GASB 74/75 Frequently Asked Questions

Transcription

1 Page 1 of 15 GASB 74/75 Frequently Asked Questions General Information What is GASB? Governmental Accounting Standards Board is an independent, non-profit, nongovernmental regulatory body charged with setting authoritative standards of accounting and financial reporting for state and local governments, including school employers. GASB accounting standards are the primary source of Generally Accepted Accounting Principles for state and local governments, including CalSTRS and school employers. What are GASB Statements Nos. 74 and 75 and why are they important? GASB Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, establishes financial reporting standards for state and local governmental Other Postemployment Benefit plans defined benefit OPEB plans and defined contribution OPEB plans that are administered through trusts or equivalent arrangements. Statement No. 74 replaces GASB Statement No. 43, Financial Reporting for Post- Employment Benefit Plans Other Than Pension Plans, as amended, and GASB Statement No. 57, OPEB Measurements by Agent Employers and Agent Multiple- Employer Plan. The new standard is applicable to CalSTRS which administers the Medicare Premium Payment Program OPEB plan. The standard requires the establishment of a net OPEB liability to be measured as the total OPEB liability, less the amount of the OPEB plan s fiduciary net position. The statement also requires additional disclosure and supplementary information to be included in the OPEB plan s financial statements. GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, establishes standards of accounting and financial reporting for defined benefit OPEB and defined contribution OPEB that are provided to the employees of state and local governmental employers through OPEB plans that are administered through trusts or equivalent arrangements. Statement No. 75 replaces GASB 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions.

2 Page 2 of 15 This standard is applicable to the employers whose employees receive benefits through CalSTRS and will require employers to report a liability equal to their proportionate share of the collective OPEB liability for all entities participating in CalSTRS cost-sharing plan on the face of the financials. In addition, employers will be required to present more extensive note disclosures and required supplementary information about their OPEB liability. What is the Medicare Premium Payment (MPP) Program? The Medicare Premium Payment Program is a cost-sharing multiple-employer other postemployment benefit plan established pursuant to Chapter 1032, Statutes of 2000 (SB 1435). CalSTRS administers the MPP Program, through the Teachers Health Benefit Fund. The MPP Program pays Medicare Part A premiums and Medicare Parts A and B late enrollment surcharges for eligible members of the DB Program who were retired or began receiving a disability allowance prior to July 1, 2012, and were not eligible for premium free Medicare Part A. The payments are made directly to the Centers for Medicare and Medicaid Services on a monthly basis. How do members become eligible to participate? The CalSTRS MPP Program is available to eligible members of the Defined Benefit Program who are 65 years or older. These members must be enrolled in Medicare Part A or B, and must be ineligible to receive premium free Medicare A coverage on their own. Members who retired or were receiving a disability allowance prior to January 1, 2001 are eligible to have CalSTRS pay their Medicare Part A premium and Part B surcharges. Members who retired on or after January 1, 2001 but before July 1, 2012 must meet all of the criteria above, and must have retired from an employer who held a Medicare Division. If the Medicare Division was held before January 1, 2001, the member is eligible. If the Division was held on or after January 1, 2001, and the member was less than 58 years old at the time of the Division, they must have elected to receive Medicare coverage. Members who were receiving a disability allowance, and were actively employed at the time of the Division, must meet all of the same criteria as above. Members who were receiving a disability allowance, but were not actively employed are also eligible, as long as the Division was completed prior to the time the member reached normal retirement age.

