2015 MASBO Fall Conference GASB 73, 74 and 75 Postemployment Benefits Other Than Pensions An Actuarial Perspective.

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1 2015 MASBO Fall Conference GASB 73, 74 and 75 Postemployment Benefits Other Than Pensions An Actuarial Perspective November 13, 2015

2 2015 MASBO Fall Conference This presentation was prepared for the 2015 MASBO Fall Conference at the Double Tree Park Place in Minneapolis, MN. This presentation may not be used for any other purpose without the written consent of Hildi Inc. Readers/Participants at this conference are cautioned to examine original source materials and to consult experts before making decisions related to the subject matter of this presentation. Acknowledgment: Thank you to Michelle C. at GASB for answering questions and providing background and information on these new Statements. 2

3 Overview of the session Reason for changes and development of new Statements 73,74 & 75 Inventory of postemployment benefits GASB 73 vs. GASB 75 Overview of changes New terminology Implementation process Implementation strategies 3

4 Reason for Change The GASB s approach to postemployment benefit accounting is to establish and maintain a single, consistent set of standards for all postemployment benefits both pensions and OPEB Relevant and comparable Useful Transparent From GASB Understanding Costs and Benefits Bold format emphasis added by Hildi Inc. 4

5 Reason for Change More information on the GASB website There is a project page on Other Postemployment Benefits (OPEBs) on the GASB website 5

6 Current Inventory of Post-Employment Benefits OPEBs (both funded and pay-as-you go) GASB 45 Payouts on Accumulated Unused Sick Leave GASB 16 Pension-like benefits (pay-as-you go) (not OPEBs and not GASB 16) GASB 27 Pension benefits with assets (ex: TRA and/or PERA not OPEBs) GASB 68 (formerly GASB 27) 6

7 New Inventory of Post-Employment Benefits OPEBs (both funded and pay-as-you go) GASB 75 formerly GASB 45 Payouts on Accumulated Unused Sick Leave GASB 16 Pension-like benefits (pay-as-you-go) (not OPEBs and not GASB 16) GASB 73 formerly GASB 27 Pension benefits with assets (ex: TRA and/or PERA not OPEBs) GASB 68 7

8 GASB 73 vs. GASB 75 Previous Statement New Statement GASB 27 GASB 73 (unfunded) / GASB 68 (funded) GASB 45 GASB 75 GASB 27 Plans will now follow GASB 73 for Post-employment benefits that are not OPEBs - Non-trusted post employment benefits (pension-like benefits) GASB 45 Plans will now follow GASB 75 for OPEBs - All Other Post-Employment Benefits other than Pensions (OPEBs) - For both trusted and non-trusted OPEBs 8

9 GASB 73 & 75 Background Overview of Changes From GASB 27 & 45 Accounting and funding treatments are separated The concepts of Annual Required Contribution (ARC) and Net Pension Obligation/Net OPEB Obligation (NPO/NOO) are no longer applicable A Net Pension/OPEB Liability (NPL/NOL) will be shown on the employer s financial statements, rather than as supplemental information Changes in the NPL/NOL will be recognized in Expense over shorter periods Amortization periods for deferred inflows and outflows are reduced 5-years for investment gains/losses Average future service for assumption changes and liability gains/losses Immediate recognition of plan changes 9

10 GASB 73 & 75 Background Overview of Changes From GASB 27 & 45 New method for developing the discount rate The Entry Age actuarial cost method is required for disclosure and expense calculations Costs measured as a level percentage of pay over entire working career Asset smoothing methods are disallowed for balance sheet items, but mandated for determining pension expense Additional Footnotes and Required Supplementary Information (RSI) schedules on financial statements Any material changes between the valuation date and measurement date may require a new valuation to be prepared Liabilities at additional healthcare trend rates and discount rates are required for disclosures Biennial cycle for all plans 10

11 GASB 75 Overview of Changes From GASB 45 New method for developing the discount rate OPEB Plan with an Irrevocable Trust Based on expected long-term rate of return until trust funds exhausted Municipal bond rates apply to unfunded obligations OPEB Plan with Revocable OPEB Trust or Pay-as-you-go Discount rate should be a yield or index rate for 20-year, tax exempt general obligation municipal bonds with an average rating of AA/Aa or higher 11

12 GASB 75 New Terminology Entry Age actuarial cost method Service costs OPEB Expense Total OPEB liability Fiduciary Net Position Net OPEB liability Measurement Date/Reporting Date 12

13 GASB 75 The Old and the New Terminology GASB 45 GASB 75 Normal Cost Annual Required Contribution / Annual OPEB Cost Net OPEB Obligation Accrued Liability Assets Unfunded Accrued Liability Service Cost OPEB Expense None N/A Total OPEB Liability Fiduciary Net Position Net OPEB Liability 13

14 GASB 73 Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB 68 GASB 27 now GASB 73 for Postemployment benefits that are not OPEBs Non-trusted post employment benefits (pension-like benefits) Effective for fiscal years beginning after June 15, 2016 Fiscal Year beginning July 1, 2016 and ending June 30,

15 GASB 73 Discuss implementation transition with your District s actuary and auditor Today we will focus on the implementation transition to GASB 75 from GASB 45 GASB 75 provides options Other options can be reviewed that we will not discuss/review today 15

