11/15/2017 IMPLEMENTING GASB 75: WHAT YOU NEED TO KNOW. Lindsey Oakley, CPA Director November 15, 2017

Transcription

1 IMPLEMENTING GASB 75: WHAT YOU NEED TO KNOW November 15, 2017 Lindsey Oakley, CPA Director 1

2 TO RECEIVE CPE CREDIT Participate in entire webinar Answer polls when they are provided If you are viewing this webinar in a group Complete group attendance form with Title & date of live webinar Your company name Your printed name, signature & address All group attendance sheets must be submitted to training@bkd.com within 24 hours of live webinar Answer polls when they are provided If all eligibility requirements are met, each participant will be ed their CPE certificates within 15 business days of live webinar OBJECTIVES Provide overview of GASB OPEB standards Discuss employer accounting Differences between trusted plans & nontrusted plans Contrast pension & OPEB accounting & reporting Discuss role of actuary 2

3 THE STANDARDS GASB Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, effective fiscal years beginning after June 15, 2016 Including for governments where the OPEB plan is presented as a fiduciary fund of the government GASB 75 Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, effective for fiscal years beginning after June 15, 2017 OPEB IN BRIEF GASB 74 & GASB 75 are almost identical to their pension siblings, i.e., GASB 67 (Plans) & GASB 68 (Employers), except for Pension lessons learned have been built into the base standards, e.g., GASB 71 transition guidance for contributions after the measurement date & GASB 73 nontrusted plans Minor tweaking to better fit retiree health care have been made, e.g., recognizing implicit rate subsidies or requiring sensitivity analysis for health care trend rate Alternative method for very small plans (100 or fewer total participants) is still included in the new guidance 3

4 OPEB IN BRIEF OPEB is divided into two categories Postemployment health care benefits are always accounted for separately from pensions Other forms of OPEB such as death benefits, life insurance & disability benefits only accounted for separately when provided separately from a pension plan Implicit rate subsidy considerations built into GASB 75 OPEBs do not include termination benefits or termination payments for sick leave OPEB IN BRIEF Major impacts of GASB 75 vs. GASB 45 Net or total OPEB liability is now recorded in Statement of Net Position Strictly prescribed actuarial methodology & discounting guidance will produce a different (often higher) OPEB liability than GASB 45 Annual measurement dates are now required using either annual or biennial valuations Triennial valuations no longer allowed Expense volatility is likely due to claims volatility, discount rate volatility & more frequent plan changes More robust note disclosure & required supplementary information (RSI) is required 4

5 ROLE OF THE EMPLOYER IN TRUSTED PLANS Unlike pension plans that are most often independently staffed & governed, trusted OPEB plans are most often administered by the sponsoring employer OPEB reimbursement trusts whose sole purpose is to accumulate & invest assets & make reimbursement payments to the employer is a common model PLAN STANDARD GASB 74 Effective for June 30, 2017, plan year-ends & later Implementation guide available on GASB website Plan accounting & reporting required when a trust or equivalent arrangement exists Plan financial statements may be either issued separately or as a fiduciary fund in the financial statements of the sponsoring government 5

6 PLAN STANDARD Employer reporting for governments holding assets accumulated for purposes of providing OPEB through nontrusted plans Apply changes retroactively by restating financial statements for all periods presented, if practical 10-year RSI schedules present information that is available until 10 years has been accumulated TYPES OF PLANS Insured plans Benefits are financed through an arrangement whereby premiums are paid to an insurance company Payments are made to the insurance company while employees are in active service Insurance company unconditionally undertakes an obligation to pay the OPEB of those employees as defined in the OPEB plan terms OPEB provided through insured plans is classified as insured benefits Employer reporting requirements for insured plans provided for in GASB 75 6

