[Completely Superseded]

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1 NO. 116-B NOVEMBER 1994 Governmental Accounting Standards Series [Completely Superseded] Statement No. 26 of the Governmental Accounting Standards Board Financial Reporting for Postemployment Healthcare Plans Administered by Defined Benefit Pension Plans Governmental Accounting Standards Board of the Financial Accounting Foundation

2 For additional copies of this Statement and information on applicable prices and discount rates, contact: Order Department Governmental Accounting Standards Board 401 Merritt 7 PO Box 5116 Norwalk, CT Telephone Orders: Please ask for our Product Code No. GS26. The GASB website can be accessed at

3 Summary This Statement establishes financial reporting standards for postemployment healthcare plans administered by state and local governmental defined benefit pension plans. It is an interim Statement pending completion of the GASB's project on accounting and financial reporting of other postemployment benefits by plans and employers. Financial reporting requirements for pension assets and benefits administered by defined benefit pension plans are included in related Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans (pension plan reporting standards). This Statement requires defined benefit pension plans that administer postemployment healthcare plans to present (a) a statement of postemployment healthcare plan net assets, (b) a statement of changes in postemployment healthcare plan net assets, and (c) notes to the financial statements, all in accordance with the pension plan reporting standards. This Statement also establishes certain requirements for plans that elect to provide historical trend information about the funded status of the postemployment healthcare plan and the employer's required contributions to the plan, either as supplementary information or in an additional financial statement(s) or notes. However, presentation of that information is not required. The provisions of this Statement are effective for periods beginning after June 15, Early implementation is encouraged; however, Statement 25 should be implemented in the same fiscal year. Unless otherwise specified, pronouncements of the GASB apply to financial reports of all state and local governmental entities, including general purpose governments, public benefit corporations and authorities, public employee retirement systems, utilities, hospitals and other healthcare providers, and colleges and universities. Paragraph 3 discusses the applicability of this Statement. i

4 Statement No. 26 of the Governmental Accounting Standards Board Financial Reporting for Postemployment Healthcare Plans Administered by Defined Benefit Pension Plans November 1994 Governmental Accounting Standards Board of the Financial Accounting Foundation 401 Merritt 7, PO Box 5116, Norwalk, Connecticut ii

5 Copyright 1994 by Governmental Accounting Standards Board. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the Governmental Accounting Standards Board. iii

6 Statement No. 26 of the Governmental Accounting Standards Board Financial Reporting for Postemployment Healthcare Plans Administered by Defined Benefit Pension Plans November 1994 CONTENTS Paragraph Numbers Introduction Objective of This Statement... 1 Related Statements... 2 Standards of Governmental Accounting and Financial Reporting Scope and Applicability of This Statement Financial Statements... 7 Supplementary Schedules Effective Date and Transition Glossary Appendix A: Background Appendix B: Basis for Conclusions Appendix C: Illustration Appendix D: Codification Instructions iv

7 Statement No. 26 of the Governmental Accounting Standards Board Financial Reporting for Postemployment Healthcare Plans Administered by Defined Benefit Pension Plans November 1994 INTRODUCTION Objective of This Statement 1. The objective of this Statement is to provide guidance for defined benefit pension plans 1 that administer postemployment healthcare plans, on the information that should be included in their financial reports about those plans. This is an interim Statement, pending completion of the Governmental Accounting Standards Board's (GASB) project on accounting and financial reporting of other postemployment benefits by plans and employers. That project includes all postemployment healthcare plans, regardless of the type of entity that administers them. Related Statements 2. This Statement is one of three Statements that address related issues and have the same or related effective dates. Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, establishes financial reporting standards for defined benefit plans in relation to the provision of pension benefits. Statement No. 27, Accounting for Pensions by State and Local Governmental Employers, establishes accounting and financial reporting standards for an employer's pension expenditures/expense and related pension information. Application of the provisions of that Statement to the employer's expenditures/expense for other postemployment benefits is permitted but not required. Certain provisions of this Statement refer to the related Statements. 1 Terms defined in the Glossary (paragraph 11) are printed in boldface type when they first appear. 1

