Emerging and Continued Topics with Other Post Employment Benefits (OPEBs - GASB 75) Winter MASBO Conference February 8, 2018

Transcription

1 Emerging and Continued Topics with Other Post Employment Benefits (OPEBs - GASB 75) Winter MASBO Conference February 8, 2018 This presentation was prepared for the 2018 Winter MASBO conference 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. Copyright 2018 Hildi Incorporated 2 1

2 Overview of the session Implicit Rate Subsidy Definition Why is the Implicit Rate Subsidy important? Implicit Rate Subsidy for Self-Insured Plans Other OPEB current topics Year-end GASB 74/75 disclosures OPEB Trust administration Possible Annual OPEB levies Copyright 2018 Hildi Incorporated 3 What is the Implicit Rate Subsidy? Retirees under the age of 65 (those not Medicare eligible) usually generate higher claims on average than active participants The blended active/retiree premium paid for retirees is lower than their expected claims The difference between the expected claims for the retiree group and the blended premium is called the Implicit Rate Subsidy Under GASB the actual cost for the retiree portion must be reflected as an Implicit Rate Subsidy Copyright 2018 Hildi Incorporated 4 2

3 Example for One Early Retiree An employee retires at age 60 and continues on the employer s medical plan The retiree pays the full single premium of $600 per month The retiree incurs claims of $12,000 for the year Implicit Rate Subsidy for this retiree is $12,000 minus ($600 x 12) = $4,800/year Copyright 2018 Hildi Incorporated 5 Implicit Rate Subsidy Early Retiree Example $600 Blended Premium Charged for the Employer Sponsored Plan $1,000 $600 Age 60 Actual Cost Retiree Premium (Single) $400 Implicit Subsidy Employer must recognize liability Copyright 2018 Hildi Incorporated 6 3

4 Cost 1/19/2018 Implicit Rate Subsidy Medicare Blended Cost Early Retiree Post-65 Retiree Blended Cost Implicit Subsidy Implicit Subsidy 20 Age Copyright 2018 Hildi Incorporated 7 Why is the Implicit Rate Subsidy important? Under GASB 75, government entities are required to disclose the liability for OPEBs (Other Post Employment Benefits) OPEBs are generally healthcare related benefits that are paid by the employer after termination or retirement GASB 75 includes both subsidized OPEBs and implicit rate subsidy OPEBs Copyright 2018 Hildi Incorporated 8 4

5 Why is the Implicit Rate Subsidy important? Minnesota Statute subd. 2b requires that government entities allow a former employee and the employee's dependents to continue to participate indefinitely in the employer-sponsored hospital, medical, and dental insurance group that the employee participated in immediately before retirement Applies only to former employees who are receiving a disability benefit or an annuity from a Minnesota public pension plan (or who are eligible to receive an annuity) Before age 65, the former employee and dependents must be pooled in the same group as active employees for purposes of establishing premiums and coverage for hospital, medical, and dental insurance The former employee must pay the entire premium for continuation coverage, except as otherwise provided in a collective bargaining agreement or personnel policy Because of this statute, most government entities in MN have an implicit rate subsidy liability under GASB 75 Copyright 2018 Hildi Incorporated 9 Calculation of the Employer s Annual Implicit Rate Subsidy Employers that purchase medical, dental, or life insurance use the calculation of the implicit rate subsidy from the actuarial valuation It can be difficult, or impossible, to get all the necessary claims information to calculate the implicit rate subsidy directly Using the amount from the actuarial valuation smooths out the variance and volatility from year to year Copyright 2018 Hildi Incorporated 10 5

6 Calculation of the Employer s Annual Implicit Rate Subsidy Employers that are self-insured can calculate the actual implicit rate subsidy by aggregating all OPEB claim costs and subtracting any premiums paid by the retirees Claims information is more readily available with a self-insured plan, but it can be difficult to ensure all pieces are included True-up, or actual implicit rate subsidy calculation, is sometimes requested by auditors in this scenario For funded plans, the employer must validate the amount of post-employment benefit payments before they can be withdrawn from the OPEB trust Copyright 2018 Hildi Incorporated 11 Calculation of the Employer s Annual OPEB Payments Copyright 2018 Hildi Incorporated 12 6

7 Retiree Claims Claim reports should be obtained with retiree claims paid during the year Ideally, claims should not be based on a service or incurral date. If they are, an IBNR adjustment should be included. Ensure consistency in retiree counts Compare the number of retirees included in the claim reports back to other sources (actuarial data, retiree premium payments, etc.) to ensure all retirees are being included Long-term disabled participant claims should be included if they are allowed to continue coverage to age 65 Copyright 2018 Hildi Incorporated 13 Retiree Costs Administration and stop loss fees should be included Fees are typically a per member (PMPM) or single/family coverage cost Would previously have been included in the premium cost, if fully insured Copyright 2018 Hildi Incorporated 14 7

