Understanding the New GASB OPEB Standards: A Closer Look at GASB Statements No. 74 and 75

Transcription

1 Florida Government Finance Officers Association Annual Conference Understanding the New GASB OPEB Standards: A Closer Look at GASB Statements No. 74 and 75 June 27, 2017 Presented By MarkWhite@PurvisGray.com Jim.Rizzo@GRSconsulting.com Copyright 2017 GRS All rights reserved.

2 INTRODUCTION A Little History In November 1994, the GASB issued Statement Nos. 25 and 27 for accounting and financial reporting on pensions Treating a funding calculation as an accounting expense (the ARC and APC) Treating the funding shortfall as an accounting liability (the NPO) We all learned the concepts, terminology and rules for pension accounting 2

3 INTRODUCTION A Little History Before June 2004, we just ignored OPEB and expensed it as it arose GASB said it is similar to pensions and should be accounted for like pensions So in June 2004, the GASB issued Statement No. 45 Treating a funding calculation as an accounting expense (the ARC and AOC) Treating the funding shortfall as an accounting liability (the NOO) We all learned the concepts, terminology and rules for OPEB accounting 3

4 GASB 45 Implementation Timetable 9/30/08 Ph. 1 9/30/10 Ph. 3 No. 45 Effective Dates 9/30/09 Ph. 2 4

5 INTRODUCTION A Little History But then, the GASB started thinking differently about pension concepts Pensions reflect a career long voluntary exchange transaction between the taxpayer and the employee Pensions are part of employee compensation (just deferred) Ultimately, a pension is a compensation obligation to the employee, not a funding obligation to the plan The compensation obligation should be expensed over the working life of the employee The balance sheet liability is the present value owed to employees (net of plan assets), not the funding amount currently owed to the plan 5

6 INTRODUCTION A Little History So in June 2012, the GASB issued Statement Nos. 67 and 68 Again, we all learned new concepts, new terminology and new rules for pension accounting We implemented GASBS 67 for YE 2014 and GASBS 68 for YE 2015 YE 2016 marked our second or third years! It was difficult, time consuming, paradigm shifting and we did it!! 6

7 INTRODUCTION But just when we got over the GASBS 68 implementation, Just when you thought it was safe to back in the water... GASB issues Jaws 2 Statement Nos. 74/75 7

8 GASB No. 45 and No. 75 Both No. 45 and No. 75 Include; Explicit OPEB Benefits (Your Choice) Implicit OPEB Benefits (FL Statute ) 8

9 Implicit Rate Subsidy There really is a (hidden) cost you are paying. It s real. There are cross subsidies everywhere Employee rates and retiree rates* Employee rates and dependent rates Adults and children Medicare retiree rates and non Medicare rates PPO rates and HMO rates * This cross subsidy is what we call the implicit rate subsidy. 9

10 Implicit Rate Subsidy (continued) Cross subsidies Between Count Blended Ins Co Monthly Premium Ext Expected Actuarial Monthly Cost Ext Active Employees 100 $ $ 70,000 $ $ 58,333 Retirees (Non Medicare) 25 $ $ 17,500 $ 1, $ 29,167 Total 125 $ $ 87,500 $ $ 87,500 Paying for ees Subsidy Costing for ees x ees rets per ret Overcharge 10

11 Implicit Rate Subsidy (continued) But our retirees pay the full cost Source: Health Care Costs From Birth to Death, June 2013 Prepared by Dale H. Yamamoto Sponsored by Society of Actuaries Data from Health Care Cost Institute 11

12 Implicit Rate Subsidy (continued) Total Enrollment: 125 members Average Cost all members: $8,400/year ($700/month) Active Enrollment Average Active Member Cost Retired Enrollment Average Retired Member Cost Age Male Female Male Female Male Female Male Female < ,887 4, ,064 4, ,188 7, ,976 9, ,992 9, ,220 9, ,853 10, ,342 12, ,342 12, ,446 14, ,446 14, ,254 16, ,254 16, ,522 20, ,791 23,850 Total/yr 100 $ 7, $ 14,000 Monthly 100 $ $1,