8 STANDARDS OF GOVERNMENTAL ACCOUNTING AND FINANCIAL REPORTING Scope and Applicability of This Statement 3. This Statement establishes financial reporting standards for defined benefit pension plans that administer postemployment healthcare plans. The provisions of this Statement apply to all state and local governmental defined benefit pension plans that administer postemployment healthcare benefits, including plans of general purpose governments, public benefit corporations and authorities, public employee retirement systems, utilities, hospitals and other healthcare providers, and colleges and universities. 4. The provisions of this Statement apply whether the postemployment healthcare plan is a single-employer, agent multiple-employer, 2 or cost-sharing multiple-employer plan and regardless of whether it is funded on an actuarially determined basis or in some other manner. The requirements apply whether the defined benefit pension plan (a) issues a separate financial report or is included in the financial report of the public employee retirement system that administers the pension plan (stand-alone plan financial report) or (b) is included as a pension trust fund in the financial reporting entity of the sponsor or employer. 5. A defined benefit pension plan provides retirement income and also may provide other types of postemployment benefits, including disability benefits, death benefits, life insurance, healthcare benefits, and other ancillary benefits. For financial reporting, retirement income and all other benefits provided through a defined benefit pension plan are considered pension benefits, except postemployment healthcare benefits. Statement 25 establishes financial reporting standards for the pension plan assets and pension benefits 2 For agent multiple-employer plans and the public employee retirement systems that administer them, this Statement applies at the aggregate plan (all employers) level. The aggregate plan or system is not required to present the information required by this Statement for the individual plans of the participating employers. 2

9 administered by defined benefit pension plans. Those standards are referred to in this Statement as the pension plan reporting standards. 6. For financial reporting purposes, postemployment healthcare benefits, including medical, dental, vision, and other health-related benefits, are considered other postemployment benefits, whether they are provided through a defined benefit pension plan or a plan that does not provide retirement income. When postemployment healthcare benefits are provided through a defined benefit pension plan, those benefits and the assets accumulated for their payment are considered, in substance, a postemployment healthcare plan administered by but not part of the pension plan. Financial Statements 7. When a defined benefit pension plan administers a postemployment healthcare plan, the financial report of the defined benefit pension plan should include (a) a statement of postemployment healthcare plan net assets, (b) a statement of changes in postemployment healthcare plan net assets, and (c) notes to the financial statements, all prepared in accordance with the pension plan reporting standards. 3 The notes also should include a brief description of the eligibility requirements for postemployment healthcare benefits and the required contribution rate(s) of the employer(s). All required financial statement 3 The disclosure requirements for employers concerning their expenditures/expense for other postemployment benefits, including postemployment healthcare benefits, are included in Statement No. 12, Disclosure of Information on Postemployment Benefits Other Than Pension Benefits by State and Local Governmental Employers, as amended by Statement 27. When a defined benefit pension plan that administers a postemployment healthcare plan is included in the employer's financial report (pension trust fund), the employer may combine the postemployment healthcare disclosures required for, respectively, the pension trust fund and the employer's expenditures/expense in a manner that avoids unnecessary duplication. 3

10 information for, respectively, pensions and health care should be presented in separate columns of combining financial statements. 4 Supplementary Schedules 8. The pension plan reporting standards require presentation of a schedule of funding progress, a schedule of employer contributions, and related note disclosures for the pension plan, as required supplementary information. Those schedules are not required for the postemployment healthcare plan but, if presented, should include all information that is required for the pension plan. The information should be presented separately, either in separate healthcare schedules or in separate columns of combining pension and healthcare schedules The measurement requirements (the parameters) of the pension plan reporting standards need not be applied in determining information presented in supplementary healthcare schedules. However, the methods and assumptions used for both healthcare schedules should be consistent, consistently applied, and disclosed in accordance with the requirements for the notes to the required pension schedules. The plan also should disclose the healthcare inflation assumption for the most recent year reported in the schedules. When both the plan and the participating employer(s) provide similar or related information about the postemployment healthcare plan (funded status or the 4 When the defined benefit pension plan is included in the financial reporting entity of the sponsor or employer (pension trust fund), combining statements of pension plan net assets and postemployment healthcare plan net assets are not required. However, the fund balance of the combined statement for the pension trust fund should be subdivided and reported as, respectively, fund balance reserved for employees' pension benefits and fund balance reserved for employees' postemployment healthcare benefits. The net increase or decrease for the year in net assets should be similarly subdivided in the combined statement of changes in plan net assets. 5 Paragraph 33, footnote 18, of Statement 25 states that a pension plan may elect to report the information specified for one or both of the schedules of required supplementary information in a financial statement(s) or in the notes to the financial statements, provided that the provisions of footnote 18 are applied. A similar presentation is acceptable for supplementary information reported for a postemployment healthcare plan. 4

