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1Maze Live July 18, 2017
Mary Beth Redding
July 18, 2017mbredding@bartel-associates.com
650-377-1617
Maze Live
GASBS 74 and 75: Other
Post-employment Benefits
2Maze Live July 18, 2017
Agenda
 Brief Summary of GASB Statements 73, 74 and 75 3
 Implementation Date, Measurement Date,
Valuation Date 23
 Data Issues 32
 Actuarial Issues 37
 What to Expect from the Actuary’s Report 51
3Maze Live July 18, 2017
GASBS 73 Summary
4Maze Live July 18, 2017
GASBS 73 – Unfunded Pension Plans
 Replaces GASBS 27 Effective FY Beg. > 6/15/16
 Similar to GASBS 68, but
 Reporting for unfunded pension plans
 In the employer’s financial statements
 Does not affect/require contributions
5Maze Live July 18, 2017
GASBS 73 – Unfunded Pension Plans
 Unfunded single employer plans
 CalPERS Replacement Benefit Fund
 Benefits > IRS limit ($210,000/yr in 2015)
 Retirees and non-retirees with large projected benefits
 Materiality?
 Other supplemental pension plans or bargained
arrangements
6Maze Live July 18, 2017
GASBS 73 – Unfunded Pension Plans
 Pension Expense
 Net pension liability
 Deferred outflows & inflows
 Discount rate = Aa Municipal bond rate
 Additional note disclosures and RSI
7Maze Live July 18, 2017
GASBS 74 Summary
8Maze Live July 18, 2017
GASBS 74 – OPEB Plans
 Replaces GASBS 43 Effective FY Beg. > 6/15/16
 Similar to GASBS 67
 Reporting for funded OPEB plans
 In the plan’s financial statements
 Stand-alone
 Fiduciary fund in employer’s financial statements
 Does not affect/require contributions
9Maze Live July 18, 2017
GASBS 74 Basics
 3 Plan types:
 Single employer
 Agent (multiple employer, assets pooled for
investment)
 Cost sharing (multiple employer, assets available to all)
10Maze Live July 18, 2017
GASBS 74 – OPEB Plans
 New definition of OPEB Plan: arrangement
through which:
 OPEB is determined
 Assets dedicated for OPEB (if any) are managed
 Benefits are paid as they come due
 Must agencies funding with CERBT, PARS, etc.,
report GASBS 74?
 CalPERS is reporting CERBT under GASBS 74
 Check with your auditor!
11Maze Live July 18, 2017
GASBS 74 – OPEB Plans
 Additional note disclosures and RSI for single
employer plans and cost-sharing plans
 Net OPEB Liability
 Funded status & contributions relative to payroll
 Change in Net OPEB Liability (NOL)
 Investment return
 Sensitivity of NOL to 1 % increase/decrease in:
 Discount rate and medical trend rate
 Report benefit payments and IS paid outside Trust
12Maze Live July 18, 2017
GASBS 75 Summary
13Maze Live July 18, 2017
GASBS 75 –
Employer Reporting
 Effective FY Beginning > 6/15/17
 Replaces GASBS 45
 Similar to GASBS 68
 Everyone will recognize net OPEB liability
 Biennial actuarial valuations
 Additional note disclosures and RSI
 Does not affect contributions (or require funding)
14Maze Live July 18, 2017
What Are OPEB Benefits?
 Post retirement:
 Healthcare
 Dental, vision, hearing
 Medicare premium reimbursement
 Life insurance, if not part of a pension plan
 Disability, long term care, if not part of a pension plan
 Not: termination payments
 Vacation or sick leave cash outs
15Maze Live July 18, 2017
What is DB OPEB?