13 Implicit Rate Subsidy (continued) Cross subsidies Between Count Blended Ins Co Monthly Premium Ext Expected Actuarial Monthly Cost Ext Active Employees 100 $ $ 70,000 $ $ 58,333 Retirees (Non Medicare) 25 $ $ 17,500 $ 1, $ 29,167 Total 125 $ $ 87,500 $ $ 87,500 Paying for ees $ Subsidy Costing for ees $ (583.33) x ees rets per ret Overcharge $ $

14 Implicit Rate Subsidy (continued) Member Employer Paid Total Cross subsidies Between Count Paid (Mo.) Monthly Ext Ext Active Employees 100 $ $ $ 58,333 $ 58,333 Retirees (Non Medicare) 25 $ $ $ 11,667 $ 29,167 Total 125 $ NA NA $ 87,500 Conclusion The insurance company is over charging you for actives, And using the excess to supplement the under charged retiree contribution The overcharge is the implicit subsidy paid by the employer 14

15 Actuarial Model Project the current covered population with demographic and behavioral assumptions, and with benefit eligibility plan provisions Project the gross benefits for retirees and their dependents with economic assumptions, and with benefit level plan provisions Net out the gross benefits by Medicare benefits, if any Net out the gross benefits by retiree contributions Discount the future stream of net projected benefits 15

16 Actuarial Model (continued) Allocate that present value for each active to his/her years of expected employment Normal cost (or service cost ) Accumulate the normal costs prior to the measurement date for actives and add the present value of net benefits for retirees Actuarial Liability (or total OPEB liability ) 16

17 Highlights of No. 74 Plan Reporting Very Few FS Changes From GASB 43 Change In OPEB Liability If a Trust, Report as Fiduciary Fund Notes and RSI Changes If Not a Trust, Report Assets as Employer s Assets Annual Rate of Return on Plan Assets Aggregate Employer Information 17

18 GASB 45 vs. GASB 75 Government Wide FS Economic Resource Based FS Only Enterprise Funds Internal Service and Certain Fiduciary Funds 18

19 GASB 45 vs. GASB 75 SAME OPEB Definition All Postemployment Health Benefits Not Provided Through a Pension Plan Medical, Dental Vision, Hearing, Life Ins. Disability LT Care, etc. Not Termination Payments 19

20 GASB 45 vs. GASB 75 No. 45 Funding Approach, OPEB Cost = ARC No. 75 Accounting Approach, NOL = TOL NPP 20

21 GASB 45 vs. GASB 75 No. 45 Transitional Balance Amortized Into Liability Over 20 Years No. 75 Implement Via Restatement Entire Liability 21

22 GASB 45 vs. GASB 75 No. 45 Deferred Inflows and Outflows Didn t Exist No. 75 Uses Deferred Inflows and Outflows Heavily Like No

23 GASB 75 Beginning Deferred Outflows/Inflows Actuarial DO/DI If Available Restatement DO For Contributions After MD 23

24 Alternate Measurement Method? No. 45 Yes Less Than 100 Participants No. 75 Yes 24

25 GASB 45 vs. GASB 75 No. 45 Discount Rate = Internal or Trust LTEROR No. 75 Discount Rate = MBI/LTEROR 25

26 Bartel s graph 26

27 Total OPEB Liability New Discount Rate Methodology 5.00% Average AA/Aa 20 Year Municipal Bond Rate 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% Dec 12 Feb 13 Apr 13 Jun 13 Aug 13 Oct 13 Dec 13 Feb 14 Apr 14 Jun 14 Aug 14 Oct 14 Dec 14 Feb 15 Apr 15 Jun 15 Aug 15 Oct 15 Dec 15 Feb 16 Apr 16 Jun 16 Aug 16 Oct 16 Dec 16 Feb 17 Apr 17 Jun 17 Source: Fidelity Investments Fiscal Quarter Many governments will likely be required to use a lower discount rate than in the past. 27

