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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
  24. 24. 23
  25. 25. Mark Schulte, FSA, EA, MAAA Laura Pistotnik, ASA, MAAA 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