – Assumptions A = Trusted: Single/Agent B = Trusted: Cost-sharing C = Non-trusted: Single D = Non-trusted: PG + CU (stand-alone reports only)

Employer Note Disclosures – Discount Rates A = Trusted: Single/Agent B = Trusted: Cost-sharing C = Non-trusted: Single D = Non-trusted: PG + CU (stand-alone reports only)

Employer Note Disclosures - Additional A = Trusted: Single/Agent B = Trusted: Cost-sharing C = Non-trusted: Single D = Non-trusted: PG + CU (stand-alone reports only)

Employer - RSI A = Trusted: Single/Agent B = Trusted: Cost-sharing C = Non-trusted: Single D = Non-trusted: PG + CU (stand-alone reports only)

Statement 85 Remember 85 has made some changes to 74 & 75! ◦ Timing of the measurement of pension and OPEB liabilities and related expenditures in financial statements prepared using the current financial resources measurement focus should be measured as of the end of the reporting period. Amounts payable to pension or OPEB Plan Amounts to employees when due and payable and fiduciary fund is insufficient Amounts related to cost of the employer for administration of DB pension or DB OPEB not administered by a trust ◦ On-behalf payments: Incorporate Statement 24

Statement 85 RSI – Payroll related measures ◦ Change in definition of covered-employee payroll – payroll on which contributions to the OPEB plan are based Trust – based on measure of pay No measure of pay – payroll of employees that are provided with OPEB through the OPEB plan Employer-paid member contributions ◦ Even if paid by the employer they will be classified as employee contributions.

Statement 85 Alternative Method: ◦ Assumptions: Expected time of plan member(s) exit from service: Single assumed age Or assumption members will exit at a certain number of service years Turnover: Follow guidance in 74 par 56(e) & 57(a) or 57(d) or 75 par 225(e) & 226(a) or 226(b) Historical age-based turnover of the group or �Data from US OPM related to turnover of the employee group covered by the Federal Employees Retirement System �Or, Data maintained by another entity, e. g. a public employer retirement system, which includes the covered group

Statement 85 Recognition of expense ◦ Change in proportion – Similar to pension Recognize a deferred outflow(inflow) Amortize over remaining service life ◦ Contributions during the measurement period Difference between employer contributions (or amounts paid as OPEB comes due) and the amount allocated to the employer (proportionate share of contributions or amounts paid as OPEB comes due) Recognize a deferred outflow(inflow) for the difference Amortize over remaining service life

Statement 85 OPEB provided through a Multiple-Employer Plan that is not a state or local governmental OPEB plan and ◦ Used to provided benefits to both state and local and non-state and local ◦ Has no predominate state or local governmental employer Guidance similar to Statement No. 78 for pension ◦ No recognition of a Net OPEB Liability ◦ Limited to opeb expense for the amount of employer required contributions and liabilities related to unpaid required contributions

Statement 85 Guidance similar to Statement No. 78 for pension ◦ Limited disclosures: Plan Description Benefit terms Contribution requirement information Employer payables related to OPEB ◦ RSI 10 year schedule of employer required contributions

Now the entries…. . Much like GASB Statement No. 68 ◦ Require Prior Period Adjustment Remove OPEB Obligation/Asset – GASB Statement No. 45 Record beginning balances TOL – No Trust NOL – Trust D. O – Contributions/Benefit Payments ◦ Trusted Plan Traditional Reimbursement ◦ Not administered through a trust

Entries Continued…. Record plan activity ◦ OPEB Expense ◦ Change in TOL or NOL ◦ Recognition of additional deferrals Change in assumptions Diff. expected and actual experience Diff. in projected and actual earnings on investments (trust only) Contributions/benefit payments subsequent to measurement date If measurement date does not coincided with employer year-end.

Case Study A County had a valuation performed under the new requirements of GASB Statement No. 75. The plan benefits and participation are as follows: ◦ Retirees are allowed to continue to participate in the County’s health insurance program ◦ Retirees pay 100% of the premium for the coverage they have selected ◦ The premium for retirees is determined as a blended premium based on active and inactive employees ◦ The County has not elected to establish a trust fund that meets the qualified trust requirements under Statement No. 75.