3 Page 3 of 15 What is a Medicare Division? A Medicare division election is an election where a member makes an irrevocable choice whether or not to be covered by Medicare through the payment of Medicare payroll tax. These elections were overseen and conducted by the California Public Employees Retirement System. DB Program members who were hired prior to April 1, 1986 were not required to pay Medicare payroll tax. All members hired after April 1, 1986 were required to pay the Medicare payroll tax, as such pre-1986 hires had to opt in or out. When do the new OPEB accounting standards go into effect? Statement No. 74 is effective for financial statements for fiscal years beginning after June 15, CalSTRS implemented the new requirement in its Comprehensive Annual Financial Report for the year ended June 30, Statement No. 75 applies to the GAAP-based financial statements of employers, and is effective for fiscal years beginning after June 15, 2017, or for the fiscal year ending June 30, Does my school employer have to implement Statement No. 75? Per Education Code 41010, all Local Educational Agencies are subject to the California School Accounting Manual, as approved by the State Board of Education and furnished by the Superintendent of Public Instruction. The California School Accounting Manual requires most school employers to prepare their financial statements in accordance with Generally Accepted Accounting Principles. GASB standards, including Statement No. 75, are the primary source of GAAP for most school employers. Conformity with GAAP allows comparability among school employers. Being out of compliance with GAAP may impact the audit opinion of the school employer s financial statements. Do GASB 75 requirements apply to charter schools? Any participating employer that is a member of one of the state s defined benefit plans will have to implement Statement No. 75, including local governments, public authorities, and local school systems. Not for profit Charter Schools that use the full-accrual basis of accounting may need to report these amounts in their fund statements. Do Statement Nos. 74 and 75 establish requirements for how governments should fund their OPEBs?

4 Page 4 of 15 GASB Statement Nos. 74 and 75 do not establish requirements for funding. The statements aim to separate funding and financial reporting, and provide users with information about the effects of OPEB-related transactions and other events on the face of the basic financial statements. Statement No. 75 takes an accounting based approach to assist users in assessing accountability and relationship between government s inflows of resource and its total cost of providing government services each period. How is the OPEB liability calculated differently under Statement Nos. 74 and 75 as compared to the previous standards? Under GASB 43 and 45, the unfunded actuarial accrued liability for OPEB was reported in the notes for the OPEB plan but there was no such requirement for employers of a cost sharing OPEB plan. The new GASB statements will require the calculation of a liability for OPEB obligations, known as the Net OPEB Liability to be recognized on the balance sheet of the participating employers. In addition, an OPEB Expense will be recognized in the income statement of the participating employers. This is very similar to GASB 67 and 68. There are some technical differences between the UAAL and the NOL, but the most significant impact of the new accounting standards is the move of the recognition of the OPEB obligation from the footnote disclosures for the plan to the balance sheet of the individual employers. The following table summarizes the differences in the liability calculation between the new and old standards: Statement Nos. 74 and 75 (new standards) Total OPEB Liability (TOL) Less: Fiduciary Net Position Net OPEB Liability (NPL) Statement Nos. 43 and 45 (old standards) Actuarial Accrued Liability (AAL) Less: Actuarial Value of Assets (AVA) Unfunded Actuarial Accrued Liability (UAAL) Do Statements No. 74 and 75 change my contributions? No. Statutory contribution rates for participating State Teachers Retirement Plan employers are determined by the legislature, which has given the Teachers Retirement Board limited authority to adjust employer contribution rates from July 1, 2021 through June 2046 in order to eliminate the remaining unfunded actuarial obligation related to service credited to members prior to July 1, 2014.

5 Page 5 of 15 The MPP Program is funded on a pay-as-you go basis from a portion of monthly employer contributions. In accordance with California Education Code Section 25930, contributions that would otherwise be credited to the DB Program each month are instead credited to the MPP Program to fund monthly program and administrative costs. Total redirections to the MPP Program are monitored to ensure that total incurred costs do not exceed the amount initially identified as the cost of the program. Does the Net OPEB Liability affect the unfunded liability for the Medicare Premium Payment program? No. The NOL is an accrual accounting measurement calculated in conformity with Statement Nos. 74 and 75. The unfunded liability is a funding measure calculated according to Actuarial Standards of Practice. The MPP Program funding actuarial valuation as of June 30, 2016 found that the MPP Program assets, along with MPP allocated funding from future employer contributions are sufficient to finance the future MPP Program obligations of $315 million for both Part A premiums and Part A and B surcharges. Net Other Postemployment Benefit Liability What is the Net OPEB Liability for the Medicare Premium Payment Program at June 30, 2017? The Net OPEB Liability for the MPP Program as of June 30, 2017 is $420.7 million. Where in the fiscal year financial statements can I find the Net OPEB Liability, OPEB expense, and deferred inflows and outflows of resources for the Medicare Premium Payment Program? How do I obtain the information needed for this reporting? The net Other Postemployment Benefit liability is presented in multiple places in the financial statements. Page references are for the fiscal year Comprehensive Annual Financial Report: p. 64- Note 4 (Net OPEB Liability of Employers) p. 92- Schedule V (Schedule of Changes in Net OPEB Liability of Employers) p. 93- Schedule VI (Schedule of Net OPEB Liability of Employers) Page references are for the fiscal year Other Pension and Postemployment Benefits Information:

6 Page 6 of 15 p. 89- Schedule E (Schedule of Aggregate OPEB Amounts for Employers) p. 92 Note 3: Actuarial Methods and Assumptions Relating to Schedule E. Deferred inflows and outflows of resources are presented on p. 89 in Schedule E. How does CalSTRS calculate the Net OPEB Liability relating to Medicare Premium Payment Program? CalSTRS calculates NOL by subtracting MPP Program fiduciary net position from Total OPEB Liability for the MPP Program. Refer to Note 4 of the Notes to the Basic Financial Statements (p. 64) and Schedule V, Schedule of Changes in Net OPEB Liability of Employers, of Required Supplementary Information on page 92 of the CalSTRS fiscal year Comprehensive Annual Financial Report. How did CalSTRS discount the Net OPEB Liability for the Medicare Premium Payment Program at June 30, 2016? The MPP Program is funded on a pay-as-you-go basis, with contributions generally being made at the same time and in the same amount as benefit payments. As such, the fiduciary net position will not be sufficient to make the projected future benefit payments. Since the MPP Program is essentially unfunded from a financial reporting perspective, in accordance with GASB Statement No. 74, the rate used to discount the total OPEB liability represents the yield or index rate for 20-year, tax-exempt general obligation municipal bonds with an average rating of AA/Aa or higher. The discount rate for FY was 3.58 percent. Is my school employer s portion of the Net OPEB Liability due and payable immediately? How can my school employer reduce its NOL? No, the NOL is an accrued liability, similar to accrued vacation or other employment benefits that have been earned by employees, but are payable sometime in the future. The program is funded on a pay-as-you-go basis with contributions generally being made at the same time and in the same amount as benefit payments and expenses coming due. Therefore, school employers have no mechanism for reducing their liability directly. The NOL for individual employers can only be reduced when the collective NOL of the MPP Program decreases. Proportionate Share Calculation

7 Page 7 of 15 Where can I find my district s proportionate share of the liability for fiscal year ? Due to the unique approach in which the MPP Program is funded, the employers may have different accounting policies for determining their proportionate share of the NOL, OPEB Expense, and Deferred Inflows and Outflows. To assist the employers, CalSTRS will prepare two schedules of proportionate share: one based on contributions and the other based on Medicare premiums paid. This decision was based on what CalSTRS believes are the two most likely approaches the employers may use in determining their proportionate share of the NOL, OPEB Expense, and Deferred Inflows and Outflows. The schedules provided are as follows: Schedule C, Schedule of Proportionate Share of Contributions for Employers of State Teachers Retirement Plan, on pages of CalSTRS fiscal year Other Pension and Postemployment Benefits Information Report. The schedule shows each employer s contributions to the nearest dollar as calculated by CalSTRS for fiscal year It also shows the corresponding contributions as a percentage of total employer contributions for the year. The percentage is displayed to three decimal places, which is five decimal places in whole numbers. This is an important point to remember when using the proportionate share to calculate your school employer s portion of the NOL. Schedule D, Schedule of Proportionate Share of Medicare Premiums and Surcharges Paid for Employers, on pages of CalSTRS fiscal year Other Pension and Postemployment Benefits Information. The schedule shows Medicare premiums and surcharges paid by CalSTRS on behalf of employers with active benefit recipients in fiscal year It also shows the corresponding Medicare premiums and surcharges paid as a percentage of total premiums paid for the year. The percentage is displayed to three decimal places, which is five decimal places in whole numbers. This is an important point to remember when using the proportionate share to calculate your school employer s portion of the NOL. Do I have to use the proportionate share of contributions or the proportionate share of premiums and surcharges paid schedules provided by CalSTRS? What are my other options? No, school employers are not required by the new accounting standards to use the proportionate share calculated by CalSTRS. Each employer s method of determining their