8 Premiums paid by Retirees Only include retiree premium payments made toward pre-65 coverage for plans that are self-insured Premiums that may not be self-insured and should not be included: Medicare Supplement plan Dental or life insurance Rate discounts that are refunded to the retiree (e.g. fitness rewards) would reduce the retiree premium contribution amount Copyright 2018 Hildi Incorporated 15 Other Subsidized OPEBs and Miscellaneous Any post-employment subsidized benefits not included in the total retiree claim amount need to be added Examples: A lump sum OPEB payable to a Health Reimbursement Account after retirement Early Retirement Incentives included in OPEB Medicare Supplement premiums paid by the employer Dental or life insurance premiums paid by the employer, if not self-insured Implicit post-employment dental or life insurance benefits may also need to be added Copyright 2018 Hildi Incorporated 16 8

9 Sample 1: OPEB Plan Provisions Contract Group Teachers All Others Access to Group Insurance Medical Eligibility Age Dental and Life Service 3 5 Monthly Premium Blended premium is $600 for single and $1,500 for family / Subsidized Benefits Medical Eligibility Age 55 NA Service 20 NA Dental and Life Retiree Benefit The district pays 50% of the single premium to age 65 Spouse Benefit Copyright 2018 Hildi Incorporated 17 Sample 1: Total Benefit Payments with Actual Implicit Rate Subsidy 6 retired teachers with a subsidy (3 single, 3 family coverage) 3 other retirees with single coverage paying the full premium (implicit rate subsidy only) Monthly premium is $600 for single and $1,500 for family Total annual post-employment medical claims with administrative costs = $130,000 Total annual medical premiums paid by retirees to district = 12 x ($900 + $3,600 + $1,800) = $75,600 3 teachers x 50% of $600 = $900 3 teachers x (50% of $600 plus 100% of $900) = $3,600 3 other retirees x $600 = $1,800 Total OPEB Payments = $130,000 minus $75,600 = $54,400 Employer subsidized payments = 6 teachers x (50% of $600) x 12 = $21,600 Implicit rate subsidy payments = $54,400 minus $21,600 = $32,800 Copyright 2018 Hildi Incorporated 18 9

10 Sample 1: Payments tied back to Plan Provisions Contract Group Teachers All Others Access to Group Insurance $32,800 Medical Eligibility Age Dental and Life Service 3 5 Monthly Premium Blended premium is $600 for single and $1,500 for family / Subsidized Benefits Medical Eligibility Age 55 NA Service 20 NA Dental and Life Retiree Benefit The district pays 50% of the single premium from retirement to age 65. Spouse Benefit Copyright 2018 Hildi Incorporated 19 Sample 2: OPEB Plan Provisions Contract Group Teachers Administrators All Others Access to Group Insurance Medical Eligibility Age Service Monthly Premium Blended premium is $600 for single and $1,500 for family / Dental Monthly Premium Blended premium is $35 for single and $70 for family / Subsidized Benefits Medical Eligibility Age NA Service NA Retiree Benefit The district pays 50% of the single premium to age 65 $10,000 paid in a lump sum to an HRA at retirement Spouse Benefit Dental Retiree Benefit The district pays the full single premium to age 65 Spouse Benefit Copyright 2018 Hildi Incorporated 20 10

11 Sample 2: Total Medical Payments with Actual Implicit Rate Subsidy 6 retired teachers with a subsidy (3 single, 3 family coverage for medical and dental) 2 administrators retired with a subsidy during the year, no other healthcare continuation (medical or dental) 3 other retirees with single medical and dental coverage paying the full premium Monthly premium is $600 for single and $1,500 for family Total annual medical claims with administrative costs = $130,000 Total annual medical premiums paid by retirees = 12 x ($900 + $3,600 + $1,800) = $75,600 3 teachers x 50% of $600 = $900 3 teachers x (50% of $600 plus 100% of $900) = $3,600 3 other retirees x $600 = $1,800 Total Medical OPEB Payments = ($130,000 minus $75,600) = $54,400 Employer subsidized premium payments = 6 teachers x (50% of $600) x 12 = $21,600 Implicit rate subsidy payments = $74,400 minus $21,600 = $32,800 Other subsidized OPEBs paid by the employer = 2 administrators x $10,000 = $20,000 Copyright 2018 Hildi Incorporated 21 Sample 2: Payments tied back to Plan Provisions Contract Group Teachers Administrators All Others Access to Group Insurance Medical Eligibility Age Service Monthly Premium Blended premium is $600 for single and $1,500 for family / Dental Monthly Premium Blended premium is $35 for single and $70 for family / Subsidized Benefits Medical Eligibility Age NA Service NA Retiree Benefit The district pays 50% of the single premium to age 65 $10,000 paid in a lump sum to an HRA at retirement Spouse Benefit Dental Retiree Benefit The district pays the full single premium to age 65 Spouse Benefit Copyright 2018 Hildi Incorporated 22 11

