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WHO, WHAT, WHEN, WHY & HOW GASB 43 & 45
Topics to be covered <ul><li>Who is GASB? </li></ul><ul><li>What are GASB 43 & 45? </li></ul><ul><li>When do we have to co...
Who is GASB? <ul><li>GASB is the Governmental Accounting Standards Board </li></ul><ul><li>Independent, private & not-for-...
What are GASB 43 & 45? <ul><li>GASB 43 & 45 address accounting for Other than Pension Employee Benefits (“OPEB”) such as m...
GASB 43 <ul><li>Employer may create an “irrevocable” trust to pre-fund OPEB benefits </li></ul><ul><li>GASB 43 requires fi...
GASB 45 <ul><li>Values OPEB liabilities on an “accrual” basis rather than the current “pay-as-you-go” basis </li></ul><ul>...
GASB 45 <ul><li>The OPEB plan to be valued is the “substantive” plan (i.e., the plan as understood by the employer & plan ...
GASB 45 – What are the Key Assumptions? <ul><li>Healthcare trend – will be projected over 80 years </li></ul><ul><li>Morta...
When must we comply with GASB 45? <ul><li>GASB defined three (3) phases (used for GASB 34) & associated effective dates: <...
Why was GASB 45 developed? <ul><li>Postemployment benefits represent deferred compensation (i.e., participants elect a low...
How do we comply with GASB 45? <ul><li>First – determine if you offer employees to continue any benefits, other than pensi...
How do we comply with GASB 45? <ul><li>Fourth – contract with an actuarial firm to provide an actuarial valuation of the p...
What do we value & disclose? <ul><li>Under GASB 45, the plan sponsor (i.e., municipal entity) will disclose the following:...
What do we value & disclose? (Continued) <ul><li>Elements of the Annual Required Contribution (“ARC”) </li></ul><ul><ul><l...
What do we value & disclose? (Continued) <ul><li>Disclosure of key assumptions </li></ul><ul><ul><li>Discount Rate </li></...
How do GASB 43 & 45 affect my bond rating? <ul><li>All municipal entities are required to comply with GASB 43 & 45 to issu...
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What is GASB 43 And 45?

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A quick presentation to outline the implementation of GASB 43 & 45 for various municipal entities such as Towns, School Districts, Housing Authorities and more. Addresses Other than Pension Employee Benefits ("OPEB") offered by municipalities.

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Transcript of "What is GASB 43 And 45?"