28 Total OPEB Liability New Discount Rate Methodology Example 1: No post 65 coverage Change in Entry Age AAL after implementing GASB 75 Relative change in AAL GASB 75 TOL if Old AAL = $40,000,000 Current Muni Bond Yield Muni Bond Yield Rate 4.0% 3.5% 3.0% 4.0% 3.5% 3.0% 4.5% 3.2% 6.6% 9.9% 41,298,757 42,621,809 43,963, % 0.0% 3.2% 6.5% 40,000,000 41,281,445 42,581, % 3.1% 0.0% 3.1% 38,758,333 40,000,000 41,259, % 6.1% 3.1% 0.0% 37,575,104 38,778,865 40,000, % 8.9% 6.0% 3.0% 36,448,097 37,615,753 38,800,262 Individual results will depend on plan provisions and demographic composition of the covered group 28

29 Total OPEB Liability New Discount Rate Methodology Example 2: Generous lifetime subsidy Change in Entry Age AAL after implementing GASB 75 Relative change in AAL GASB 75 TOL if Old AAL = $40,000,000 Current Muni Bond Yield Muni Bond Yield Rate 4.0% 3.5% 3.0% 4.0% 3.5% 3.0% 4.5% 9.3% 19.9% 31.8% 43,719,280 47,967,301 52,709, % 0.0% 9.7% 20.6% 40,000,000 43,886,634 48,225, % 8.9% 0.0% 9.9% 36,457,569 40,000,000 43,954, % 17.1% 9.0% 0.0% 33,177,260 36,400,956 40,000, % 24.7% 17.4% 9.2% 30,124,288 33,051,340 36,319,200 Individual results will depend on plan provisions and demographic composition of the covered group 29

30 OPEB Administered Through Trust? Trust? Record NOL Record TOL 30

31 GASB 45 vs. GASB 75 OPEB Provided Through Trust? Employer Contribution Irrevocable Plan Assets Dedicated to Paying OPEB Plan Assets Protected From Creditors 31

32 GASB 68 vs. GASB 75 TOL Total OPEB Liability NPP Less Trust Net Plan Position NOL Equals Net OPEB Liability 32

33 Total OPEB Liability 3 Broad Steps Project Benefits Discount Attribution Total OPEB liability the portion of the actuarial present value of projected benefit payments that is attributed to past periods of employee service. 33

34 GASB 68 vs. GASB 75 Claims or Age Adjusted Premium Based Specified Methods, Fewer Assumptions Entry Age Normal, Level Percent of Pay 34

35 GASB 68 vs. GASB 75 Similarities Ongoing Career Long Relationship Cost to Taxpayers Over Time of Service Accounting Based vs. Funding Based 35

36 GASB 75 Measurement and Timing Measurement Date Alt. 1 Measurement Date Alt. 2 Reporting Date (SONP Date) Prior Year Reporting Date AV At Least Every 2 Years, More Frequent Encouraged AV Not More Than 30 Months and 1 Day Prior to Reporting Date 36

37 Change In Net OPEB Liability Orientation Pension Expense Change in Plan Net Position Change in Total Pension Liability Deferred Inflows Outflows 37

38 Changes In TOL Expensed Immediately Annual Service Cost Interest on PY NOL Expense Immediately Projected Earnings Plan Benefit Changes 38

39 Changes In TOL Expensed Gradually (DO/DI) Assumption Changes Expense Gradually Actuarial Gains and Losses 39

40 Disclaimers This presentation shall not be construed to provide tax advice, legal advice or investment advice. Readers are cautioned to examine original source materials and to consult with subject matter experts before making decisions related to the subject matter of this presentation. This presentation does not expresses the views of the sponsoring organization or the views of the presenters respective employers, and may not express the views of the presenters themselves. 40