7 TYPES OF PLANS Trust or Equivalent Arrangement (Trusted) Single- Employer Agent Multiple- Employer Prepare Financial Statements Defined Benefit OPEB Plan No Trust or Equivalent Arrangement (Nontrusted) Cost Sharing Multiple- Employer Single- Employer Multiple- Employer Primary Government + CUs EMPLOYER STANDARD GASB 75 Effective for June 30, 2018, employer year-ends & later Implementation guide exposure draft currently available Apply changes retroactively by restating financial statements for all periods presented, if practical May not be practical to present balances all deferred outflows & inflows of resources at beginning of period Report beginning deferred outflow of resources for any contributions (trusted plan) or OPEB payments (nontrusted plan) after the measurement date Divided into two primary sections OPEB provided through plans administered as trusts or equivalent arrangements, i.e., meets Paragraph 4 of GASB 75 requirements OPEB provided through plans that are NOT administered as trusts or equivalent arrangements, i.e., does not meet Paragraph 4 of GASB 75 requirements 7

8 GASB DEFINITION OF A TRUST Paragraph 4 of GASB 75 creates three substance over form criteria for determining whether the plan is administered through a trust Contributions from employers & nonemployer contributing entities to the OPEB plan & earnings on those contributions are irrevocable OPEB plan assets are dedicated to providing OPEB to plan members in accordance with the benefit terms OPEB plan assets are legally protected from the creditors of employers, nonemployer contributing entities & the OPEB plan administrator. If the plan is a defined benefit OPEB plan, plan assets also are legally protected from creditors of the plan members OPEB LIABILITY Total OPEB Liability Less: Plan s Fiduciary Net Position Net OPEB Liability Plan administered as a trust or equivalent arrangement Employer reports a net OPEB liability in their financial statements Plan NOT administered as a trust or equivalent arrangement Employer reports a total OPEB liability in their financial statements Plans with fewer than 100 members (active & inactive) may use the alternative measurement method to determine the liability 8

9 MEASUREMENT DATE If not already as of measurement date, actuarial valuation must be rolled forward to measurement date Potential Measurement Dates Potential Actuarial Valuation Dates 12/31/15 6/30/16 6/30/17 6/30/18 30 Months & one day before current year-endy Employer Current Year-End Employer Standard Measurement of the net OPEB liability in employer s financial statements must be as of a date no earlier than the end of the employer s prior fiscal year. Measurement must be based on an actuarial valuation performed within 30 months plus one day of the employer s year-end. If actuarial valuation not performed as of measurement date, update procedures must be performed to roll forward amounts to measurement date Plan Standard Measurement of the net OPEB liability in plan s notes to the financial statements must be as of the plan s most recent fiscal year-end. Measurement must be based on an actuarial valuation performed with 24 months of the plan s year-end. If actuarial valuation not performed as of the measurement date, update procedures must be performed to roll forward amounts to measurement date MEASUREMENT DATE CONSIDERATIONS A good measurement date should Facilitate timely financial reporting Minimize the need for rollforwards from the valuation date Facilitate a quality actuarial valuation by Allowing ample time for the gathering of related census & claims data Coincide adequately with the plan year to be able to incorporate the most recent changes in plan provisions Avoid different measurement dates for plan & employer when plan financial statements are included in the employer s financial statements 9

10 DETERMINING OPEB EXPENSE GASB defines OPEB expense almost identical to that of pensions Begin with the change in the net or total (nontrusted) OPEB liability from beginning measurement date (MD) to ending MD Defer any amounts specifically required by GASB 75 Actuarial gains (inflows) & losses (outflows) on the total OPEB liability for differences between actual & assumed experience Actuarial gains & losses on assumption changes Difference between expected & actual investment return (trusted only) Defer an outflow for contributions (trusted) or employer OPEB payments (nontrusted) made subsequent to the MD Amortize & recognize into expense deferred outflows & inflows from previous years as well as amortization of current-year deferrals RECAP OF GASB 75 REPORTING Description Trust Meeting Par. 4 Nontrusted 1 Recognize in Statement of Net Position Net OPEB Liability (NOL) Total OPEB Liability (TOL) 2 PV for TOL determined using Long-term rate of return (LTROR) or single blended rate (SBR) of LTROR & AA 20-year tax exempt general obligation municipal bond index 3 Recognize in Statement of Net Position Deferred I/O for both experience & assumptions & investments 4 Recognize in Statement of Net Position Deferred outflow for contributions after MD through year-end 5 OPEB related assets Recorded in Plan FS & used to determine Plan Fiduciary Net Position 6 OPEB Expense Change in the NOL with appropriate deferrals & amortization AA 20-year tax exempt general obligation municipal bond index Deferred I/O for experience & assumptions only Deferred outflow for OPEB payments after MD Recorded in appropriate governmental or proprietary fund Change in TOL with appropriate deferrals & amortization 10