8 Page 8 of 15 proportionate share of the net OPEB liability of the MPP Program is an accounting policy decision. CalSTRS presents two schedules of employers proportionate share of the net OPEB liability to assist employers in calculating their proportionate share, but employers are not required to use the information provided. One advantage to using CalSTRS calculation is that it has been audited. How did CalSTRS calculate my school employer s contributions on Schedule C? CalSTRS calculates current year contributions due based on current year creditable earnings for active members as reported by employers. Since cash remittances of contributions due are received from employers prior to reports of creditable earnings by member, CalSTRS accrues employer contributions due monthly based on estimates. In addition, CalSTRS recognizes contributions and adjustments to contributions reported in the current year for service performed in a prior year as they are reported by employers. The specific types of contributions included are: Monthly contributions, including accruals, to the Defined Benefit program for the CalSTRS 2% at 60 under Education Code and Monthly contributions, including accruals, to the Defined Benefit program for the CalSTRS 2% at 62 formula under Government Code Excess service contributions, including accruals, to the Defined Benefit Supplement program under Education Code 22905(b)(1). Employer contributions to the Cash Balance Benefit program under Education Code and Employer contributions to the Defined Benefit Supplement program for limited-term compensation increases under Education Code 22905(b)(3). Employer contributions for members who participate in the reduced workload program under Education Code 22713(e). Employer contributions for members which serve as an elected officer in an employee organization under Education Code 22711(a)(3). Employer contributions redirected to the Medicare Premium Payment program under Education Code 22950(c). Employer contributions redirected to the Teachers Replacement Benefits program under Education Code 24260(d).

9 Page 9 of 15 CalSTRS excluded the following contributions from Schedule C because they are separately financed obligations paid in installments, or do not reflect the employers longterm contribution effort: Employer contributions to the Supplemental Benefit Maintenance Account and the Defined Benefit program for retirement incentives (golden handshake) under Education Code and Employer contributions for the purchase of one-year final compensation under Education Code 22135(f). Employer contributions for service credit awarded for excess unused sick leave under Education Code Employer contributions for additional service credit under Education Code 22801(d). Employer contributions for military service credit under Education Code How did CalSTRS calculate my school employer s premiums and surcharges paid for fiscal year ? Schedule D presents current year Medicare Part A premiums and Medicare Part A and B surcharges paid or payable to the Centers for Medicare and Medicaid Services. Medicare premiums and surcharges paid or payable to CMS are aggregated for eligible program beneficiaries based on their last contributing employer prior to retirement to establish the basis of the proportionate share calculation. How do I validate CalSTRS proportionate share of contributions or the proportionate share of premiums and surcharges paid calculation for my school employer? To help employers understand the amount presented for their school district in the Schedule of Proportionate Share for Employers of State Teachers Retirement Plan, Schedule C, CalSTRS has provided a Reconciliation of Employer Contributions report through the Contributions Account Portal. To get to the report, school employers must log into the Secure Employer Website and then follow this path: Contribution Account Portal Financial Reporting Reconciliation of Employer Contributions There is a job aid on the Help page on the Contributions Account Portal that explains in detail how to run the report. A link to the job aid is also posted on CalSTRS.com. The Reconciliation of Employer Contributions report reconciles contributions presented in the Schedule of Proportionate Share for Employers of State Teachers Retirement Plan,