41 Appendix A Taken from GASB and Dave Bean.... (with permission) 41

42 Note Disclosures Employers Descriptive information Significant assumptions/other inputs in total OPEB liability, including: Inflation, salary changes, ad hoc postemployment benefit changes, source of mortality assumptions, dates of experience studies, and sharing of benefit related costs Healthcare cost trend rate Discount rate Rate used in the measurement and, as applicable: How long term expect rate of return was determined Municipal bond rate and source of rate Assumptions about cash flows Periods to which each rate applied Assumed asset allocation/expected real rates of return 42

43 Note Disclosures Employers Significant assumptions/other inputs in total OPEB liability, including (cont.) OPEB liability recognized using: Discount rate, discount rate +1%, and discount rate 1% Healthcare cost rend rate, healthcare cost trend rate +1%, and healthcare cost trend rate 1% 43

44 Note Disclosures Employers For OPEB administered through trust in which specified criteria are met: Information about OPEB plan s fiduciary net position or reference to plan report For all employers: Measurement date, actuarial valuation date Changes of assumptions/other inputs and changes of benefit terms Changes subsequent to measurement date but before end of reporting period 44

45 Note Disclosures Employers OPEB expense in current reporting period Deferred outflows/deferred inflows of resources Balances by source Differences between expected and actual experience Changes of assumptions/other inputs For OPEB provided through trust in which specified criteria are met, net difference between projected and actual earnings on OPEB plan investments Individual items for cost sharing employers Employer s contributions subsequent to measurement date Net impact on OPEB expense in each of the next 5 years and thereafter in the aggregate Amount that will be reduction of OPEB liability 45

46 Illustrative Deferrals/Expense Disclosure For the year ended June 30, 20X9, the City recognized OPEB expense of $22,388. At June 30, 20X9, the City reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources: Deferred Outflows of Resources Deferred Inflows of Resources Differences between expected and actual experience Changes of assumptions Net difference between projected and actual earnings on OPEB plan investments Total $ 25,970 $ 14, ,782 - $ 43,752 $ 14,989 Amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized in OPEB expense as follows: Year ended June 30: 20Y0 $ 7,064 20Y1 7,384 20Y2 6,007 20Y3 4,482 20Y4 114 Thereafter 3,712 46

47 Note Disclosures Employers All employers except cost sharing: Number of employees covered inactive receiving benefits, inactive not receiving benefits, active Allocated insurance contracts Schedule of changes in OPEB liability by source for current period Changes in total OPEB liability (service cost, interest, benefit changes, benefit payments, etc.) For OPEB administered through trust in which specified criteria are met, changes in OPEB plan fiduciary net position (contributions by source, plan net investment income, etc.) 47

48 Illustrative Disclosure of Changes in Liability by Source For OPEB administered through trust in which specified criteria are met: Increase (Decrease) Total OPEB Liability (a) Plan Fiduciary Net Position (b) Net OPEB Liability (a) (b) Balances at 6/30/X8 Changes for the year: $ 432,472 $ 418,254 $ 14,218 Service cost 19,051 19,051 Interest 30,663 30,663 Differences between expected and actual experience 8,925 8,925 Contributions employer 22,424 (22,424) Net investment income 44,215 (44,215) Benefit payments (7,899) (7,899) - Administrative expense (148) 148 Net changes 50,740 58,592 (7,852) Balances at 6/30/X9 $ 483,212 $ 476,846 $ 6,366 48

49 Illustrative Disclosure of Changes in Liability by Source For OPEB not administered through trust in which specified criteria are met: Total OPEB Liability (a) Balance at 6/30/X8 Changes for the year: Service cost Interest Changes of benefit terms Differences between expected and actual experience Changes in assumptions or other inputs $ 851,095 16,712 33,898 (203,619) 58,936 45,945 Benefit payments (23,983) Net changes (72,111) Balance at 6/30/X9 $ 778,984 49