11 employer's required contributions to the plan) in their respective reports, both entities should apply the same methods and assumptions in determining that information. 6 EFFECTIVE DATE AND TRANSITION 10. The requirements of this Statement are effective for periods beginning after June 15, Early implementation is encouraged; however, Statement 25 should be implemented in the same fiscal year. If comparative financial statements are presented, restatement of prior-year financial statements is required. The provisions of this Statement need not be applied to immaterial items. This Statement was adopted by the affirmative votes of four members of the Governmental Accounting Standards Board. Mr. Antonio dissented. Mr. Antonio objects to this Statement because, even though it is an interim Statement and does not establish requirements for all aspects of plan reporting, it is based on the requirements of the pension plan reporting standards. Mr. Antonio strongly disagrees with those standards and, because he is concerned with the precedents those standards might establish, he cannot support this Statement. For example, in one area where this Statement does propose requirements reporting on assets held by postemployment healthcare plans it does so without providing guidance for uniform reporting of investment performance measures. This Statement therefore suffers from the same shortcoming as the pension plan reporting standards. Although the Board recognized a need to further study this issue, a golden opportunity to improve financial reporting with this Statement has been missed. Investment of assets is a fundamental activity of these plans and is therefore a function 6 Statement 27 includes an equivalent provision. 5

12 requiring demonstration of accountability. The greater the investment yield (consistent with safety requirements), the lower the required taxpayer contributions. Although current financial reporting standards do not provide for specific reporting requirements in general purpose financial reports, many plans nevertheless report their investment yields. To make investment performance information for all plans comparable and accessible (and hence more useful to governmental funding entities, taxpayers, plan trustees, employees, analysts, and other users), Mr. Antonio believes that standardized requirements for general purpose financial reporting of investment yields need to be established. The requirements should cover such matters as how rates of return should be measured, whether rates of return should be reported by category of investment, and whether trend information should be required. Members of the Governmental Accounting Standards Board: James F. Antonio, Chairman Tom L. Allen Robert J. Freeman Barbara A. Henderson Edward M. Klasny 6

13 GLOSSARY 11. This paragraph contains definitions of certain terms as they are used in this Statement; the terms may have different meanings in other contexts. Agent multiple-employer plan (agent plan) An aggregation of single-employer plans, with pooled administrative and investment functions. Separate accounts are maintained for each employer so that the employer's contributions provide benefits only for the employees of that employer. A separate actuarial valuation is performed for each individual employer's plan to determine the employer's periodic contribution rate and other information for the individual plan, based on the benefit formula selected by the employer and the individual plan's proportionate share of the pooled assets. The results of the individual valuations are aggregated at the administrative level. Cost-sharing multiple-employer plan A single plan with pooling (cost-sharing) arrangements for the participating employers. All risks, rewards, and costs, including benefit costs, are shared and are not attributed individually to the employers. A single actuarial valuation covers all plan members and the same contribution rate(s) applies for each employer. Defined benefit pension plan A pension plan having terms that specify the amount of pension benefits to be provided at a future date or after a certain period of time; the amount specified usually is a function of one or more factors such as age, years of service, and compensation. Other postemployment benefits Postemployment benefits other than pension benefits; other postemployment benefits include postemployment healthcare benefits, regardless of the type of plan that 7