12 Sample 2: Dental OPEB Payments Total Dental OPEB Payments = $7,520 Employer subsidized payments = 6 teachers x 100% of $35 x 12 = $2,520 Implicit rate subsidy payments taken from actuarial valuation (assume dental not self-insured) = $5,000 The implicit rate subsidy from the valuation is already net of any retiree contributions May need to contact actuary to split implicit rate subsidy between medical and dental An implicit rate subsidy is not always valued for postemployment dental due to materiality Copyright 2018 Hildi Incorporated 23 Sample 2: Payments tied back to Plan Provisions Contract Group Teachers Administrators All Others Access to Group Insurance Medical Eligibility Age Service Monthly Premium Blended premium is $600 for single and $1,500 for family / Dental Monthly Premium Blended premium is $35 for single and $70 for family / Subsidized Benefits Medical Eligibility Age NA Service NA Retiree Benefit The district pays 50% of the single premium to age 65 $10,000 paid in a lump sum to an HRA at retirement Spouse Benefit Dental Retiree Benefit The district pays the full single premium to age 65 Spouse Benefit Total OPEB Payments = $81,920 Copyright 2018 Hildi Incorporated 24 12

13 Other OPEB Current Topics GASB 75 disclosure reminders Plans with an Irrevocable OPEB trust Need documentation of any OPEB plan changes by Contract Group Need confirmation of the expected return on assets Asset reconciliation should be reviewed by auditor first to avoid multiple rounds of calculations and versions of the disclosures Year-end bank statements for the OPEB trust should be provided along with an asset reconciliation reviewed by the auditor Total benefit payments not just those paid from the trust need to be provided for rollforward of actuarial liability Items needed in Asset Notes and reminders Reconciliation Value at Beginning of Year Should match prior disclosure EOY value Changes during the plan year: 1. Employer Contributions Should include any receivables that will be included as a plan year contribution 2. Employee Contributions Does not include retiree premium payments 3. Net Investment Return Should be net of any investment expenses (investment mgr fees, etc.) 4. Benefit Payments OPEB payments made from the trust, net of retiree premium payments 5. Administrative Expenses Expenses other than investment expenses (i.e. legal, actuarial, auditor, trust fees, etc.) 6. Other Changes Value at End of Year Should match the OPEB Irrevocable trust Fiduciary Net Position found elsewhere in the financial disclosures Copyright 2018 Hildi Incorporated 25 Other OPEB Current Topics GASB 75 disclosure reminders Plans without an OPEB trust or with a Revocable OPEB trust If electing to do the one-year lookback option, all items are measured as of the beginning of the year Year-end disclosures can be prepared any time during the year Need prior year audit statement and confirmation of any OPEB plan changes in effect as of the beginning of the year Districts will need to update the Deferred Outflow of Resources table with the actual benefit payments made during the current plan year Copyright 2018 Hildi Incorporated 26 13

14 Other OPEB Current Topics Trust Administration Only post-employment benefits listed as being included in the GASB 74/75 liability, included in the actuarial report, can be paid from an OPEB trust Any withdrawals from the OPEB trust should have actual OPEB payments in the same fiscal year associated with that withdrawal Copyright 2018 Hildi Incorporated 27 Other OPEB Current Topics Annual OPEB Levy A district can levy for OPEB benefits included in the GASB 74/75 liability for groups meeting either of these criteria: Contract groups that have a sunset clause in the current collective bargaining agreement for any subsidized OPEB benefits Contract groups that have implicit subsidy benefits only (no subsidized OPEB benefits) Maximum amount a district can levy for is equal to the lesser of: Total benefit payments for the year multiplied by the percentage of unfunded accrued liabilities Total benefit payments for the year for levy eligible groups defined above Districts with an Irrevocable OPEB Trust, cannot pay benefits from the trust AND use the annual levy from MN Statute 126C.41 for the same payments OPEB early retirement incentives that are offered in a predictable and repeated pattern become part of the substantive plan Sunset clause is no longer applicable Benefits paid from that contract group with the repeated early retirement incentive cannot be included in an annual OPEB levy Copyright 2018 Hildi Incorporated 28 14