50 Note Disclosures Employers Cost sharing employers only: Employer s proportion, basis for proportion, change in proportion Employer s proportionate share (amount) of collective net OPEB liability 50

51 RSI Employers Other Than Cost Sharing 10 year schedules Changes in OPEB liability by source as disclosed in footnotes Ratios May be presented with changes in OPEB liability by source For OPEB administered through trust in which specified criteria are met: Total OPEB liability OPEB plan fiduciary net position Net OPEB liability OPEB plan fiduciary net position as % of total OPEB liability Covered employee payroll Net OPEB liability as % of covered employee payroll For OPEB not administered through trust in which specified criteria are met: Total OPEB liability Covered employee payroll Total OPEB liability as % of covered employee payroll 51

52 Illustrative RSI OPEB through Trust in Which Specified Criteria Are Met (5 of 10 Required Years Shown) 20X9 20X8 20X7 20X6 20X5 Total OPEB liability Service cost $ 19,051 $ 18,190 $ 16,642 $ 16,732 $ 18,099 Interest 30,663 27,176 26,061 25,394 22,538 Changes of benefit terms (36,889) - Differences between expected and actual experience 8,925 11,845 (18,490) 11,845 8,945 Changes of assumptions - - (1,369) - - Benefit payments (7,899) (7,758) (7,601) (7,425) (8,758) Net change in total OPEB liability 50,740 49,453 15,243 9,657 40,824 Total OPEB liability beginning 432, , , , ,295 Total OPEB liability ending (a) $ 483,212 $ 432,472 $ 383,019 $ 367,776 $ 358,119 Plan fiduciary net position Contributions employer $ 22,424 $ 25,255 $ 28,260 $ 24,737 $ 24,597 Net investment income 44,215 28,698 32,698 25,691 (1,369) Benefit payments (7,899) (7,758) (7,601) (7,425) (8,758) Administrative expense (148) (144) (137) (128) (112) Net change in plan fiduciary net position 58,592 46,051 53,220 42,875 14,358 Plan fiduciary net position beginning 418, , , , ,750 Plan fiduciary net position ending (b) $ 476,846 $ 418,254 $ 372,203 $ 318,983 $ 276,108 City's net OPEB liability ending (a) (b) $ 6,366 $ 14,218 $ 10,816 $ 48,793 $ 82,011 Plan fiduciary net position as a percentage of the total OPEB liability 98.68% 96.71% 97.18% 86.73% 77.10% Covered-employee payroll $ 535,043 $ 524,209 $ 511,884 $ 510,760 $ 512,874 City's net OPEB liability as a percentage of coveredemployee payroll 1.19% 2.71% 2.11% 9.55% 15.99% 52

53 Illustrative RSI OPEB Not through Trust in Which Specified Criteria Are Met (5 of 10 Required Years Shown) 20X9 20X8 20X7 20X6 20X5 Service cost $ 16,712 $ 21,688 $ 20,346 $ 22,832 $ 32,840 Interest 33,898 39,177 27,886 41,014 37,254 Changes of benefit terms (203,619) Differences between expected and actual experience 58,936 16,606 46,382 32,555 (42,519) Changes of assumptions or other inputs 45,945 (100,666) 66,410 (268,143) 42,249 Benefit payments (23,983) (22,744) (19,056) (17,962) (16,979) Net change in total OPEB liability (72,111) (45,939) 141,968 (189,704) 52,845 Total OPEB liability beginning 851, , , , ,925 Total OPEB liability ending $ 778,984 $ 851,095 $ 897,034 $ 755,066 $ 944,770 Covered-employee payroll $ 561,026 $ 547,748 $ 560,763 $ 561,588 $ 535,807 Total OPEB liability as a percentage of covered-employee payroll % % % % % 53