14 provides them, and all postemployment benefits provided through a plan that does not provide retirement income, except benefits defined as special termination benefits in NCGA Interpretation 8, Certain Pension Matters, as amended. Parameters The set of requirements for calculating actuarially determined pension information included in financial reports. Pension benefits Retirement income and all other benefits, including disability benefits, death benefits, life insurance, and other ancillary benefits, except healthcare benefits, that are provided through a defined benefit pension plan to plan members and beneficiaries after termination of employment or after retirement. Postemployment healthcare benefits are considered other postemployment benefits, whether they are provided through a defined benefit pension plan or another type of plan. Pension plan reporting standards The financial reporting standards for defined benefit pension plans established in Statement 25. Pension trust fund A fund held by a governmental entity in a trustee capacity for pension plan members; used to account for the accumulation of assets for the purpose of paying benefits when they become due in accordance with the terms of the plan; a pension plan included in the financial reporting entity of the plan sponsor or a participating employer. Postemployment The period between termination of employment and retirement as well as the period after retirement. 8

15 Postemployment healthcare benefits Medical, dental, vision, and other health-related benefits provided to terminated employees, retired employees, dependents, and beneficiaries. Public employee retirement system A state or local governmental entity entrusted with administering one or more pension plans; also may administer other types of employee benefit plans, including postemployment healthcare plans and deferred compensation plans. A public employee retirement system also may be an employer that provides or participates in a pension plan or other types of employee benefit plans for employees of the system. Required supplementary information (RSI) Schedules, statistical data, and other information that are an essential part of financial reporting and should be presented with, but are not part of, the basic financial statements of a governmental entity. Single-employer plan A plan that covers the current and former employees, including beneficiaries, of only one employer. Sponsor The entity that established the plan. The sponsor generally is the employer or one of the employers that participate in the plan to provide benefits for their employees. Sometimes, however, the sponsor establishes the plan for the employees of other entities but does not include its own employees and, therefore, is not a participating employer of that plan. An example is a state government that establishes a plan for the employees of local governments within the state, but the employees of the state government are covered by a different plan. 9

16 Stand-alone plan financial report A report that contains the financial statements of a plan and is issued by the plan or by the public employee retirement system that administers the plan. The term standalone is used to distinguish such a financial report from plan financial statements that are included in the financial report of the sponsor or employer (pension trust fund). 10

17 Appendix A BACKGROUND 12. In 1988, the Board placed on its agenda a project to address accounting and financial reporting of postemployment benefits other than pension benefits (other postemployment benefits, or OPEB). The project includes the recognition, measurement, and display of information in the financial reports of employers and plans that provide OPEB. Postemployment healthcare benefits are considered OPEB and are included in that project, whether they are provided through a defined benefit pension plan or in some other manner. 13. In May 1990, after considering the responses to an Exposure Draft issued in November 1989, the Board issued Statement No. 12, Disclosure of Information on Postemployment Benefits Other Than Pension Benefits by State and Local Governmental Employers. Statement 12 is an interim Statement. It requires employers that finance all or part of the cost of OPEB for their retired or terminated employees to provide certain note disclosures about those benefits and the employer's OPEB expenditures/expense. Statement 12 states that, except for providing the required disclosures, employers are not required to change their accounting and financial reporting of OPEB until the Board issues a Statement(s) on recognition and measurement of those benefits. For example, governmental employers are not required to adopt FASB Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, issued in December Some employers provide postemployment healthcare benefits through a defined benefit pension plan. Statement 12 does not address financial reporting for OPEB plans. In July 1990, the Board decided to include in the scope of its pension plan reporting project interim guidance for pension plans on financial reporting of postemployment healthcare information, pending completion of its OPEB project. This Statement, the 11

18 OPEB provisions of Statement 27 on accounting for pensions by employers, and Statement 12 may be revised through a future Statement(s) on OPEB accounting and financial reporting for plans and employers. 12