 Defined Contribution:
 Individual account for each member
 Employer contributions to active employee accounts
defined in document
 Retiree benefits solely from account balances including
actual earnings on investments
 Defined Benefit is everything else including:
 HSA with guaranteed interest rate
 Sick leave converted to benefits (not cash or account)
16Maze Live July 18, 2017
Net OPEB Liability
 Net OPEB Liability (NOL) added to balance sheet
 Total OPEB liability minus assets (FNP)
 May be similar magnitude to NPL
 Many OPEB plans are not pre-funding yet
 Likely more variable than pension (NPL)
 Almost certainly not news to bond analysts
 May be more of a surprise to Boards, Councils,
ratepayers or taxpayers
17Maze Live July 18, 2017
OPEB Expense
 Change in net OPEB liability* = OPEB expense
 Not equal to contributions or “pay-go”
 Independent of employer contribution
 Some portions of the change are deferred and
recognized in expense over time
 Portions not yet recognized are deferred inflows or
outflows of resources on balance sheet
* Minus employer contribution
18Maze Live July 18, 2017
OPEB Expense
 How actuaries calculate expense:
 Service cost (value of benefits accruing in the year)
 Interest on total OPEB liability
 Minus: Expected return on assets
 Administrative expenses
 Change in plan benefits (not amortized)
 Recognition of deferrals:
 Investment (gain)/loss (5 years)
 Assumption & Experience changes (EARSL)
19Maze Live July 18, 2017
OPEB Expense
 How non-actuaries calculate expense:
Fiscal Year Ending Change
6/30/17 6/30/18
For FY
Measurement Date 6/30/16 6/30/17
Net OPEB liability 500,000 625,000 125,000
Deferred inflows of resources 0 (15,000) (15,000)
Deferred outflows of resources 0 45,000 45,000
Deferred outflow - contributions after
measurement date 20,000 30,000 10,000
Contributions during the fiscal year N/A 30,000 30,000
Total = NOL- Inflows - Outflows +
Contribution 480,000 565,000 85,000
OPEB Expense 85,000
20Maze Live July 18, 2017
Statement 75
 Funded through a trust meeting Paragraph 4?
 If Yes, then:
 Single employer/agent multiple employer
 Cost sharing multiple employer
 No
 Special circumstances:
 Nonemployer contributing entity; special funding
situation
 Insured plans & defined contribution
21Maze Live July 18, 2017
Notes and RSI
 Reconciliation of net OPEB liability during year
 Eventually 10 year history
 Employers with single and agent plans only
 Sensitivity of NOL to +/- 1% discount rate
and +/- 1% medical trend
 OPEB expense and deferred inflows and outflows
of resources
 Notes on plan, governance, investments, actuarial
assumptions, asset return, etc, as for pensions
22Maze Live July 18, 2017
Actuarially Determined Contribution
 GASBS 75 does not specify “Annual Required
Contribution” (ARC)
 Actuarially determined contribution (ADC)
 Must conform to actuarial standards but no other
requirements specified
 Disclosed in RSI
 Not required to be disclosed unless calculated
 No disclosure for unfunded plans
23Maze Live July 18, 2017
Implementation Date
Measurement Date
Valuation Date
24Maze Live July 18, 2017
Measurement Date
 Date to measure:
 Value of plan assets
 Municipal Bond rate used to set discount rate
 Value of total OPEB liability
 May be “rolled forward” from previous valuation
 If no significant changes
 Net OPEB liability
 Net OPEB liability @ measurement date is
reported unadjusted at FYE
25Maze Live July 18, 2017
Measurement Date
 Generally recommend selecting 1 year before FYE
 Example: 6/30/17 measurement date for 6/30/18 FYE
 Same timing as CalPERS
 Allows actuarial report to be completed and ready for
audit before FYE
 If reporting for OPEB Plan (GASBS 74)
 Recommend: measurement date = FYE
26Maze Live July 18, 2017
Actuarial Valuation Date
 Up to 2-1/2 years before FYE
 Recommend: select a date before FYE
 June 30th date not required
 Work with your auditor and actuary
 CERBT valuation requirements
 No longer require 6/30 of odd-numbered years
27Maze Live July 18, 2017
GASBS 75
 Work with your actuary and auditor to:
 Select measurement date
 Choose valuation dates
 Select implementation timing
28Maze Live July 18, 2017
Timing (No GASBS 74)
Implementation
Date (FYE) 6/30/17 6/30/18
Measurement
Date
(Assets/Muni Bond
Rate)
6/30/16 6/30/17 6/30/17 6/30/18
29Maze Live July 18, 2017
Timing (No GASBS 74)
Implementation Date 6/30/18
Measurement Date 6/30/17 6/30/18
Valuation Date 1/1/16 to 6/30/17
Valuation Complete*5/1/16
GASBS68 Complete8/15/17
* Initial actuarial valuation before roll-forward
30Maze Live July 18, 2017
Timing (No GASBS 74)
Implementation Date 6/30/18
Measurement Date 6/30/17 6/30/18
Valuation Date 1/1/16 to 6/30/17
Valuation Complete*5/1/16 10/31/17
GASBS68 Complete8/15/17 10/31/17
* Initial actuarial valuation before roll-forward
31Maze Live July 18, 2017
Timing (No GASBS 74)
Implementation Date 6/30/18
Measurement Date 6/30/17 6/30/18
Valuation Date 1/1/16 to 1/1/16 to6/30/17 6/30/18
Valuation Complete*5/1/16 5/1/1610/31/17 10/31/18
GASBS68 Complete8/15/17 8/15/1810/31/17 10/31/18
* Initial actuarial valuation before roll-forward
32Maze Live July 18, 2017
Data Issues
33Maze Live July 18, 2017
GASBS 75
 Audit issues may be fewer than with GASBS 68
since employers generally control data
 Audit issues may be greater than with GASBS 68
since employers generally control data
34Maze Live July 18, 2017
What is the Plan?