10 Page 10 of 15 Schedule C, to contribution reports submitted by employers. Note that this schedule does not include information on contributions by the state on behalf of employers. For the details supporting the amounts presented in the Schedule of Proportionate Share of Medicare Premiums and Surcharges Paid for Employers, Schedule D, contact the CalSTRS Financial Reporting department at Deferred Inflows/Outflows What are deferred inflows and outflows of resources? Deferred inflows and outflows of resources are a relatively new accounting concept. A traditional balance sheet consists of assets and liabilities; however, GASB felt these categories were insufficient to describe certain transactions and therefore, two new categories were needed. GASB first introduced the idea of deferred inflows and outflows of resources in Concepts Statement No. 4. Concepts Statement 4 defines deferred outflows of resources as a consumption of net assets that is applicable to a future reporting period. Concepts Statement 4 defines deferred inflows of resources as an acquisition of net assets that is applicable to a future reporting period. Deferred outflows of resources have a positive effect on net position, similar to assets, and deferred inflows of resources have a negative effect on net position, similar to liabilities. Typically, when assets and liabilities are recorded they have a corresponding revenue or expense that is recognized in the current period, whereas when deferred items are recorded the expense or revenue will be recognized in future periods, similar to a prepaid expense or deferred revenue. In Statement No. 75, GASB classifies the following items as deferred inflows and outflows: Differences between expected and actuarial experience. 1 Changes in assumptions. Net difference between projected and actual earnings on plan investments. Changes in proportionate share. Contributions subsequent to the measurement date. Difference between an employer s proportionate share and actual contributions. 1 Also referred to as actuarial gains and losses

11 Page 11 of 15 Over what period should I reduce my deferred inflows and outflows of resources? Can similar types of deferred inflows and outflows be netted together? The reduction period for the difference between projected and actual earnings on plan investments is five years. The reduction period for all other deferred items is the average remaining service life of plan members. Except for the difference between projected and actual earnings on plan investments, deferred inflows and outflows must be separately recognized and reduced in the financial statements. They cannot be netted together. For example, if there is a deferred outflow of resources of $200 and a deferred inflow of resources of $500 related to changes in assumptions, they cannot be combined and shown on the balance sheet as a $300 net deferred inflow of resources for changes in assumptions. However, deferred inflows and outflows for the difference between projected and actual earnings on plan investments is an exception and can be netted together. What is the average remaining service life of Medicare Premium Payment Program members? As the MPP Program is a retiree only OPEB plan with no average remaining service life, other than differences between projected and actual investment earnings, deferred inflows and outflows of resources are recognized in OPEB expense in the current period. The net deferred inflows and outflows relating to differences between projected and actual earnings on plan investments are netted and amortized over a closed five-year period. Will employers need to maintain schedules for deferred outflows of resources and deferred inflows of resources? CalSTRS will maintain schedules for deferred inflow of resources and outflowed resources at the collective level. However, employers will need to maintain schedules for deferrals arising from changes in the employer s proportionate share and contributions subsequent to the measurement date. The reasoning behind this approach is that CalSTRS is not calculating deferrals specific to individual school employers. Reporting Does the Net OPEB Liability need to be incorporated in the Government-wide financial statements?

12 Page 12 of 15 Yes, changes resulting from Statement No. 75 requirements apply to the government-wide financial statements, enterprise and agency funds financial statements which are prepared on full accrual basis of accounting. What is the measurement date? How does my school employer select the measurement date? The measurement date is the date the Net OPEB Liability is measured for purposes of a school employer s financial reporting and must be consistently applied from period to period. Statement No. 75 requires the total OPEB liability should be determined by (a) an actuarial valuation as of the measurement date or (b) the use of update procedures to roll forward to the measurement date amounts from an actuarial valuation as of a date no more than 30 months and 1 day earlier than the employer s most recent fiscal year end. As the collective NOL is reported by CalSTRS, the measurement date must fall on June 30, CalSTRS fiscal year end. 2 However, school employers can choose to use June 30 of the current fiscal year or June 30 of the prior fiscal year as the measurement date. For example, for their financial statements for the fiscal year ending June 30, 2018, school employers can use June 30, 2017 or June 30, 2018, for their measurement date. When selecting the measurement date, school employers should consider when CalSTRS financial statements will be available in relation to when the employer plans to complete their own financial statements. Employers who choose to use June 30 of the current fiscal year as their measurement date should consider that CalSTRS June 30, 2018, financial statements will not be available until November June 30 is also the fiscal year end for school employers, per the Department of Education s California School Accounting manual. Where can I find CalSTRS fiscal year financial statements? CalSTRS fiscal year financial statements, which are within the Comprehensive Annual Financial Report, are available on CalSTRS.com. When does CalSTRS publish its financial statements and Comprehensive Annual Financial Report? CalSTRS audited June 30 financial statements are posted to CalSTRS.com following their presentation the Teachers Retirement Board in November. The CAFR is available in late December once it s completed. Where does CalSTRS present its assumed discount rate?