54 RSI Employers Other Than Cost Sharing 10 year schedules (cont.) For OPEB administered through trust in which specified criteria are met: If actuarially determined employer contribution (ADEC) ADEC, contributions in relation to the ADEC, difference, covered employee payroll, contributions as % of covered employee payroll Example (5 of 10 required years shown): 20X9 20X8 20X7 20X6 20X5 Actuarially determined contribution $ 22,424 $ 25,255 $ 28,260 $ 24,737 $ 24,597 Contributions in relation to the actuarially determined contribution 22,424 25,255 28,260 24,737 24,597 Contribution deficiency (excess) $ - $ - $ - $ - $ - If no ADEC, but statutory or contractual contribution requirements, schedule similar to ADEC schedule Notes to RSI Covered-employee payroll $ 535,043 $ 524,209 $ 511,884 $ 510,760 $ 512,874 Contributions as a percentage of coveredemployee payroll 4.19% 4.82% 5.52% 4.84% 4.80% 54

55 RSI Cost-Sharing Employers 10 year schedules Employer s proportion (%), proportionate share (amount) of collective net OPEB liability, covered employee payroll, proportionate share as % of coveredemployee payroll, OPEB plan s net position as % of total OPEB liability Example (5 of 10): 20X9 20X8 20X7 20X6 20X5 District's proportion of the net OPEB liability District's proportionate share of the net OPEB liability (asset) District's covered-employee payroll 1.85% 1.85% 1.85% 1.85% 1.85% $ 24,528 $ 40,456 $ 48,169 $ 24,127 $ (27,843) $ 106,129 $ 105,949 $ 103,026 $ 100,774 $ 97,601 District's proportionate share of the net OPEB liability (asset) as a percentage of its covered-employee payroll Plan fiduciary net position as a percentage of the total OPEB liability 23.11% 38.18% 46.75% 23.94% (28.53)% 94.31% 90.01% 87.47% 93.06% % 55

56 RSI Cost-Sharing Employers 10 year schedules (cont.) If statutory or contractual contribution requirements Required contribution, contributions in relation to required, difference, covered employee payroll, contributions as % of covered employee payroll Example (5 of 10 required years shown): 20X9 20X8 20X7 20X6 20X5 Contractually required contribution $ 10,117 $ 9,949 $ 10,721 $ 9,780 $ 8,588 Contributions in relation to the contractually required contribution (10,117) (9,949) (10,721) (9,780) (8,588) Contribution deficiency (excess) $ - $ - $ - $ - $ - District's covered-employee payroll $ 106,039 $ 104,488 $ 101,900 $ 99,188 $ 96,765 Contributions as a percentage of covered-employee payroll 9.54% 9.52% 10.52% 9.86% 8.88% Notes to RSI with significant changes 56

57 Note Disclosures/RSI Nonemployer Contributing Entities in Special Funding Situation Required information depends on how much of the OPEB liability is recognized by the nonemployer entity If substantial proportion, notes/rsi similar to cost sharing employer; reduced RSI for OPEB not administered through trust that meets specified criteria If less than substantial proportion, reduced information Notes Type of OPEB plan, identification of administrator Basis for contribution or requirement to pay benefits as they come due, amount in reporting period Proportionate share (amount) of collective OPEB liability, proportion (%), basis for proportion, change in proportion, expense, and deferred outflows/deferred inflows of resources RSI (10 years) entity s proportionate share (amount) of OPEB liability recognized, amount of contributions or amount paid for benefits as they came due 57

58 Defined Contribution OPEB OPEB expense for amounts defined by benefit terms as attributable to the reporting period Net of forfeited amounts removed from employee accounts Liability for difference between OPEB expense and contributions Note disclosures Descriptive information about plan, benefit terms, contribution rates, amount of expense, amount of forfeitures, amount of liability Nonemployer contributing entities with legal requirements to contribute directly to or make benefit payments through a OPEB plan are also addressed 58