 “Substantive Plan”
 Understood by employer and employees
 Look to any documents/MOUs
 Any communications with employees/retirees
 Agreements in effect at the fiscal year end
 Different for each Agency
35Maze Live July 18, 2017
What is the Plan?
 Understand & document OPEB for all past,
current and future retirees
 Eligibility (hire date/retire date/employee group)
 Benefits (employer/retiree paid amounts, and for
how long)
 Coverage (retiree/spouse/family/survivors)
 Include benefits under special arrangements
 Include benefits for new tiers with no current retirees
36Maze Live July 18, 2017
Who Benefits?
 Census Data: All current and future participants
 Include anyone who might benefit in the future:
 Active employees not yet vested
 Active employees currently waiving health coverage
 Active employees who will be able to stay in the
employer’s plan at retirement by paying the full premium
 Retirees/terminateds who can elect coverage in the future
 Data may come from several sources
 CalPERS PEMHCA download often not complete
37Maze Live July 18, 2017
Actuarial Issues
38Maze Live July 18, 2017
Actuarial Issues
 Discount Rate
 Implied Subsidy
 Other
 AMM
39Maze Live July 18, 2017
Discount Rate
 “Crossover test” to determine discount rate
 Not the same as GASSB 45
 If plan assets are projected to cover benefit
payments, discount rate = expected rate of return
on assets
 Provided assets invested so as to generate that return
 Contribution policy of full ARC, with reasonable
amortization period should be OK
 Look to last 5 years of actual contributions
40Maze Live July 18, 2017
Discount Rate
 Unfunded and poorly funded plans use 20 year
AA municipal bond discount rate
 GASBS 75 does not specify which bond curve to use
 http://www.bartel-associates.com/resources/select-
gasb-67-68-discount-rate-indices
41Maze Live July 18, 2017
Discount Rate
 Expect many more OPEB plans with a crossover
than for pension plans
 Municipal Bond Rate
 Rate is volatile
 Net OPEB liability will be volatile
42Maze Live July 18, 2017
Current 20 Year AA Municipal Bond
Rates
43Maze Live July 18, 2017
Why Pre-fund OPEB?
 Taxpayer equity
 Benefits should be paid for over employee’s service
 More manageable cost pattern
 Pay-as-you-go typically increases rapidly over time
 For financial reporting: higher discount rate & lower
net OPEB liability
 Demonstrates to stakeholders you are addressing OPEB
 Allowable trust investments should produce higher
investment returns over time
44Maze Live July 18, 2017
OPEB Funded Status
Bartel Associates database of California
agencies (based on 2015 valuations)
45Maze Live July 18, 2017
Implied Subsidy
 Benefit retirees (pre-Medicare) derive from
having the same premium as active employees
 Retiree premiums are too small
 Active premiums are too high
 On average it’s just right
 OPEB accounting only looks at retirees
46Maze Live July 18, 2017
Implied Subsidy
47Maze Live July 18, 2017
Implied Subsidy
 Change to actuarial standards requires this for
large pooled plans (like CalPERS PEMHCA) for
valuations after 3/31/15
 Previously included for all other plans
 GASBS 75 requires age-adjusted premiums or
claims
 Means implied subsidy is included
 No “deviations” allowed from Actuarial Standards of
Practice
48Maze Live July 18, 2017
Implied Subsidy Impact
 Increases total OPEB liability
 Include implied subsidy (IS) benefit payments:
 Reconciliation of fiduciary net position (assets)
 Reconciliation of Total OPEB liability
 Include in “Crossover “ test
 Trust can reimburse employer for IS payments
 Include as additional employer contribution
 Unless employer contribution includes IS
49Maze Live July 18, 2017
Other Actuarial Issues
 Entry Age actuarial cost method required
 Actuaries must include future mortality
improvement
 Cadillac Tax? (Affordable Care Act excise tax)
 OPEB actuaries use many assumptions not in
pension valuations that have a large impact
 Example: Participation, plan elections, Medical Trend
 Experience study?