19 Appendix B BASIS FOR CONCLUSIONS Introduction 15. This appendix summarizes factors considered significant by Board members in reaching the conclusions in this Statement. It includes discussion of the alternatives considered and the Board's reasons for accepting some and rejecting others. Individual Board members gave greater weight to some factors than to others. In developing this Statement, the Board had the counsel of a 22-member task force composed of individuals from government, public accounting, the actuarial profession, and the academic community. 16. The Board has given joint consideration to the requirements of this Statement and two related Statements, No. 25 (pension plan reporting standards) and No. 27, to maximize the consistency of related provisions. The Board exposed all three EDs for comment in February 1994 so that preparers, auditors, and users also could give joint consideration to the provisions of all three EDs. Public hearings on the three EDs were held in June and July The Board received 54 comment letters in response to the ED of this Statement. The majority of respondents supported its issuance as a final Statement. 17. This Statement applies to postemployment healthcare plans administered by defined benefit pension plans; application for postemployment healthcare plans administered directly by an employer or in some other manner is not required. The Board is examining financial reporting requirements for postemployment healthcare plans, however administered, in its OPEB project. A few respondents to the ED of this Statement suggested that issuance of this Statement should be deferred until the Board completes the OPEB project. The Board has concluded, however, that the requirements of the pension plan reporting standards would be incomplete without interim guidance on reporting 13

20 postemployment healthcare information for plans that administer postemployment healthcare assets and benefits. Financial Statements 18. The Board believes that reporting plan net assets in total without indicating the amounts that are held in trust for, respectively, pension benefits and postemployment healthcare benefits provides insufficient information to users and can be misleading. The Board has concluded, therefore, that plans should report healthcare assets and related liabilities separately from pension assets and liabilities. When a plan is included in a stand-alone plan financial report, separate financial reporting is required. When a plan is included as a pension trust fund in the sponsor's or employer's financial report, the separate reporting requirement can be met by appropriately subdividing the fund balance and the change in total net assets reported in combined financial statements for the fund. 19. The Board believes that most plans should be able to distinguish between net assets held in trust for, respectively, pensions and health care. The Board's research indicates that, for most plans, assets accumulated for the payment of, respectively, pension benefits and postemployment healthcare benefits cannot legally be used to pay the other type of benefits, although all plan assets may be commingled for investment purposes. A few respondents indicated that it would not be possible to allocate specific assets to a postemployment healthcare plan when those assets are pooled with pension assets for investment purposes. However, this Statement and Statement 25 do not require the allocation of specific assets. Rather, for financial reporting purposes, total pooled assets should be proportionately allocated to the pension plan and the postemployment healthcare plan, as is customary for the financial statements of the individual participants in any investment pool. 14

21 20. The Board has concluded that pension plans should apply the same financial statement standards for pensions and health care. However, the Board concluded that two additional disclosures should be required for postemployment healthcare plans, consistent with the requirements of Statement 12 for employers; those disclosures are a brief description of eligibility requirements and the employer's contribution rate(s) for postemployment healthcare benefits. 21. Statement 12 requires employers that provide OPEB to disclose certain actuarially determined information about those benefits and related assets in the notes to the financial statements, if that information is available. (Statement 12 does not require the calculation of actuarially determined information.) Those required disclosures are not included in this Statement for consistency with the pension plan reporting standards, which do not include actuarially determined information in the notes to the financial statements. However, actuarially determined information about postemployment healthcare assets and benefits may be presented in supplementary schedules. Supplementary Information 22. Some plans present information about the funding progress of postemployment healthcare benefits; however, for many plans, information about postemployment healthcare benefits is not actuarially determined. The Board has concluded that information should not be required for financial reporting without measurement standards, and specific measurement methods should not be required until the Board has completed its research on accounting for OPEB. Therefore, presentation of a schedule of funding progress and a schedule of employer contributions for postemployment health care, as supplementary information, is permitted but not required. Presentation in a financial statement(s) or disclosure in the notes also is acceptable, as indicated in footnote 5 to paragraph 8. 15

22 23. The Board has concluded, however, that if the information is presented, it should include all items required for the pension plan by the pension plan reporting standards, for consistency with those standards. As discussed in paragraph 22, the Board has not specified how the information should be measured; application of the pension parameters is acceptable but not required. However, if both a plan and its participating employer(s) present similar or related information about the funding progress of the postemployment healthcare plan, the information should be measured in the same way by both entities. The Board believes that the application of different measurement methods in the plan's and the employer's reports would be confusing for users. Paragraph 24 of Statement 27 includes equivalent provisions; that paragraph amends paragraph 11 of Statement 12. Effective Date 24. The Board had proposed that this Statement and Statement 25 should be effective for plan fiscal years beginning after December 15, 1995, and Statement 27 should be effective for employer fiscal years beginning after December 15, Consistent with its decision to change the effective date of Statement 27 to fiscal years beginning after June 15, 1997, the Board has extended the effective dates of this Statement and Statement 25 to fiscal years beginning after June 15,