Case Study OPEB provided through cost sharing multiple employer defined benefit plan ◦ Georgia State Employees Postemployment Benefit Fund Albany Tech College allocations by schedule year: ◦ 2016 -. 409887% ◦ 2017 -. 396262% Govt has elected to use a lookback period 6/30/17 for implementation at 6/30/18 ◦ Contributions to the plan by year: 2017 = $1, 975, 000 2018 = $1, 980, 000

Audit Considerations AICPA Accounting & Audit Guide: State & Local Governments ◦ Chapter 14 – OPEB Some key Considerations: ◦ Actuary/actuarial report TOL or NOL and Deferrals ◦ ◦ ◦ Management or auditor specialist Actuarial communications/certification Census Data Benefit Payments Discount Rate

Risks – Total Pension/OPEB Liability & DI/DO Assumptions/Actuarial methods not in conformity with GASB No. 75 Not using entry-age normal Health care cost trend rate – not reflecting future increases (OPEB only) Inappropriate Discount Rate Not considering current and future participation rates of members in projection of benefits Projection of benefits doesn’t include all benefits under the plan Plan changes not properly included. Def Out/In flows ◦ Compliance with GASB No. 75 Only those specified to be deferred amounts Amortization based on remaining service life (both active and inactives) Benefit payments and admin cost not deferred for amounts subsequent to measurement date. (those not administered through a trust)

Substantive Procedures Obtain actuarial valuation ◦ Evaluation professional qualification of actuary AU-C 500 par. 08 AU-C 300 (auditor specialist) ◦ ◦ Actuary experience with OPEB plans Actuarial valuation within 30 months and 1 day of FYE of employer Read actuarial communication/certification Evaluate appropriate rate used for discount – 20 -yr AA muni bond

Actuarial Communication/Certification Audit Consideration ◦ Read the actuarial certification for potential exclusions from the scope of the actuary’s work or for qualifications on the actuary’s certification relating to actuarial methods, actuarial assumptions, or census data Ensure no deviations from ASOPs General statements covering actuary’s credential Opinion actuarial assumptions are reasonable Whom is responsible for the assumptions Measurements in accordance with Stmt 74 and/or 75

Discount Rate Trust ◦ Similar to GASB Statement No. 68 ◦ LTEROR or Blended Rate (Cross-over point) Blended more likely with OPEB plans than Pension plans Non-Trusted ◦ Discount rate will be the yield/index rate for 20 -year, tax-exempt general obligation municipal bond rated AA/Aa or higher ◦ Possible Audit Procedures Test accuracy of single rate calculation Test reasonableness of the net position projection Test appropriateness of municipal bond rate utilized

Census Data All Plans ◦ Test significant elements of census data for active plan members reported to the plan during 12 month period immediately preceding valuation Additional for Cost-Sharing Plans ◦ Test census data for active employees depending on risk of material misstatement. Will be able to rely on opinion by plan auditor on elements of collective pension amounts for plan maintained census data Additional for Agent Plans ◦ Obtain and review either SOC 1 Type 2 report or AT-C 205 examination report related to census data maintained by the plan Single-Employer ◦ Test remaining incremental changes to census data for active and inactive plan members

Census Date – Sign. Elements Name SSN Date of Birth Date of Hire Marital Status Employment Status Dependents Service Credit Class of Employee Gender Date of termination ◦ Plan members have more than one health care plan option (HMO, PPO, or other) these elections should be reviewed as they may affect projection of claims cost.

Census Data Substantive audit procedures over census data focuses on testing the incremental changes to the census data file since the prior actuarial valuation, assuming: ◦ The prior year plan financial statements were audited; ◦ No modifications to auditors’ report related to census data ◦ No significant risk of material misstatement due to incomplete or inaccurate census data from prior years Procedures would cover the changes during the year immediately preceding the actuarial valuation. ◦ Annual Valuation ◦ Biennial Valuation ? ?