  1. 1. WHO, WHAT, WHEN, WHY & HOW GASB 43 & 45
  2. 2. Topics to be covered <ul><li>Who is GASB? </li></ul><ul><li>What are GASB 43 & 45? </li></ul><ul><li>When do we have to comply with the statements? </li></ul><ul><li>Why were these statements created? </li></ul><ul><li>How do we address the issues? </li></ul><ul><li>What is to be disclosed on financial statements? </li></ul><ul><li>How do GASB 43 & 45 affect my bond rating? </li></ul>
  3. 3. Who is GASB? <ul><li>GASB is the Governmental Accounting Standards Board </li></ul><ul><li>Independent, private & not-for-profit organization that establishes & improves standards of financial accounting & reporting for State & Local governmental entities </li></ul><ul><li>Governments & the accounting industry recognize GASB as the official source of generally accepted accounting principals (“GAAP”) for State & Local governments </li></ul>
  4. 4. What are GASB 43 & 45? <ul><li>GASB 43 & 45 address accounting for Other than Pension Employee Benefits (“OPEB”) such as medical, dental & life insurance provided to former employees </li></ul><ul><li>GASB 43 covers financial reporting for OPEB plans </li></ul><ul><li>GASB 45 covers both financial reporting & accounting for government employers who sponsor OPEB plans </li></ul><ul><ul><li>Most times GASB 45 will apply (unless you pre-fund the plan) </li></ul></ul>
  5. 5. GASB 43 <ul><li>Employer may create an “irrevocable” trust to pre-fund OPEB benefits </li></ul><ul><li>GASB 43 requires financial reporting for the Plan including funded status, changes in assets, composition & sources of assets along with liability information (GASB 45) </li></ul>
  6. 6. GASB 45 <ul><li>Values OPEB liabilities on an “accrual” basis rather than the current “pay-as-you-go” basis </li></ul><ul><ul><li>Requires use of many actuarial assumptions including, but not limited to: </li></ul></ul><ul><ul><ul><li>Healthcare trend </li></ul></ul></ul><ul><ul><ul><li>Mortality (pre & post retirement) </li></ul></ul></ul><ul><ul><ul><li>Termination of employment </li></ul></ul></ul><ul><ul><ul><li>Salary increases </li></ul></ul></ul><ul><ul><ul><li>Probability of retirement by age </li></ul></ul></ul><ul><ul><ul><li>Probability of electing coverage for retiree and/or dependents </li></ul></ul></ul>
  7. 7. GASB 45 <ul><li>The OPEB plan to be valued is the “substantive” plan (i.e., the plan as understood by the employer & plan members) </li></ul>
  8. 8. GASB 45 – What are the Key Assumptions? <ul><li>Healthcare trend – will be projected over 80 years </li></ul><ul><li>Mortality – reflects probability of death each year for employees, retirees & dependents </li></ul><ul><li>Termination of employment – allows the actuary to determine likelihood employee will reach eligibility for benefits </li></ul><ul><li>Retirement – the liabilities will vary based on the age at which the employee retires </li></ul><ul><li>Discount rate – if plan is funded in irrevocable trust under GASB 43, we can use a long-term rate. Else, the rate shall be based on what the entity earns on short-term cash </li></ul>
  9. 9. When must we comply with GASB 45? <ul><li>GASB defined three (3) phases (used for GASB 34) & associated effective dates: </li></ul><ul><ul><li>Phase I (total annual revenues of $100 million or more) – financial statements for periods beginning after December 15, 2006 </li></ul></ul><ul><ul><li>Phase II (total annual revenues of $10 million or more, but less than $100 million) – financial statements for periods beginning after December 15, 2007 </li></ul></ul><ul><ul><li>Phase III (total annual revenues of less than $10 million) – financial statements for periods beginning after December 15, 2008 </li></ul></ul>
  10. 10. Why was GASB 45 developed? <ul><li>Postemployment benefits represent deferred compensation (i.e., participants elect a lower current pay in exchange for a future promised benefit) </li></ul><ul><li>Under accrual accounting, OPEB costs should be associated with the period earned, not the period paid </li></ul><ul><ul><li>Recognize cost of benefits earned while employee provides services </li></ul></ul><ul><ul><li>Provides information related to past benefits earned and funding (if any) </li></ul></ul><ul><ul><li>Provide information related to potential future demands on employer cash flows </li></ul></ul>
  11. 11. How do we comply with GASB 45? <ul><li>First – determine if you offer employees to continue any benefits, other than pensions, beyond the COBRA period after employment ends – if so, you have an OPEB plan </li></ul><ul><li>Second – review with your auditors regarding materiality – it has likely been in your annual management letter </li></ul><ul><li>Third – if under 100 total members, you may use an alternative measurement method (have seen very few try this) </li></ul>
  12. 12. How do we comply with GASB 45? <ul><li>Fourth – contract with an actuarial firm to provide an actuarial valuation of the plan (if under 200 members, every three years, else every two years) </li></ul><ul><li>Fifth – provide actuarial valuation report to your auditors to allow them to reflect in your financial statements </li></ul>
  13. 13. What do we value & disclose? <ul><li>Under GASB 45, the plan sponsor (i.e., municipal entity) will disclose the following: </li></ul><ul><ul><li>Actuarial Accrued Liability (“AAL”) – value of benefits earned to date </li></ul></ul><ul><ul><li>Fair Value of Plan Assets (“Assets”) – will be zero unless funded under GASB 43 in an irrevocable trust </li></ul></ul><ul><ul><li>Funded Status of Plan (“UAAL”) – AAL less Assets </li></ul></ul><ul><ul><li>Liability as % of Payroll – UAAL / Payroll </li></ul></ul>
  14. 14. What do we value & disclose? (Continued) <ul><li>Elements of the Annual Required Contribution (“ARC”) </li></ul><ul><ul><li>Service Cost (“SC”) – value of benefits accruing during year </li></ul></ul><ul><ul><li>Amortization Cost (“AC”) – May be either a flat dollar or level % of pay over a period not to exceed 30 years (this amount reflects interest and is NOT a straight-line amortization) </li></ul></ul><ul><ul><li>Interest to end of year </li></ul></ul>
  15. 15. What do we value & disclose? (Continued) <ul><li>Disclosure of key assumptions </li></ul><ul><ul><li>Discount Rate </li></ul></ul><ul><ul><li>Healthcare trend </li></ul></ul><ul><ul><li>Description of substantive plans </li></ul></ul><ul><ul><li>Description of cost-sharing arrangements </li></ul></ul><ul><ul><li>Rate of compensation increases </li></ul></ul><ul><ul><li>Plan funding policy </li></ul></ul><ul><ul><li>Details of Annual OPEB Cost, Amount funded & change in OPEB Obligation </li></ul></ul><ul><ul><li>Annual OPEB Cost, % of Payroll & Amount contributed each of last three (3) years </li></ul></ul><ul><ul><li>Funded status & funding progress </li></ul></ul>
  16. 16. How do GASB 43 & 45 affect my bond rating? <ul><li>All municipal entities are required to comply with GASB 43 & 45 to issue GAAP financial statements </li></ul><ul><li>Over 90% of municipal entities have OPEB plans & liabilities (including plans with implicit liability) </li></ul><ul><ul><li>Therefore, all will face increased liabilities on financial statements </li></ul></ul><ul><ul><li>S&P, Moodys & Fitch have known about these plans and are unlikely to downgrade sponsors in the short run </li></ul></ul><ul><ul><ul><li>Longer term, those with liabilities that are large in relation to taxing authority & payroll may suffer compared to others </li></ul></ul></ul>
  17. 17. Questions?
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