11 EMPLOYER NOTE DISCLOSURES DESCRIPTIONS A = Trusted: Single/agent Plan Description A B C D Name of plan, administrator of plan & type of plan Benefit terms, including (1) classes of employees covered, (2) types of benefits, (3) key elements of OPEB formulas, (4) terms or policies with respect to automatic benefit changes, including ad hoc COLAs, (5) legal authority Number of employees covered, broken down into three categories Fact that no assets accumulated in a trust meeting paragraph 4 criteria Contribution requirements, including (1) authority under which contributions made, (2) legal or maximum contributions rates, (3) contribution rates & (4) contributions made for the employer s fiscal year-end Authority under which to pay OPEB benefits as they come due & amount paid for the employer s fiscal year-end Availability of audited plan financial statements B = Trusted: Cost-sharing C = Nontrusted: Single & multipleemployer D = Nontrusted: PG + CU (standalone reports only) EMPLOYER NOTE DISCLOSURES ASSUMPTIONS Assumptions & Other Inputs A B C D Significant assumptions, including inflation, health care cost trend rates, salary changes, ad hoc postemployment benefit changes & the sharing of benefit costs with inactive employees Source of mortality assumptions Dates of experience studies Fact that projections of sharing of benefit costs based on established pattern of practice, if applicable Source of significant assumptions if alternative measurement methods are used Net OPEB liability sensitivity to health care cost trend rate (+/- 1%) Total OPEB liability sensitivity to health care cost trend rate (+/- 1%) A = Trusted: Single/agent B = Trusted: Cost-sharing C = Nontrusted: Single & multipleemployer D = Nontrusted: PG + CU (standalone reports only) 11

12 EMPLOYER NOTE DISCLOSURES DISCOUNT RATES Discount Rate A B C D Discount rate used & change since prior measurement date Assumptions about projected cash flows Long-term expected rate of return on plan investments & how determined Municipal bond rate used & source, if applicable Periods of projected benefit payments applied to long-term rate of return & municipal bond rate, if applicable Assumed asset allocation & long-term expected real rate of return for each major asset class & whether arithmetic or geometric Net OPEB liability sensitivity to discount rate (+/- 1%) Total OPEB liability sensitivity to municipal bond rate (+/- 1%) A = Trusted: Single/agent B = Trusted: Cost-sharing C = Nontrusted: Single & multipleemployer D = Nontrusted: PG + CU (standalone reports only) EMPLOYER NOTE DISCLOSURES ADDITIONAL DISCLOSURES Additional Disclosures A B C D Information about plan s fiduciary net position if report not publicly available Aggregate information for all OPEB plans if not otherwise identifiable Schedule of changes in net OPEB liability Schedule of changes in total OPEB liability Measurement date Actuarial valuation date or alternative measurement method calculation Plan administered by trust not meeting paragraph 4 criteria, each criterion in paragraph 4 that the trust does not meet For special funding situation, employers proportion, how determined & change for prior measurement date Amount of revenue recognized from nonemployer contributing entities Employers proportionate share of net (total) OPEB liability & basis for allocation Changes in assumptions & benefit terms Changes subsequent to measurement date OPEB expense in current period Balances of deferred outflows/inflows by source & aggregate impact on OPEB expense in each of next five years & thereafter A = Trusted: Single/agent B = Trusted: Cost-sharing C = Nontrusted: Single & multipleemployer D = Nontrusted: PG + CU (standalone reports only) 12

