GASB Statement No 45 Accounting and Financial Reporting

GASB Statement No. 45 Accounting and Financial Reporting by Employers for Other Postemployment Benefits (OPEB) Robert E. Byrd, CGFM County Auditor-Controller County of Riverside ■ Office of the Auditor-Controller

Objectives • To keep County departments informed of new financial reporting requirements. • To provide an overview of the County’s OPEB costs. County of Riverside ■ Office of the Auditor-Controller

Background • In general, many public sector employers provide retirement benefits other than pension as part of the total compensation offered to attract and retain qualified employees. • Most governments do not report information about the nature and size of their long-term financial obligations and commitments related to OPEB. County of Riverside ■ Office of the Auditor-Controller

Background • The readers of the financial statements, including the public have incomplete information with which to assess the cost of public services and to analyze the financial position and long-term financial health of a government. County of Riverside ■ Office of the Auditor-Controller

Purpose of GASB 45 stipulate standards for the measurement, recognition, and display of OPEB expense/expenditures and related liabilities (assets), note disclosures, and required supplementary information (RSI) in the financial reports of state and local governments. County of Riverside ■ Office of the Auditor-Controller

Purpose of GASB 45 • The cost of OPEB, like the cost of pension benefits, should be associated with the period the exchange occurs, rather than with the periods (often many years later) when benefits are paid or provided. • The cost of these future benefits is part of the cost of providing public services today. County of Riverside ■ Office of the Auditor-Controller

What are Other Postemployment Benefits? Medical Life Insurance Dental Long -Term Care Vision Legal Benefits Prescription County of Riverside ■ Office of the Auditor-Controller

GASB 45 Requirements • Most governments expense each year on a Pay-asyou-go approach (i. e. , retiree premiums or claims actually paid in that year). • Under GASB 45, such benefits will be expensed during the employee’s active years (i. e. , in addition to the pay-as-you-go expense, an additional expense must be accrued for each active employee). County of Riverside ■ Office of the Auditor-Controller

GASB 45 Requirements (continued)… • In order to account and report annual cost of OPEB and the outstanding obligations and commitments, an actuarial valuation is performed. • An Annual Required Contribution (ARC) is produced by the actuary each year based on the Plan’s assets and liabilities. County of Riverside ■ Office of the Auditor-Controller

GASB 45 Requirements (continued)… What does the actuarial model determine each year? 1. Liability Calculation • The Past Year’s portion (Past Service Liability, Accrued Liability, or Actuarial Liability) • The Current Year’s portion (Normal Cost) • The Future Year’s portion (Future Service Liability) County of Riverside ■ Office of the Auditor-Controller

GASB 45 Requirements (continued)… 2. Accounting Cost Calculation: • The Normal Cost – the cost of benefits earned each year to be accrued in that year. • Past Service Cost – a catch-up accrual to amortize the past service liability over the next 30 years. County of Riverside ■ Office of the Auditor-Controller

GASB 45 Requirements (continued)… • The valuation should be conducted at the following minimum frequency: – For plans with a total membership of 200 or more at least biennially – For plans with a total membership of fewer than 200 at least triennially • New valuations always required in any year with substantial changes. County of Riverside ■ Office of the Auditor-Controller

GASB 45 Requirements (continued)… Note disclosures: • Plan Description – Name of plan and identification of the entity that administers the plan – Brief description of the types of benefits • Funding Policy – Required contribution rates of plan members – Required contribution rates of employers • Actuarial Methods and assumptions County of Riverside ■ Office of the Auditor-Controller

GASB 45 Requirements (continued)… • Required Supplementary Information to be shown with three years of historical information. • GASB 45 says subsidy must be included in liability calculation even if participants pay 100% of premium rate assessed. County of Riverside ■ Office of the Auditor-Controller

What is Implicit Rate Subsidy? • Retirees use benefits at a greater rate than active employees higher claims costs. • When retirees pay the same premium as active employees, their premiums are subsidized by the group plan. County of Riverside ■ Office of the Auditor-Controller

The Implicit Rate Subsidy If retirees have access to benefits at the same rate as current employees, the liability needs to reflect the Implicit Rate Subsidy, as the basis for charging retirees may be much less than the true cost of providing such benefits. County of Riverside ■ Office of the Auditor-Controller

Implicit Rate Subsidy Example Under Blue Shield HMO: Estimated true cost for Retirees $610 per month Blended Premium paid $374 per month The difference of $236 ($610 - $374= $236) is implicit subsidy and considered employer obligation under the GASB 45. County of Riverside ■ Office of the Auditor-Controller

Definitions Annual Required Contribution (ARC) – is defined as the employer’s required contributions for the year, calculated in accordance with certain parameters, and includes: – The normal cost for the year and – A component for amortization of the total unfunded actuarial accrued liabilities of the plan over a period not to exceed thirty years. County of Riverside ■ Office of the Auditor-Controller

Definitions Normal Cost Earned this Year + Amortization of UAAL = Earned in Past Years County of Riverside ■ Office of the Auditor-Controller Annual Required Contribution (ARC) Total

Definitions Present Value of Benefits (PVB) – represents The actuarial present value of all future benefits ever to be paid to current employees and retirees. Normal Cost – is the portion of the PVB that is allocated to the current plan year for active employees. County of Riverside ■ Office of the Auditor-Controller

Definitions Actuarial Accrued Liability (AAL) – value in today’s dollars (i. e. , present value) of vested and vesting benefits promised to employees as compensation for services already provided. Unfunded Actuarial Accrued Liability UAAL) – is the difference between accumulated resources and actuarial accrued liability. County of Riverside ■ Office of the Auditor-Controller

Riverside County OPEB Reporting Changes County’s OPEB Liabilities: • Actuarial Accrued Liability (AAL) $48, 582, 000 • Annual Required Contribution $4, 390, 000 • Normal Cost $1, 626, 000 Note: Waste, Parks and Flood were not included in this valuation County of Riverside ■ Office of the Auditor-Controller

Questions ? ? ? ? ? ? ? County of Riverside ■ Office of the Auditor-Controller ?