16 GASB 75 Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions GASB 45 now GASB 75 for OPEBs Effective for fiscal years beginning after June 15, 2017 Fiscal Year beginning July 1, 2017 and ending June 30,

17 GASB 75 Implementation Options Terminology Valuation Date (VD) Measurement Date (MD) Reporting Date (RD) 17

18 GASB 75 Implementation Options Actuarial Liabilities (AL) are initially calculated as of the Valuation Date (VD) Actuarial Liabilities (AL) at the Valuation Date (VD) are then rolled forward for financial reporting purposes to the Measurement Date (MD) to become a Total OPEB Liability (TOL) Assets are measured as of the Measurement Date (MD) never rolled forward Reporting Date (RD) aligns with the fiscal year end 18

19 GASB 75 Implementation Options Valuation Date (VD) Measurement Date (MD) Reporting Date (RD) 7/1/Year 6/30/Year+1 6/30/Year+2 VD MD1 RD1 MD2 RD2 Biennial Cycle 19

20 GASB 75 Implementation Options Most recent GASB 45 was and next cycle is Fiscal Year GASB 45 GASB 75 Reporting Date June 30, 2017 N/A Measurement Date 1 July 1, 2016 N/A Actuarial Valuation Date 2 July 1, 2016 N/A Fiscal Year GASB 45 GASB 75 Reporting Date N/A June 30, 2018 Measurement Date 1 N/A June 30, 2017 Actuarial Valuation Date 2 July 1, 2016 July 1, A GASB 75 Measurement Date may look back as far as the employer s prior fiscal year-end 2. A GASB 75 Valuation Date may be up to 30 months prior to the Reporting Date 20

21 GASB 75 Implementation Options Most recent GASB 45 was and next cycle is Fiscal Year GASB 45 GASB 75 Reporting Date N/A June 30, 2018 Measurement Date 1 N/A July 1, 2017 Actuarial Valuation Date 2 N/A July 1, Fiscal Year GASB 45 GASB 75 Reporting Date N/A June 30, 2019 Measurement Date 1 N/A June 30, 2018 Actuarial Valuation Date 2 N/A July 1, A GASB 75 Measurement Date may look back as far as the employer s prior fiscal year-end 2. A GASB 75 Valuation Date may be up to 30 months prior to the Reporting Date 21

22 GASB 75 Implementation Options Most recent GASB 45 was and next cycle is Fiscal Year GASB 45 GASB 75 Reporting Date N/A June 30, 2018 Measurement Date 1 N/A July 1, 2017 Actuarial Valuation Date 2 N/A July 1, Fiscal Year GASB 45 GASB 75 Reporting Date N/A June 30, 2019 Measurement Date 1 N/A June 30, 2018 Actuarial Valuation Date 2 N/A July 1, A GASB 75 Measurement Date may look back as far as the employer s prior fiscal year-end 2. A GASB 75 Valuation Date may be up to 30 months prior to the Reporting Date 22

23 GASB 75 Implementation Options Most recent GASB 45 was and next cycle is (normally would have been ) Fiscal Year GASB 45 GASB 75 Reporting Date N/A June 30, 2018 Measurement Date 1 N/A July 1, 2017 Actuarial Valuation Date 2 N/A July 1, Fiscal Year GASB 45 GASB 75 Reporting Date N/A June 30, 2019 Measurement Date 1 N/A June 30, 2018 Actuarial Valuation Date 2 N/A July 1, A GASB 75 Measurement Date may look back as far as the employer s prior fiscal year-end 2. A GASB 75 Valuation Date may be up to 30 months prior to the Reporting Date 23

24 GASB 75 Implementation Strategies Revocable OPEB Trust to Irrevocable OPEB Trust Plan Design Current GASB 27 benefits changed to GASB 45 (GASB 75) Current GASB 45 benefits designed with cost controls Develop formal written funding policies Review all actuarial assumptions Retirement patterns Retirement election/participation decisions Withdrawal/turnover Implicit Rate Subsidies Audit issues may be fewer than with GASB 68 since employers control the OPEB data Alternative Measurement Method is still allowed 24

25 GASB 75 Data Request Items Same data requested at Valuation Date as current process Employer contribution and benefit payment information needed at each measurement date OPEB Trust reconciliation needed at each measurement date More detail requested on investment policy for Irrevocable OPEB Trust 25

26 GASB 75 Off year cycles Increase in actuarial calculations Benefit Payments Employer Contributions Market value of assets Asset reconciliation Plan provision changes / Early Retirement Incentives 26

27 GASB 75 Anticipated Operational Costs Education and training to become familiar with the new standards Update your Finance Committees and Boards now on the new OPEB disclosures when discussing GASB 67/68 changes for public pensions Increase in actuarial calculations Changes in accounting systems and procedures Loss of consistent historical financial trends for financial analysis 27

28 GASB 75 Expected Benefits of the New Statements Improved information for accountability and interperiod equity New OPEB liability and expense measures Greater comparability across governments (Districts) Increased consistency over time More informative note disclosures and supporting information 28

29 Contact Information Jill M. Urdahl, FSA President/Consulting Actuary Hildi Incorporated Specializing in Actuarial Retirement Plan Services Singletree Lane, Suite 305 Minneapolis, MN P F E jill.urdahl@hildiinc.com W 29