13 EMPLOYER REQUIRED SUPPLEMENTARY INFORMATION (RSI) 10-Year Schedules A B C D Changes in net OPEB liability by source as of measurement date Components of net OPEB liability & related ratios as of measurement date Proportionate share of net OPEB liability as of measurement date Employer contributions for most recent fiscal year-end Changes in total OPEB liability by source as of measurement date Total OPEB liability as a percentage of covered employee payroll as of measurement date Proportionate share of collective total OPEB liability as of measurement date A = Trusted: Single/agent B = Trusted: Cost-sharing C = Nontrusted: Single & multipleemployer D = Nontrusted: PG + CU (standalone reports only) EMPLOYER REQUIRED SUPPLEMENTARY INFORMATION (RSI) NOTES 10-Year Schedules A B C D Significant methods & assumptions used in calculating the actuarial contribution Factors that significantly affect trends in amounts reported in RSI Statement that no assets are accumulated in a trust that meets paragraph 4 criteria A = Trusted: Single/agent B = Trusted: Cost-sharing C = Nontrusted: Single & multipleemployer D = Nontrusted: PG + CU (standalone reports only) 13

14 TRANSITION Beginning deferred outflows of resources for contributions (trusted)/opeb payments (nontrusted) if any, subsequent to the measurement date of the beginning OPEB liability All other deferred outflows/deferred inflows of resources balances all or nothing at initial implementation RSI schedules are prospective if information not initially available. Information on contributions will generally be available for all periods in which the trusted plan was in existence REQUIRED JOURNAL ENTRIES Similar to pensions, the initial journal entries will require An entry to reverse the previously recorded OPEB obligation & record the beginning measurement date Net or Total OPEB Liability with the resulting restatement of beginning Net Position Unlike pensions that always have contributions as the starting point, OPEB will not be so uniform Trust that collects, invests & pays benefits employer contributions to the trust Reimbursement trusts Self-insured actual OPEB payments including retiree claims, stop loss & administrative expense less retiree premium contributions & employer contributions to trust Insured-premiums paid for retirees less retiree premium contributions plus the implicit subsidy portion of active premiums & employer contributions to the trust Nontrusts Same as reimbursement trust but no employer contributions 14

15 SAMPLE JOURNAL ENTRIES BACKGROUND OPEB County (OC), a June 30 year-end, has the following facts related to its December 31 OPEB Plan (6/30/18 implementation of GASB 75) OC uses GovPebTrust Inc. to collect & invest OPEB assets which meet the requirements of GASB 75, Paragraph 4 The following amounts occurred related to the self-insured OPEB Plan GASB 45 OPEB Obligation 6/30/17 A $ 800,000 Net OPEB Liability (NOL) 12/31/16 B 3,500,000 Net OPEB Liability (NOL) 12/31/17 C 4,200,000 Net OPEB Claims & Expense 01/01/17 6/30/17* D 1,000,000 Contributions to the Trust 01/01/17 6/30/17 E 600,000 Net OPEB Claims & Expense 01/01/18 6/30/18* F 1,100,000 Contributions to the Trust 01/01/18 6/30/18 G 600,000 Net OPEB Claims & Expense FY 6/30/18 H 2,200,000 Annual Contributions to the Trust 6/30/18 I 1,200,000 Investment Return over Expectation CY 2017 J 200,000 Actuarial Losses on Liability Assumption for CY 2017 K 210,000 * Paid by employer, not reimbursed by trust, considered a contribution to the plan SAMPLE JOURNAL ENTRIES BACKGROUND Additional information OC has elected not to record any beginning deferred inflows & outflows other than that required by the standard OC s actuary has determined that the average remaining service period of all OPEB participants is seven years L OC has implemented procedures & controls to ensure that claims are properly classified as active or retiree & that cut off/accruals for payments before & after the measurement date are fairly stated Measurement date is December 31 15

