We have the OPEB numbers, now what? MASBO Annual Conference April 30, 2009
Topics <ul><li>What do all these numbers mean? </li></ul><ul><li>What do we have to do with them?  </li></ul><ul><li>What ...
What do all these numbers mean? Fund deduction Balance sheet liability, starts at $0 Net OPEB Obligation Cash contribution...
What do we have to do with these numbers? Step 1 - building blocks from the actuarial report:
What do we have to do with these numbers?  (continued) Step 2 – track the Net OPEB Obligation (NOO):
What happens in the second and third years? Step 3 – roll the NOO forward another year:
What actions should we consider?  (OPEB cost control) <ul><li>Plan “tweaks” </li></ul><ul><li>Funding / bonding </li></ul>...
Plan tweaks: many options <ul><li>Prescription drugs – lower generic & OTC copays, higher name brand </li></ul><ul><li>Eli...
Funding <ul><li>Potential higher discount rate (lower liabilities) </li></ul><ul><li>Possible greater flexibility in inves...
OPEB Funding Rules <ul><li>GASB’s requirements for a funded plan </li></ul><ul><li>Employer contributions irrevocable </li...
Bonding <ul><li>Many MN districts have issued OPEB bonds </li></ul><ul><li>Can issue bonds up to “actuarially determined l...
Defined Contribution Accounts <ul><li>What they do </li></ul><ul><li>Replace open-ended liabilities with known cost </li><...
Defined Contribution Accounts <ul><li>Transition from defined benefit: Palmdale </li></ul><ul><li>Preserve current benefit...
Cost Control Examples <ul><li>City of Duluth – a little of everything </li></ul><ul><li>Prescription drugs – new copay sch...
Questions?? James A. Van Iwaarden, FSA Sandra L. Bruns, FSA Brenda K. Hardy, ASA Peter J. Cullen, EA Mark W. Schulte, FSA ...
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Opeb now what

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Opeb now what

  1. 1. We have the OPEB numbers, now what? MASBO Annual Conference April 30, 2009
  2. 2. Topics <ul><li>What do all these numbers mean? </li></ul><ul><li>What do we have to do with them?  </li></ul><ul><li>What happens in the second and third years? </li></ul><ul><li>What actions should we consider? </li></ul>
  3. 3. What do all these numbers mean? Fund deduction Balance sheet liability, starts at $0 Net OPEB Obligation Cash contribution Expense to recognize Annual OPEB Cost Balance sheet liability Footnote, expense component Unfunded Accrued Liability (UAL) Mandatory funding Component of expense Annual Required Contribution (ARC) What It’s NOT What It IS Term
  4. 4. What do we have to do with these numbers? Step 1 - building blocks from the actuarial report:
  5. 5. What do we have to do with these numbers? (continued) Step 2 – track the Net OPEB Obligation (NOO):
  6. 6. What happens in the second and third years? Step 3 – roll the NOO forward another year:
  7. 7. What actions should we consider? (OPEB cost control) <ul><li>Plan “tweaks” </li></ul><ul><li>Funding / bonding </li></ul><ul><li>Defined contribution </li></ul><ul><li>accounts </li></ul>
  8. 8. Plan tweaks: many options <ul><li>Prescription drugs – lower generic & OTC copays, higher name brand </li></ul><ul><li>Eligibility: service requirements for full benefits </li></ul><ul><li>Different benefits for new employees </li></ul><ul><li>Defined dollar benefit (DDB) </li></ul><ul><li>Medicare integration method: </li></ul><ul><li>COB, exclusion or carve-out </li></ul><ul><li>Medicare Part D strategies </li></ul>
  9. 9. Funding <ul><li>Potential higher discount rate (lower liabilities) </li></ul><ul><li>Possible greater flexibility in investments </li></ul><ul><li>Smaller ARC and Net OPEB Obligation </li></ul><ul><li>Better credit rating </li></ul><ul><li>* Note that pre-funding is NOT required </li></ul>
  10. 10. OPEB Funding Rules <ul><li>GASB’s requirements for a funded plan </li></ul><ul><li>Employer contributions irrevocable </li></ul><ul><li>Assets dedicated to providing retiree benefits </li></ul><ul><li>Assets protected from creditors </li></ul><ul><li>Funding vehicles </li></ul><ul><li>501(c)(9) trust, aka VEBA </li></ul><ul><li>Section 115 Trust </li></ul><ul><li>Insurance Contract </li></ul>
  11. 11. Bonding <ul><li>Many MN districts have issued OPEB bonds </li></ul><ul><li>Can issue bonds up to “actuarially determined liabilities” (interpret to mean UAL) </li></ul><ul><li>Money goes into OPEB trust </li></ul><ul><ul><li>revocable – more flexibility </li></ul></ul><ul><ul><li>irrevocable – counts as assets for GASB </li></ul></ul><ul><li>No referendum required for levy </li></ul>
  12. 12. Defined Contribution Accounts <ul><li>What they do </li></ul><ul><li>Replace open-ended liabilities with known cost </li></ul><ul><li>Potentially more secure benefits for employees </li></ul>
  13. 13. Defined Contribution Accounts <ul><li>Transition from defined benefit: Palmdale </li></ul><ul><li>Preserve current benefits for those near retirement </li></ul><ul><li>Evaluate benefits for eligible employees </li></ul><ul><li>Set up an individual account for each with: </li></ul><ul><ul><li>a starting balance for past-service benefits </li></ul></ul><ul><ul><li>regular payroll contributions </li></ul></ul><ul><li>Invest in default or chosen funds </li></ul><ul><li>Web-based claim and premium payments </li></ul>
  14. 14. Cost Control Examples <ul><li>City of Duluth – a little of everything </li></ul><ul><li>Prescription drugs – new copay schedules </li></ul><ul><li>Start to pre-fund existing OPEB liabilities </li></ul><ul><li>Defined contribution accounts for new hires </li></ul>
  15. 15. Questions?? James A. Van Iwaarden, FSA Sandra L. Bruns, FSA Brenda K. Hardy, ASA Peter J. Cullen, EA Mark W. Schulte, FSA Mark D. Meyer, FSA www.vaniwaarden.com 888.596.5960 toll free, 612.596.5960 TC

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