Census Data Common Audit Procedures for Testing Employer Census Data (employer level): ◦ Review actuarial certification (in actuarial report) Ensure no exceptions identified related to census data ◦ Tests of the underlying employer payroll and personnel records Salary – for OPEB only needs verification if factor in benefits ◦ Sample new employees during the year and determine appropriate enrollment in the plan ◦ Verify significant elements of the census data reported to the plan ◦ Confirmation of census data sent to actuary to data from client.

Census Data Common Audit Procedures for Testing Employer Census Data – Continued Consideration of population in census data for sampling ◦ Active Sample from payroll register and sample from census data file Evaluate employee eligibility based on plan document eligibility Compare static census data to prior data file (age, dob, date of hire, gender) Verify incremental changes to personnel records and recalculate Service credits Marital status Salary (if applicable)

Census Data Common Audit Procedures for Testing Employer Census Data – Continued Consideration of population in census data for sampling ◦ Inactive – Receiving benefits Compare static data from prior census data file to current data file Verify/recalculate significant elements of census that has changed from prior file based on criteria of plan document ◦ Inactive – Not yet receiving benefits Compare data from current file to prior census data file Follow-up on any significant changes.

Census Data Common Audit Procedures for Testing Employer Census Data: ◦ Review actuarial certification (in actuarial report) Ensure no exceptions identified related to census data ◦ Tests of the underlying employer payroll and personnel records Salary – for OPEB only needs verification if factor in benefits ◦ Sample new employees during the year and determine appropriate enrollment in the plan ◦ Verify significant elements of the census data reported to the plan

Benefit Payments OPEB benefit payments have a significant impact and how the employer or plan operates will affect what we have as benefit payments ◦ Risk are Self-Insured Plan or Employer retains the risk Claims typically paid by a third-party administrator Benefit payments will be claims (inactives) ◦ Risk transferred to Third-party Insurance company (e. g. aetna, blue cross, health insurance pool) Benefit payments premiums Implicit Rate Subsidy

Benefit payments – Who? Trust ◦ Plan (trust fund itself) may make the benefit payments ◦ Employer may make the benefit payment but be reimbursed by the Trust ◦ Employer may make the benefit payment (from it’s own resources) and not be reimbursed by the Trust Additional recognition by trust fund - addition and deduction Non-Trust ◦ Pay-as-you go – employer making payments for benefits Ensure ability to separate activity between active and inactive

Audit of Benefit Payments – Self-Insured Verify appropriate segregation of claims between active and retiree ◦ If use of an internal service fund retiree activity should not be accounting for in the fund Sample Claims paid: ◦ ◦ Determine beneficiary was eligible Verify claim was for retired member (inactive) Verify claim for type and amount, as well as any approvals required Verify accuracy of claim payment Obtaining a claim data for the period and reconcile to the payments for the plan

Audit of Benefit Payments – Premiums Select sample premiums paid for beneficiaries: ◦ Determine beneficiary was eligible ◦ Verify premium paid was based on health benefit plan and the beneficiaries selection ◦ Verify premium was for the retired member Confirm premium paid and payable the insurance company Analytical procedures ◦ Recalculate premiums (Number of eligible participants x premium rate) ◦ Comparing periodic premiums paid between years and investigate results outside expectation Verify appropriate segregation of premiums between active and inactive

Deferred Out/Inflows of Resources Common procedures: ◦ Agreeing amounts and amortization for prior period deferrals to prior year wp’s and audited financials ◦ Recalculating the CY gross incremental deferrals for differences between actual and expected experience and changes in assumptions based on information in the actuarial valuation report used to measure the NOL/TOL and the amortization of those amounts for the amortization period ◦ Verifying benefit payments made and administrative cost incurred after the measurement date and before the employer’s year-end and comparing to the amount reported as deferred outflows of resources ◦ Recalculating mathematical accuracy of total DO/DI and current year amortization based on items above. For items above also include changes in proportion and diff in actual opeb payments and share of opeb payments may be deferred items as well when allocating amongst the prim govt/cu’s and funds.

Questions?