23 Appendix C ILLUSTRATION 25. This appendix illustrates financial statements and disclosures required by this Statement. The facts assumed in this example are illustrative only and are not intended to modify or limit the requirements of this Statement or to indicate the Board's endorsement of the policies or practices shown. Existing standards may require disclosures in addition to those illustrated. 17

24 Illustration Financial Statements and Note Disclosures for a Postemployment Healthcare Plan Administered by a Defined Benefit Pension Plan CINNABAR EMPLOYEES RETIREMENT PLAN HEALTHCARE PREMIUM PLAN STATEMENTS OF POSTEMPLOYMENT HEALTHCARE PLAN NET ASSETS as of June 30, 19X9 and 19X8 19X9 19X8 Assets Cash and short-term investments $ 307,724 $ 485,692 Receivables: Employer 9,939 8,762 Plan member 3,313 2,540 Interest and dividends 557, ,841 Total receivables 570, ,143 Investments, at fair value: U.S. Government obligations 1,202,224 1,127,564 Domestic corporate bonds 1,322,057 1,210,398 Domestic stocks 2,971,217 2,469,533 International stocks 1,062, ,466 Mortgages 557, ,042 Other 565, ,654 Total investments 7,680,634 6,807,657 Total assets 8,558,703 7,880,492 Liabilities Healthcare premiums payable and other 243, ,929 Net assets held in trust for postemployment healthcare benefits $ 8,314,825 $ 7,612,563 18

25 CINNABAR EMPLOYEES RETIREMENT PLAN HEALTHCARE PREMIUM PLAN STATEMENTS OF CHANGES IN POSTEMPLOYMENT HEALTHCARE PLAN NET ASSETS for the Years Ended June 30, 19X9 and 19X8 19X9 19X8 Additions Contributions: Employer $ 399,761 $ 379,772 Plan member 133, ,591 Total contributions 533, ,363 Investment income: Net appreciation (depreciation) in fair value of investments 297, ,321 Interest 173, ,334 Dividends 224, ,681 Other income 28,999 27, , ,392 Less investment expense 39,842 35,693 Net investment income 685, ,699 Total additions 1,218,145 1,147,062 Deductions Healthcare premium subsidies 511, ,043 Administrative expense 4,056 3,982 Total deductions 515, ,025 Net increase 702, ,037 Net assets held in trust for postemployment healthcare benefits Beginning of year 7,612,563 6,980,526 End of year $ 8,314,825 $ 7,612,563 19

26 Note X. Postemployment Healthcare Plan A. Plan Description Cinnabar Employees Retirement Plan Notes to the Financial Statements for Fiscal Year Ended June 30, 19X9 Cinnabar Employees Retirement Plan (CERP) administers the Healthcare Premium Plan (HPP), a single-employer defined benefit postemployment healthcare plan. HPP provides a healthcare premium subsidy to age and service retirees of the City of Cinnabar with eight or more years of qualifying service credit. The healthcare premium subsidy is available to general and public safety employees who (a) participate in the CERP, (b) were covered under the healthcare plan of the City of Cinnabar at the time of retirement, and (c) applied to enroll in HPP on or before the date of retirement. Eligible retirees receive a healthcare premium subsidy of $7 per month for each year of credited service, up to 25 years, until they become eligible for Medicare. HPP is administered in accordance with Cinnabar Revised Statutes Chapter 37 (CRS37), which assigns the authority to establish and amend benefit provisions to the CERP Board of Trustees. HPP membership consisted of the following at December 31, 19X8, the date of the latest actuarial valuation: Retirees and beneficiaries receiving healthcare benefits 405 Terminated plan members entitled to but not yet receiving healthcare benefits 43 Active plan members 1,060 Total 1,508 20