50Maze Live July 18, 2017
Alternative Measurement Method
(AMM)
 Still permitted for small plans
 < 100 active and inactive employees
 However:
 More complicated
 More assumptions
 Builds in equivalent of implied subsidy
 Check with your auditor
51Maze Live July 18, 2017
What to Expect From the
Actuary’s Report
52Maze Live July 18, 2017
Actuary’s Report
 Net OPEB liability (NOL) and reconciliation
 OPEB expense
 Deferred outflows and inflows and schedule of
recognition in future expense
 Recognition schedule for each amount
 NOL Sensitivities: +/- 1% discount rate and trend
 Implied subsidy benefit payments, if needed
53Maze Live July 18, 2017
Actuary’s Report
 Basis for discount rate
 Date of crossover if any
 Crossover test basis or detail?
 Long term expected return on plan assets?
 May be set by employer and/or investment advisor
 Actuarial assumptions, rationale,
experience study date
 Actuarially determined contribution, if applicable
54Maze Live July 18, 2017
Actuary’s Report
 Expected average remaining service lifetime
 At beginning of measurement period
 Summary of plan provisions as valued
 Actuary may refer to a separate report for
assumption/plan summary detail
 Valuation date, measurement date
 Actuarial certification
55Maze Live July 18, 2017
Actuary’s Report
 Actuary likely will not have covered payroll for
FY or measurement period
 Actuary will likely not provide journal entries
56Maze Live July 18, 2017
Questions?
57Maze Live July 18, 2017

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GASB 73 74 and 75-other post-employment benefits

  • 1. 1Maze Live July 18, 2017 Mary Beth Redding July 18, 2017mbredding@bartel-associates.com 650-377-1617 Maze Live GASBS 74 and 75: Other Post-employment Benefits
  • 2. 2Maze Live July 18, 2017 Agenda  Brief Summary of GASB Statements 73, 74 and 75 3  Implementation Date, Measurement Date, Valuation Date 23  Data Issues 32  Actuarial Issues 37  What to Expect from the Actuary’s Report 51
  • 3. 3Maze Live July 18, 2017 GASBS 73 Summary
  • 4. 4Maze Live July 18, 2017 GASBS 73 – Unfunded Pension Plans  Replaces GASBS 27 Effective FY Beg. > 6/15/16  Similar to GASBS 68, but  Reporting for unfunded pension plans  In the employer’s financial statements  Does not affect/require contributions
  • 5. 5Maze Live July 18, 2017 GASBS 73 – Unfunded Pension Plans  Unfunded single employer plans  CalPERS Replacement Benefit Fund  Benefits > IRS limit ($210,000/yr in 2015)  Retirees and non-retirees with large projected benefits  Materiality?  Other supplemental pension plans or bargained arrangements
  • 6. 6Maze Live July 18, 2017 GASBS 73 – Unfunded Pension Plans  Pension Expense  Net pension liability  Deferred outflows & inflows  Discount rate = Aa Municipal bond rate  Additional note disclosures and RSI
  • 7. 7Maze Live July 18, 2017 GASBS 74 Summary
  • 8. 8Maze Live July 18, 2017 GASBS 74 – OPEB Plans  Replaces GASBS 43 Effective FY Beg. > 6/15/16  Similar to GASBS 67  Reporting for funded OPEB plans  In the plan’s financial statements  Stand-alone  Fiduciary fund in employer’s financial statements  Does not affect/require contributions
  • 9. 9Maze Live July 18, 2017 GASBS 74 Basics  3 Plan types:  Single employer  Agent (multiple employer, assets pooled for investment)  Cost sharing (multiple employer, assets available to all)
  • 10. 10Maze Live July 18, 2017 GASBS 74 – OPEB Plans  New definition of OPEB Plan: arrangement through which:  OPEB is determined  Assets dedicated for OPEB (if any) are managed  Benefits are paid as they come due  Must agencies funding with CERBT, PARS, etc., report GASBS 74?  CalPERS is reporting CERBT under GASBS 74  Check with your auditor!