16 PRIOR-PERIOD ADJUSTMENT OF BEGINNING AMOUNTS Adjustment to record the beginning NOL per GASB 75 par. 244 Net Position (Beginning of Year) 3,500,000 B Net OPEB Liability 3,500,000 Recording deferred outflow for contributions after the measurement date Deferred Outflow-OPEB Payments/Contributions 1/1/17 6/30/17 1,600,000 Net Position D+E 1,600,000 To eliminate the GASB 45 Net OPEB Obligation Net OPEB Obligation 800,000 A Net Position 800,000 ENTRY TO RECORD FY 2018 AMOUNTS OPEB Expense 3,980,000 [see pension expense slide] Deferred Outflow OPEB Payments after MD 100,000 [F+G-D-E] Deferred Outflow-Assumption Losses 180,000 [K-K/L] Deferred Inflow-Excess Investment Return 160,000 [J-(J/5)] note: investments assumptions amort over five years OPEB Payments/Contributions to Trust 3,400,000 [H+I] Net OPEB Liability 700,000 [C-B] 16

17 NOTES FOR 2018 ENTRIES The purpose of these journal entries is to convert budget or cash basis general ledger amounts to the full accrual governmentwide amounts. The specific accounting used by the employer will directly impact the nature of the entries needed. Employers will need to implement controls to ensure that premiums or claims are properly classified as retiree or active & that cut offs/accruals related to the MD are working properly The first year of amortization is taken in the year of the deferral so only six years of the deferred outflow & four years of the investment related deferred inflows were deferred The deferred outflows for OPEB payments & contributions between the measurement date & year-end does not get amortized as it will naturally flow through the calculation in the next year with a new deferral being made. The journal entry showed the net change, the reconciliation showed the gross changes. The initial deferral required by GASB 75 in order to not understate OPEB expense in the year of implementation. If not for the required restatement, current year OPEB expense would have been reported as $2,380,000 RECONCILIATION OF OPEB EXPENSE Change in the Net OPEB Liability C-B $ 700,000 Current FY OPEB Payments H 2,200,000 Current FY contributions I 1,200,000 Flowthrough of BOY Deferred OPEB Payments after MD D 1,000,000 Flowthrough of BOY Deferred Contributions to the Trust E 600,000 EOY Deferral for OPEB Payments between MD & FYE F (1,100,000) EOY Deferral for OPEB Payments between MD & FYE G (600,000) Deferred Outflow Actuarial Losses K-(K/L) (180,000) Deferred Inflow Excess Investment Earnings J-(J/5) 160,000 OPEB Expense $3,980,000 17

18 ALLOCATIONS Requirements for allocation of the OPEB amounts between funds & activities should be similar to that of pensions Allocate if material & if the liability is expected to be liquidated through the resources of that fund or activity Use cost-sharing methodology However, actuarially determined contributions may not be calculated Other possible allocation bases Premiums paid on behalf of the fund/activities employees Entity-specific experience including participation rates & retirement ages by employee groups REPORTING REQUIREMENTS KEY TAKEAWAYS The basic accounting & reporting including recording of liabilities & expense determination will be similar to pensions Nontrusted or reimbursement trusts will be more common With the lack of independently governed plans the employers will need to be much more involved in Selecting the actuary Approving the assumptions Documenting the plan Providing the census data 18