27 B. Summary of Significant Accounting Policies Basis of Accounting. HPP's financial statements are prepared using the accrual basis of accounting. Plan member contributions are recognized in the period in which the contributions are due. Employer contributions are recognized when due and the City has made a formal commitment to provide the contributions. Healthcare premium subsidies are recognized when due and payable in accordance with the terms of the plan. Method Used to Value Investments. Plan investments are reported at fair value. Short-term investments are reported at cost, which approximates fair value. Securities traded on a national or international exchange are valued at the last reported sales price at current exchange rates. Mortgages are valued on the basis of future principal and interest payments, and are discounted at prevailing interest rates for similar instruments. Investments that do not have an established market are reported at estimated fair value. C. Contributions HPP funding policy provides for periodic contributions by the City at actuarially determined rates expressed as a percentage of annual covered payroll. The City contributes at a rate of 1.5% of annual covered payroll. Plan members are required to contribute 0.5% of their annual covered salary. CRS37 assigns the authority to establish and amend City and plan member obligations to contribute to HPP to the CERP Board of Trustees. Administrative costs of HPP are financed through investment earnings. 21

28 Appendix D CODIFICATION INSTRUCTIONS 26. The sections that follow update the June 30, 1994 Codification of Governmental Accounting and Financial Reporting Standards for the effects of Statement No. 26, Financial Reporting for Postemployment Healthcare Plans Administered by Defined Benefit Pension Plans. Certain Codification sections included in this appendix have also been updated for the effects of Statements No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, and No. 27, Accounting for Pensions by State and Local Governmental Employers. Only the paragraph number of each of these Statements is listed if the paragraph will be cited in full in the Codification. * * * FINANCIAL REPORTING SECTION 1900 Sources: [Revise as follows:] NCGA Statement 1 GASB Statements 9 through 10 GASB Statement 14 GASB Statements 25 through 27 Statement of Principle Interim and Annual Financial Reporting [Revise as follows:] [NCGAS 1, 128; GASBS 9, 6; GASBS 10, 50; GASBS 14, 11, 12, 19, 43, 65, and 66; GASBS 27, 22].116 [Remove source reference to GASBS 5, 7 and replace it with GASBS 27, 22; add the following to footnote 1:] In certain circumstances, combining statements are required for pension trust funds and for postemployment healthcare plans administered by defined 22

29 benefit pension plans. (See Sections Pe5, "Pension Plans Defined Benefit," paragraph.107, and Po50, "Postemployment Healthcare Plans Administered by Defined Benefit Pension Plans," paragraph.105.) [GASBS 14, 51; GASBS 25, 15; GASBS 26, 7] * * * COMPREHENSIVE ANNUAL FINANCIAL REPORT SECTION 2200 Sources: [Revise as follows:] NCGA Statement 1 AICPA Statement of Position 80-2 GASB Statement 6 GASB Statements 9 through 10 GASB Statement 14 GASB Statements 25 through 27 Statement of Principle Annual Financial Reporting [Revise as follows:] [NCGAS 1, 128; GASBS 9, 6; GASBS 10, 50; GASBS 14, 11, 12, 19, 43, 65, and 66; GASBS 27, 22].108 [Remove source reference to GASBS 5, 7 and replace it with GASBS 27, 22; add the following to footnote 1:] In certain circumstances, combining statements are required for pension trust funds and for postemployment healthcare plans administered by defined benefit pension plans. (See Sections Pe5, "Pension Plans Defined Benefit," paragraph.107, and Po50, "Postemployment Healthcare Plans Administered by Defined Benefit Pension Plans," paragraph.105.) [GASBS 14, 51; GASBS 25, 15; GASBS 26, 7].906 [Delete subparagraph d.] * * * 23

30 [Add a new section as follows:] POSTEMPLOYMENT HEALTHCARE PLANS ADMINISTERED BY DEFINED BENEFIT PENSION PLANS SECTION Po50 Source: GASB Statement 26 Scope and Applicability [GASBS 26, 3 9] [Change "Statement" to "section" and change crossreferences.] DEFINITIONS.501 [GASBS 26, 11] [Change "Statement" to "section."] NONAUTHORITATIVE DISCUSSION.901 [GASBS 26, Appendix C] 24