  • 11. 11Maze Live July 18, 2017 GASBS 74 – OPEB Plans  Additional note disclosures and RSI for single employer plans and cost-sharing plans  Net OPEB Liability  Funded status & contributions relative to payroll  Change in Net OPEB Liability (NOL)  Investment return  Sensitivity of NOL to 1 % increase/decrease in:  Discount rate and medical trend rate  Report benefit payments and IS paid outside Trust
  • 12. 12Maze Live July 18, 2017 GASBS 75 Summary
  • 13. 13Maze Live July 18, 2017 GASBS 75 – Employer Reporting  Effective FY Beginning > 6/15/17  Replaces GASBS 45  Similar to GASBS 68  Everyone will recognize net OPEB liability  Biennial actuarial valuations  Additional note disclosures and RSI  Does not affect contributions (or require funding)
  • 14. 14Maze Live July 18, 2017 What Are OPEB Benefits?  Post retirement:  Healthcare  Dental, vision, hearing  Medicare premium reimbursement  Life insurance, if not part of a pension plan  Disability, long term care, if not part of a pension plan  Not: termination payments  Vacation or sick leave cash outs
  • 15. 15Maze Live July 18, 2017 What is DB OPEB?  Defined Contribution:  Individual account for each member  Employer contributions to active employee accounts defined in document  Retiree benefits solely from account balances including actual earnings on investments  Defined Benefit is everything else including:  HSA with guaranteed interest rate  Sick leave converted to benefits (not cash or account)
  • 16. 16Maze Live July 18, 2017 Net OPEB Liability  Net OPEB Liability (NOL) added to balance sheet  Total OPEB liability minus assets (FNP)  May be similar magnitude to NPL  Many OPEB plans are not pre-funding yet  Likely more variable than pension (NPL)  Almost certainly not news to bond analysts  May be more of a surprise to Boards, Councils, ratepayers or taxpayers
  • 17. 17Maze Live July 18, 2017 OPEB Expense  Change in net OPEB liability* = OPEB expense  Not equal to contributions or “pay-go”  Independent of employer contribution  Some portions of the change are deferred and recognized in expense over time  Portions not yet recognized are deferred inflows or outflows of resources on balance sheet * Minus employer contribution
  • 18. 18Maze Live July 18, 2017 OPEB Expense  How actuaries calculate expense:  Service cost (value of benefits accruing in the year)  Interest on total OPEB liability  Minus: Expected return on assets  Administrative expenses  Change in plan benefits (not amortized)  Recognition of deferrals:  Investment (gain)/loss (5 years)  Assumption & Experience changes (EARSL)
  • 19. 19Maze Live July 18, 2017 OPEB Expense  How non-actuaries calculate expense: Fiscal Year Ending Change 6/30/17 6/30/18 For FY Measurement Date 6/30/16 6/30/17 Net OPEB liability 500,000 625,000 125,000 Deferred inflows of resources 0 (15,000) (15,000) Deferred outflows of resources 0 45,000 45,000 Deferred outflow - contributions after measurement date 20,000 30,000 10,000 Contributions during the fiscal year N/A 30,000 30,000 Total = NOL- Inflows - Outflows + Contribution 480,000 565,000 85,000 OPEB Expense 85,000
  • 20. 20Maze Live July 18, 2017 Statement 75  Funded through a trust meeting Paragraph 4?  If Yes, then:  Single employer/agent multiple employer  Cost sharing multiple employer  No  Special circumstances:  Nonemployer contributing entity; special funding situation  Insured plans & defined contribution
  • 21. 21Maze Live July 18, 2017 Notes and RSI  Reconciliation of net OPEB liability during year  Eventually 10 year history  Employers with single and agent plans only  Sensitivity of NOL to +/- 1% discount rate and +/- 1% medical trend  OPEB expense and deferred inflows and outflows of resources  Notes on plan, governance, investments, actuarial assumptions, asset return, etc, as for pensions
  • 22. 22Maze Live July 18, 2017 Actuarially Determined Contribution  GASBS 75 does not specify “Annual Required Contribution” (ARC)  Actuarially determined contribution (ADC)  Must conform to actuarial standards but no other requirements specified  Disclosed in RSI  Not required to be disclosed unless calculated  No disclosure for unfunded plans