13 Page 13 of 15 CalSTRS presents assumed discount rate in Note 4 of the Notes to the Basic Financial Statement section on page 64 of CalSTRS fiscal year Comprehensive Annual Financial Report. The assumed rate of return is an actuarial assumption and is calculated net of investments expenses, but gross of administrative expenses. Since the MPP Program is essentially unfunded, in accordance with GASB Statement No. 74, the rate used to discount the total OPEB liability represents the yield or index rate for 20-year, tax-exempt general obligation municipal bonds with an average rating of AA/Aa or higher. What note disclosures am I required to complete? Will CalSTRS assist me? GASB Statement No. 75, paragraphs 89-98, describe the required note disclosures and the required supplementary information for cost-sharing employers. Unfortunately, CalSTRS cannot assist employers in preparing this information as it falls outside the scope of CalSTRS fiduciary duty to our members. If none of my retired members is currently participating in the program, do I need to report a liability? The MPP Program is a cost-sharing multiple-employer other postemployment benefit plan established pursuant to Chapter 1032, Statutes 2000 (SB 1435). As a cost-sharing multiple-employer OPEB plan, OPEB obligations to the employees of more than one employer are pooled and OPEB plan assets can be used to pay the benefits of the employees of any employer that provides OPEB through the OPEB plan. In accordance with Statement No. 75, cost-sharing employers are required to recognize a liability for their proportionate share of the net OPEB liability. CalSTRS provides two schedules of proportionate share, one based on contributions and the other based on Medicare premiums paid, to assist employers in determining their proportionate share of the NOL, OPEB Expense, and Deferred Inflows and Outflows. The two schedules are as follows: Schedule C, Schedule of Proportionate Share of Contributions for Employers of State Teachers Retirement Plan, on pages of CalSTRS fiscal year Other Pension and Postemployment Benefits Information Report.

14 Page 14 of 15 Schedule D, Schedule of Proportionate Share of Medicare Premiums and Surcharges Paid for Employers, on pages of CalSTRS fiscal year Other Pension and Postemployment Benefits Information. Per Education Code 41010, all Local Educational Agencies are subject to the California School Accounting Manual, as approved by the State Board of Education and furnished by the Superintendent of Public Instruction. The California School Accounting Manual requires most school employers to prepare their financial statements in accordance with Generally Accepted Accounting Principles. GASB standards, including Statement No. 75, are the primary source of GAAP for most school employers. Being out of compliance with GAAP may impact the audit opinion of the school employer s financial statements. Employers are encouraged to consult with their independent auditors about these GASB standards and the policies needed to implement the changes outlined above. Additional Information How could I explain the changes to Stakeholders? In 2015, GASB issued Statement Nos. 74 and 75, replacing Statements 43 and 45, which revise required reporting and disclosure requirements of OPEB liabilities by public OPEB plans and public employers. Among the changes in those statements is a requirement that a Net OPEB Liability be determined and reported in the notes to the plan financial statements and a proportionate share applicable to each employer is determined and presented in the financial statements of plan employers (school districts) beginning fiscal year Under GASB 43 and 45, employers OPEB liability was only reported in the notes to the financial statement and not recorded as a liability in the balance sheet. GASB Statement Nos. 74 and 75 does not impact employer and non-employer funding or member contributions, but changed how OPEB expense and net OPEB liability is reported in the financial statements of the OPEB plan and the employer. Where can I find additional information about the new OPEB reporting standards? CalSTRS identifies links to additional information that may be helpful to employers on CalSTRS.com.

15 Page 15 of 15 Who at CalSTRS can I contact with questions about the new reporting standards and the audit related to the Schedule of Proportionate Share? CalSTRS cannot give specific accounting advice or guidance to employers, but for questions about Statement No. 74 and 75, contact Bankole Fatunla at BFatunla@CalSTRS.com.