59 Appendix B GASB 45, 68 & 75 Comparison Tables 59

60 GASBS 45 vs. GASBS 75 Some Differences Balance sheet liability Expense charge Discount rate for unfunded plans Discount rate for funded plans GASBS 45 GASBS 75 Funding shortfall (NOO) A funding ARC/AOC offset by employer contribution/benefit Long term expected return on pool of assets paying the benefits Long term expected return on pool of assets paying the benefits Benefit liability to members (NOL); larger Accounting change in NOL from one year to next Yield on measurement date of 20 yr tax exempt GO muni bonds averaging AA/Aa or higher Uses the cross over date blending from GASBS 67/68 of (a) GASBS 45 method and (b) GASBS 75 method 60 for unfunded plans

61 GASBS 45 vs. GASBS 75 Some Differences Expense charge Deferred outflows and inflows of resources Terminology Initial implementation GASBS 45 GASBS 75 Fairly simple (for an actuarial calculation) Not applicable Gone are ARC, adj to ARC, AOC, NOO Staggered effective dates, based on govt s size More complex with numerous components Integral part of the process New are ADC, service cost, TPL, NOL, DOR, DIR, etc. Effective all during same year, for all govts Initial implementation Amortized/phased in recognition of initial liability over time Immediate recognition of initial liability in first year by restating beginning balance 61

62 GASBS 45 vs. GASBS 75 Some Differences Actuarial cost methods allowed Note disclosures Frequency of valuations Measurement date (MD) and period GASBS 45 GASBS 75 Six possibilities (PUC and EAN were the most common) A couple pages of note disclosures Only one allowed, for comparability (EAN) More in number and detail 200 or more, at least All plans, either annual or biannual; less than 200, biannual; Annual at least triannual valuations are encouraged Not applicable; term not used Measurement date and period are critical Timing and linkage What valuation date (VD) is linked to what reporting date (RD)? What VD is linked to what MD? And what MD is linked to 62 what RD?

63 GASBS 45 vs. GASBS 75 Some Differences Off years in biannual and triannual valuations Funding and accounting Alternative measurement method Alternative measurement method (AMM) GASBS 45 GASBS 75 Very little actuarial and accounting work to do in the off years Often used same actuarial calculations and reports for both No need for an actuary Components of expense are the same as non AMM Assumption changes and experience gains/losses to measure in the off years Very different sets of calculations for pre funding compared to accounting Some aspects require compliance with Actuarial Standards of Practice All components of change in the NOL are recognized immediately for AMM; not so for non AMM 63 with DOR/DIR

64 GASBS 45 vs. GASBS 75 Some Similarities GASBS 45 & 75 Benefits types covered Benefits covered Actuarial services Financial statements OPEB plan liabilities All OPEBs (health, Rx, life insurance, etc.) Implicit subsidy and any direct subsidies provided Yes, you still need actuarial services Affects expense, balance sheet, note disclosures and required supplementary information in government wide financial statements Still have plan liabilities OPEB trust (a) Contributions are irrevocable, (b) Assets dedicated to paying OPEB benefits, (c) Legally protected from creditors 64

65 GASBS 68 vs. GASBS 75 Some Differences Funded status Frequency of valuations Frequency of assumption changes Sensitivity disclosures GASBS 68 GASBS 75 Vast majority of pension plans are advance funded Vast majority of pension plans have annual valuations Pension plans occasionally have assumptions changes NPL calculated at 1% above and below the adopted discount rate Majority of OPEB plans are unfunded; some are being partially funded Majority of OPEB plans currently have biannual or triannual valuations OPEB plans will regularly have assumption changes NOL calculated at 1% above and below the adopted discount rate and 1% above and below the adopted 65 benefit trend rate

66 GASBS 68 vs. GASBS 75 Some Differences GASBS 68 GASBS 75 Alternative measurement method Restatement of beginning balance Not available for pensions Net pension obligation (NPO) on balance sheet was often zero or small compared to the NPL added upon implementation Available for OPEB plans with 100 or fewer members Net OPEB obligation (NOO) is much larger, especially for unfunded plans; so the addition of the NOL does not make as much of a difference as with GASBS 68 66