19 CONTRASTING PENSIONS TO OPEB While the basic actuarial & accounting methodology is similar, there are key differences Pensions = salary & time-based projections vs. OPEB = claims-based projections In pensions, the longer you work & the more your salary, the higher your pension In OPEB, years of service & amount of pay do not typically impact the value of the retirement benefit OPEB actuaries must have experience in both pensions & health claims development or have two certifications There are many actuarial assumptions used for OPEB that do not exist in pension valuations Even when the same assumption is used, an extremely significant assumption for pensions may not be significant for OPEB & vice versa CONTRASTING PENSIONS TO OPEB Pension benefits are well documented & change infrequently vs. OPEB in which documentation can be more informal & underlying health benefits changes almost every year In pensions, the base benefit is the pension OPEB is typically an overlay in which the base benefit is the active employee health plan with an administrative policy, collective bargaining agreement, etc. added (overlaid) to specify the terms & cost for retirees to stay on the plan It is critical that HR & Finance talk to each other Pensions are most often administered by separate, independently governed plans vs. OPEB that is most often administered by the employer Source of data, key internal controls, responsible personnel will all be different 19

20 SUBSTANTIVE OPEB DIFFERENCES AFFECTING VALUATIONS Both pension & OPEB valuations use standard actuarial methodology of projecting, discounting & attributing; however, with OPEB Expertise in health claim development is needed More nontrusted plans/valuations not used for funding More likely to use biennial valuations which will now require rollforwards Many assumptions that do not exist in pensions Benefit can end or be substantially reduced at age 65 Even when trusts exist, they are less likely to be well funded & single blended discount rate more likely PROJECTING FUTURE BENEFIT PAYMENTS Projecting Discounting Attributing Total OPEB Liability Projecting benefit payments for OPEB plans will be significantly different than for pensions Pension benefits are typically based on salary & years of service & are often statutorily or constitutionally guaranteed based on a detailed plan document Retiree health care OPEB are typically not salary or time based, not statutorily guaranteed & often not well documented As diverse as pension plan design may be, OPEB is much more so with virtually endless variants that are constantly evolving OPEB valuations will require use of many assumptions that do not exist in a pension valuation such as participation rate, participation of dependents, health care cost trend rate, health care utilization by age etc. Even common assumptions such as mortality or rate of return, will have different impacts for pensions vs. OPEB valuations It is critical for the employer to truly understand the retiree health plan, verify that design & practice are one in the same & to accurately communicate that information to the actuary performing the valuation 20

21 DISCOUNTING FUTURE BENEFIT PAYMENTS TO PRESENT VALUE Projecting Discounting Attributing Total OPEB Liability Plans administered as a trust or equivalent arrangement A single blended rate should be used to discount projected future benefit payments, based on The long-term expected rate of return on plan investments (net of investment expenses) that are expected to be used to finance the payment of OPEB benefits for the periods that the plan s fiduciary net position is projected to be sufficient to make projected benefit payments & is expected to be invested, using a strategy to achieve that return & A yield or index rate for 20-year, tax-exempt general obligation municipal bonds with average rating of AA/Aa or higher for all periods that fiduciary net position is not available (also known as the crossover point) The farther into the future the crossover point the closer the rate will be to the long-term rate of return, the higher the single blended rate the lower the present value of the liabilities DISCOUNTING FUTURE BENEFIT PAYMENTS TO PRESENT VALUE Projecting Discounting Attributing Total OPEB Liability Plans NOT administered as a trust or equivalent arrangement A yield or index rate for 20-year, tax-exempt general obligation municipal bonds with average rating of AA/Aa or higher (or equivalent quality on another rating scale) This rate is easily verifiable & will most likely change every valuation. It may be higher or lower than the rate previously used for GASB 45 GASB 45 requires nontrust plans to use the return on employer assets using the same inflation assumption as that used for a long-term rate of return. This requirement resulted in wide variations in practice but once chosen, the rate rarely changed from valuation to valuation 21

