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Lessons from the Front Lines of GASB 75 Reporting

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What we've learned from applying the GASB 75 accounting rules for Other Post-Employment Benefits (OPEB) in California, Minnesota and other states

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Lessons from the Front Lines of GASB 75 Reporting

  1. 1. 2018 MASBO Annual Conference Mark Schulte, FSA, EA, MAAA Laura Pistotnik, ASA, MAAA May 9, 2018
  2. 2. 1 GASB 75 Background 2 Common Pitfalls … So Far  Volume of disclosures  Timing  Fiduciary Net Position  Assumptions  Crossover calculations  Other Stuff 3 What to do now 1
  3. 3.  Lots of information about GASB 75 during the past few years; now it’s finally here  Substantial changes to volume and content of OPEB financial reporting  Unfunded liability on face of financial statements  Accounting expense (and funded status) likely more volatile  Potential increased scrutiny on OPEB costs  Many technical details handled by actuary and auditor, but need employer understanding too 2
  4. 4.  Already have experience with new GASB 68 rules, but districts only reported share of statewide NET Pension Liability (NPL)  GASB 75 for OPEB needs to track Total OPEB Liability (TOL), Fiduciary Net Position (FNP), and Net OPEB Liability (NOL)  OPEB will require more disclosure information than pensions 3
  5. 5.  GASB statements and Implementation Guides have good sample note disclosures/RSI – use them!  CA whitepaper has appendices with instructions on 1st year accounting adjustments and sample footnotes  Once set up, the notes/RSI templates should be fairly recyclable 4
  6. 6.  Can measure assets/liabilities up to 12 months prior to fiscal year end (unfunded plans)  Much easier to use this “lookback” method than to wait until after year-end to collect data 5 Valuation Date & Measurement Date Reporting Date Net amount Reported at FYE Calculate liabilities & Measure assets 6/30/2017 6/30/2018
  7. 7.  Lookback method requires making small update to deferred outflows of resources after fiscal year-end. 6  Adjustment includes payments outside trust (IS + DS) plus any trust contributions
  8. 8.  Biennial actuarial reports with roll-forward updates in the “off years” (Q&A 4.70) 7 Update Item Considerations Discount rate  Muni bond index rate  “Crossover” calculation for funded plans Assets Must reflect actual year-end assets Benefit payments  Need to use actual direct subsidy benefit payments  Implicit subsidy payments usually estimated by actuary Plan changes  What does this encompass?  Retiree subsidies only; or health plan/premiums in general?
  9. 9.  Often used synonymously with “trust assets” – but that’s not the whole story  FNP balance is the TRUST asset balance, but transactions reflect all PLAN (trust + employer) cash flows  Even unfunded plans have an FNP reconciliation  Offsetting employer-paid contributions and benefit payments net to $0 8
  10. 10. 9 Sample Unfunded Plan
  11. 11. 10 Sample Funded Plan
  12. 12.  Payables and receivables  Only include receivables if “due pursuant to legal requirements”  OPEB payables “should include … benefit payments that are owed by employers … as the benefits come due”  Reimbursements from trust are reflected as a reduction in employer contributions  Employers with multiple trusts: usually can only reflect assets of one trust in FNP calculations 11
  13. 13. 12 Assumption Considerations Investment return  Must explain rationale in footnotes  Ideally based on advice from investment advisor (if have one)  Otherwise, actuary runs it through a capital market assumption model Municipal bond index rate  This is an input, not an assumption  Several published indices available  Will change every year Cadillac Tax  Must reflect it (GASB 75 par. 32)  Will affect most plans  Often delayed, but still law
  14. 14. 13  Crossover calculations for discount rate
  15. 15. 14  Methods are prescribed and must be followed  Conceptually straightforward, but several nuances  GASB process may not match reality 1. Project employer contributions and plan benefit payments 2. Project FNP in future periods 3. Compare projected FNP to benefit payments in each period; classify future payments as funded or unfunded
  16. 16. 15  Some low-funded plans may actually be able to use expected investment return for discount rate  MN OPEB investments often invested very conservatively so may have discount rate lower than muni bond index rate
  17. 17. 16  1. Project employer contributions and offset by future employee service costs 1 Pay-as-you-go: gross employer “contributions” equal to expected benefit payments 2 Future employee service costs are implicit subsidy only in this example
  18. 18. 17  2. Project FNP using net contributions and benefit payments  Projected FNP actually increases since net positive cash flow
  19. 19. 18  3. Compare FNP in each period to benefit payments  If payments < FNP then discount using expected investment return
  20. 20. 19  Different payroll measures for certain calculations  Present NOL as % of Measurement Year payroll  Present contributions as % of Reporting Year payroll  Breakdown of liabilities by bargaining unit  NOL allocations are straightforward  Accounting allocations more complex  Proportionate share calculations for standalone financials can be very challenging
  21. 21. 20  Alternative Measurement Method (AMM)  Still available but calculations more complex  Almost a full actuarial valuation  AMM Prescribed vs. flexible assumptions Prescribed  Retiree claims costs/aging  Termination rates (if historical not available) Flexible  Retirement age  Marital status/dependent coverage  Mortality  Medical trend rates (objective source)
  22. 22. 21  AMM accounting is also a little different  No deferral of experience or assumption gains/losses  Can make OPEB accounting expense very volatile
  23. 23.  Make sure you get a head start on FY2018 GASB 75 reporting  Evaluate assumptions (discount rate, investment return, & Cadillac Tax) and consider how they will affect GASB 75 calculations  Consider OPEB pre-funding if would have a significant effect on liability discount rate 22
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  25. 25. Mark Schulte, FSA, EA, MAAA marks@vaniwaarden.com Laura Pistotnik, ASA, MAAA laurap@vaniwaarden.com Van Iwaarden Associates 612.596.5960 All information in this presentation is for general informational purposes only and should not be relied upon without the express written consent of the authors. L/D/C/R: 4/ms/sb 24

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