  • 23. 23Maze Live July 18, 2017 Implementation Date Measurement Date Valuation Date
  • 24. 24Maze Live July 18, 2017 Measurement Date  Date to measure:  Value of plan assets  Municipal Bond rate used to set discount rate  Value of total OPEB liability  May be “rolled forward” from previous valuation  If no significant changes  Net OPEB liability  Net OPEB liability @ measurement date is reported unadjusted at FYE
  • 25. 25Maze Live July 18, 2017 Measurement Date  Generally recommend selecting 1 year before FYE  Example: 6/30/17 measurement date for 6/30/18 FYE  Same timing as CalPERS  Allows actuarial report to be completed and ready for audit before FYE  If reporting for OPEB Plan (GASBS 74)  Recommend: measurement date = FYE
  • 26. 26Maze Live July 18, 2017 Actuarial Valuation Date  Up to 2-1/2 years before FYE  Recommend: select a date before FYE  June 30th date not required  Work with your auditor and actuary  CERBT valuation requirements  No longer require 6/30 of odd-numbered years
  • 27. 27Maze Live July 18, 2017 GASBS 75  Work with your actuary and auditor to:  Select measurement date  Choose valuation dates  Select implementation timing
  • 28. 28Maze Live July 18, 2017 Timing (No GASBS 74) Implementation Date (FYE) 6/30/17 6/30/18 Measurement Date (Assets/Muni Bond Rate) 6/30/16 6/30/17 6/30/17 6/30/18
  • 29. 29Maze Live July 18, 2017 Timing (No GASBS 74) Implementation Date 6/30/18 Measurement Date 6/30/17 6/30/18 Valuation Date 1/1/16 to 6/30/17 Valuation Complete*5/1/16 GASBS68 Complete8/15/17 * Initial actuarial valuation before roll-forward
  • 30. 30Maze Live July 18, 2017 Timing (No GASBS 74) Implementation Date 6/30/18 Measurement Date 6/30/17 6/30/18 Valuation Date 1/1/16 to 6/30/17 Valuation Complete*5/1/16 10/31/17 GASBS68 Complete8/15/17 10/31/17 * Initial actuarial valuation before roll-forward
  • 31. 31Maze Live July 18, 2017 Timing (No GASBS 74) Implementation Date 6/30/18 Measurement Date 6/30/17 6/30/18 Valuation Date 1/1/16 to 1/1/16 to6/30/17 6/30/18 Valuation Complete*5/1/16 5/1/1610/31/17 10/31/18 GASBS68 Complete8/15/17 8/15/1810/31/17 10/31/18 * Initial actuarial valuation before roll-forward
  • 32. 32Maze Live July 18, 2017 Data Issues
  • 33. 33Maze Live July 18, 2017 GASBS 75  Audit issues may be fewer than with GASBS 68 since employers generally control data  Audit issues may be greater than with GASBS 68 since employers generally control data
  • 34. 34Maze Live July 18, 2017 What is the Plan?  “Substantive Plan”  Understood by employer and employees  Look to any documents/MOUs  Any communications with employees/retirees  Agreements in effect at the fiscal year end  Different for each Agency
  • 35. 35Maze Live July 18, 2017 What is the Plan?  Understand & document OPEB for all past, current and future retirees  Eligibility (hire date/retire date/employee group)  Benefits (employer/retiree paid amounts, and for how long)  Coverage (retiree/spouse/family/survivors)  Include benefits under special arrangements  Include benefits for new tiers with no current retirees
  • 36. 36Maze Live July 18, 2017 Who Benefits?  Census Data: All current and future participants  Include anyone who might benefit in the future:  Active employees not yet vested  Active employees currently waiving health coverage  Active employees who will be able to stay in the employer’s plan at retirement by paying the full premium  Retirees/terminateds who can elect coverage in the future  Data may come from several sources  CalPERS PEMHCA download often not complete
  • 37. 37Maze Live July 18, 2017 Actuarial Issues
  • 38. 38Maze Live July 18, 2017 Actuarial Issues  Discount Rate  Implied Subsidy  Other  AMM
  • 39. 39Maze Live July 18, 2017 Discount Rate  “Crossover test” to determine discount rate  Not the same as GASSB 45  If plan assets are projected to cover benefit payments, discount rate = expected rate of return on assets  Provided assets invested so as to generate that return  Contribution policy of full ARC, with reasonable amortization period should be OK  Look to last 5 years of actual contributions