22 ATTRIBUTION Projecting Discounting Attributing Total OPEB Liability Only one actuarial cost method is Allowed-Entry Age Many OPEB valuations under GASB 45 were conducted using Projected Unit Credit. Entry Age will generally produce a higher accrued actuarial liability at any point in time compared to Projected Unit Credit. While dependent on plan structure & participant demographics these higher liabilities under Entry Age could be as much as 30% more The impact will be less for plans which have a significant retiree liability relative to the active employee liability or those with older workforces The resulting OPEB liability under the new standard will be different than previously reported & could be significantly higher TYPICAL UPDATING PROCEDURES Yes Restate asset values to measurement date (n/a for nontrusted plans) Record investment return for the year (n/a for nontrusted plans) Roll forward the liability for current-year service cost Roll forward the liability for current-year interest Roll forward the liability for payments & refunds No Update census data Record actuarial gains & losses on liabilities Restate present value for AA muni rate as of the new measurement date* Perform new cash flow projections for single blended rate No, but could force new valuation Impact of plan changes Large investment losses that could impact cross-over point for SBR Other events affecting SBR such as contribution holiday Significant assumption changes Significant movement in AA municipal index *If in the actuary s judgment, the change in the municipal rate is significant, they may choose to restate PV as part of a rollforward 22

23 ASSUMPTIONS PENSION VS. OPEB Pensions OPEB Difference Long-Term Rate of Return Mortality Rate Long-Term Rate of Return Mortality Rate Usually the main driver for pension; often immaterial for OPEB due to limited funding or nontrusted plans Crucial for pension because it determines the payment period; less so for OPEB since all or much of the liability is pre-65 Inflation/Salary Progression Retirement Age/Rates Inflation-COLAs Inflation/Salary Progression Retirement Age/Rates Health Care Cost Trend Rate For pension this is usually the basis for the benefit; OPEB is rarely tied to salary For pension this can be an age point if payment forms are actuarially equivalent; for OPEB retirement rates are crucial to determine cash-flows & liabilities. Statewide plans offering reciprocity also complicate matters as the employer may not know how many years of service participants have with the plan For pension this only matters if the plan has a post-retirement COLA; for OPEB this is one of the most significant driver for liabilities Retirement Options-Retiree Only; Beneficiary Receives 100%, 75%, 50% of Annuity After Death of Retiree Retiree Options-Plan Choice; Number of Dependents/Beneficiaries For pension the options offered are often actuarially equivalent & do not impact plan liability; for OPEB there are multiple choices all of which significantly impact plan liabilities ASSUMPTIONS PENSIONS VS. OPEB Pensions OPEB Difference None Utilization by Age Individuals require more health care as they age. Actuarial tables exist showing the expected health care utilization of plan participants at various ages None Participation Rate Unlike pension in which the payments flow only one way (to the retiree), retirees are most commonly expected to pay sometimes significant monthly premiums to continue receiving health benefits. As expected, higher premiums typically result in lower participation as retirees may find less expensive options. Post-65 provisions also greatly impact participation rate None Cadillac Tax This tax for luxury level of benefits is likely to affect many plans & will significantly add to the costs 23

24 PENSION VS. OPEB KEY TAKEAWAYS Detailed plan documentation & ensuring that the plan as documented is the plan as administered is critical HR & Finance must talk to each other Interfacing the OPEB valuation with the pension valuation is important Certain assumptions should be the same such as mortality, retirement rates, etc. The plan may be the only source of key information such as total years of service IMPORTANCE OF A QUALIFIED ACTUARY Appropriately credentialed Associate (ASA) or Fellow (FSA) of Society of Actuaries Also needs appropriate experience with health care (OPEB) plans The issues are different than pensions Actuary should be objective Auditor will challenge assumptions used 24

25 QUESTIONS? BKD, LLP is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: The information contained in these slides is presented by professionals for your information only & is not to be considered as legal advice. Applying specific information to your situation requires careful consideration of facts & circumstances. Consult your BKD advisor or legal counsel before acting on any matters covered 25

26 CPE CREDIT CPE credit may be awarded upon verification of participant attendance For questions, concerns or comments regarding CPE credit, please the BKD Learning & Development Department at THANK YOU! FOR MORE INFORMATION Lindsey Oakley, CPA

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