  • 40. 40Maze Live July 18, 2017 Discount Rate  Unfunded and poorly funded plans use 20 year AA municipal bond discount rate  GASBS 75 does not specify which bond curve to use  http://www.bartel-associates.com/resources/select- gasb-67-68-discount-rate-indices
  • 41. 41Maze Live July 18, 2017 Discount Rate  Expect many more OPEB plans with a crossover than for pension plans  Municipal Bond Rate  Rate is volatile  Net OPEB liability will be volatile
  • 42. 42Maze Live July 18, 2017 Current 20 Year AA Municipal Bond Rates
  • 43. 43Maze Live July 18, 2017 Why Pre-fund OPEB?  Taxpayer equity  Benefits should be paid for over employee’s service  More manageable cost pattern  Pay-as-you-go typically increases rapidly over time  For financial reporting: higher discount rate & lower net OPEB liability  Demonstrates to stakeholders you are addressing OPEB  Allowable trust investments should produce higher investment returns over time
  • 44. 44Maze Live July 18, 2017 OPEB Funded Status Bartel Associates database of California agencies (based on 2015 valuations)
  • 45. 45Maze Live July 18, 2017 Implied Subsidy  Benefit retirees (pre-Medicare) derive from having the same premium as active employees  Retiree premiums are too small  Active premiums are too high  On average it’s just right  OPEB accounting only looks at retirees
  • 46. 46Maze Live July 18, 2017 Implied Subsidy
  • 47. 47Maze Live July 18, 2017 Implied Subsidy  Change to actuarial standards requires this for large pooled plans (like CalPERS PEMHCA) for valuations after 3/31/15  Previously included for all other plans  GASBS 75 requires age-adjusted premiums or claims  Means implied subsidy is included  No “deviations” allowed from Actuarial Standards of Practice
  • 48. 48Maze Live July 18, 2017 Implied Subsidy Impact  Increases total OPEB liability  Include implied subsidy (IS) benefit payments:  Reconciliation of fiduciary net position (assets)  Reconciliation of Total OPEB liability  Include in “Crossover “ test  Trust can reimburse employer for IS payments  Include as additional employer contribution  Unless employer contribution includes IS
  • 49. 49Maze Live July 18, 2017 Other Actuarial Issues  Entry Age actuarial cost method required  Actuaries must include future mortality improvement  Cadillac Tax? (Affordable Care Act excise tax)  OPEB actuaries use many assumptions not in pension valuations that have a large impact  Example: Participation, plan elections, Medical Trend  Experience study?
  • 50. 50Maze Live July 18, 2017 Alternative Measurement Method (AMM)  Still permitted for small plans  < 100 active and inactive employees  However:  More complicated  More assumptions  Builds in equivalent of implied subsidy  Check with your auditor
  • 51. 51Maze Live July 18, 2017 What to Expect From the Actuary’s Report
  • 52. 52Maze Live July 18, 2017 Actuary’s Report  Net OPEB liability (NOL) and reconciliation  OPEB expense  Deferred outflows and inflows and schedule of recognition in future expense  Recognition schedule for each amount  NOL Sensitivities: +/- 1% discount rate and trend  Implied subsidy benefit payments, if needed
  • 53. 53Maze Live July 18, 2017 Actuary’s Report  Basis for discount rate  Date of crossover if any  Crossover test basis or detail?  Long term expected return on plan assets?  May be set by employer and/or investment advisor  Actuarial assumptions, rationale, experience study date  Actuarially determined contribution, if applicable
  • 54. 54Maze Live July 18, 2017 Actuary’s Report  Expected average remaining service lifetime  At beginning of measurement period  Summary of plan provisions as valued  Actuary may refer to a separate report for assumption/plan summary detail  Valuation date, measurement date  Actuarial certification
  • 55. 55Maze Live July 18, 2017 Actuary’s Report  Actuary likely will not have covered payroll for FY or measurement period  Actuary will likely not provide journal entries
  • 56. 56Maze Live July 18, 2017 Questions?
  • 57. 57Maze Live July 18, 2017