GASB Update OPEB, Fair Value and Abatements

Transcription

1 GASB Update OPEB, Fair Value and Abatements Rob Churchman, Partner October 23, 2015

2 Type of Plan Defined benefit OPEB plan Benefit after separation is defined by benefit terms May be stated as a dollar amount or a calculated about based on other factors (age, years of service, salary) or a type or level of coverage such as prescription drug coverage or a percentage of health insurance premiums Defined contribution OPEB plan Individual account for each plan member Define contributions employer is required to make Benefits received by plan member depends only on the contributions, earnings on investments, and effects of forfeitures Hybrid OPEB plan Individual account for each plan member Combine aspects of both DB and DC plans Treat as DB plan if the substance of the plan is to provide a defined pension benefit in some form 2

3 Type of Plan Single-employer plans Benefits are provided to employees of one employer (primary government and component units) Multiple-employer plans Plan that is used to provide OPEB to the employees of more than one employer 3

4 Types of Multi-Employer Plans Agent plans Plan assets are pooled for investment purposes, but separate accounts are maintained for each individual employer. Employer s share is legally available to pay the benefits of only its employees Cost-sharing plans OPEB obligations to employees of more than one employer are pooled. Assets can be used to pay benefits of employees of any employer in the plan 4

5 5 OPEB Plan Accounting

6 Plan Financial Statements For plans administered through irrevocable trusts, the Statements require two financial statements A statement of fiduciary net position A statement of changes in fiduciary net position Effective dates: Plan itself June 30, 2017 Employers reporting within FS/CAFR June 30,

7 Statement of Fiduciary Net Position Statement of Fiduciary Net Position Assets Plus: Deferred Outflows of Resources Less: Liabilities Less: Deferred Inflows of Resources Fiduciary Net Position (Net Position Restricted for OPEBs) 7

8 Statement of Changes in Fiduciary Net Position Statement of Changes in Fiduciary Net Position Additions Contributions Net investment income (investment income & investment expense) Less: Deductions Net Increase (Decrease) in Fiduciary Net Position 8

9 9 OPEB Employer Accounting

10 Employer Financial Statements Single or agent employers without a special funding situation recognize a liability equal to the net OPEB liability Single or agent plans with special funding situations and cost-sharing plans recognize proportionate share of the collective net OPEB liability 10

11 Employer Net OPEB Liability Present value of projected benefit payments to be provided to current active and inactive employees that is attributed to those employees past periods of service (total OPEB liability), less the amount of the OPEB plan s fiduciary net position Net OPEB Liability Total OPEB liability Less: Plan s fiduciary net position Net OPEB Liability 11

12 Employer Net OPEB Liability Net OPEB liability is required to be measured no earlier than end of employer s prior fiscal yearend, consistently applied (measurement date) For plans with fewer than 100 employees (active and inactive), can use an alternative measurement method in place of an actuarial valuation 12

13 Employer Net OPEB Liability Measurement date for assets No earlier than 1 year + 1 day prior to reporting date Actuarial valuations, or calculations using the specified alternative measurement method, are required to be performed: No more than 30 months and 1 day earlier than the employer s most recent fiscal year end If not performed as of the measurement date, liability would be based on update procedures to roll forward amounts from an earlier calculations 13

14 Projected Benefit Payments Require projections of benefit payments incorporating the effects of: Projected salary changes Service credits Automatic postemployment benefit changes, including automatic cost-of-living-adjustments Certain taxes and assessments Liability is not reduced by subsidies expected to be received for making benefit payments, other than those received for providing Medicare benefits 14

15 Discount Rate A long-term expected rate of return on OPEB plan investments To the extent that the OPEB plan s fiduciary net position is projected to be sufficient to make projected benefit payments and OPEB plan assets are expected to be invested using a strategy to achieve that return A tax-exempt, high-quality municipal bond rate to the extent that the conditions for use of the long-term expected rate of return are not met 15

16 16 Year Projected Beginning Fiduciary Net Position Projected Benefit Payments Funded Portion of Benefit Payments Unfunded Portion of Benefit Payments 1 $1,431,956 $109,951 $109,951 $ - 2 1,500, , , ,565, , , ,628, , , , , , , , , , , , , , , , , Total $5,778,244 $7,924,284 Discount rate 7.5% 4.0% Discounted $2,109,333 $1,724,534 Funded Portion is discounted at the long-term expected rate of return Unfunded Portion is discounted at the 20-year tax-exempt municipal bond rate with rating of AA/Aa or higher Result is a blended discount rate of 5.29%

17 Measurement of Total OPEB Liability GASB (new) GASB 43/45 (old) Only entry age actuarial cost method Fair value of investments used to determine employer s net liability Projected benefits also includes ad hoc postemployment benefits if substantively automatic Discount rate based on long-term expected return only for period that plan is projected to be sufficient to make benefit payments Several different actuarial cost methods Actuarial valuation of investments used to determine employer s ARC Projected benefits only included plan or contractually agreed to benefits Discount rate based on investment return assumption 17

18 Changes in Net OPEB Liability Include in OPEB expense immediately Changes in total OPEB liability resulting from currentperiod service cost and interest on total OPEB liability Changes in benefit terms Changes in projected earnings on plan s investments 18

19 Changes in Net OPEB Liability Defer recognition over a closed period based on average expected remaining service lives of all active and inactive employees Changes of economic and demographic assumptions Differences between actual and expected experience Change in employer s proportionate share of the collective net OPEB liability Difference between employer s contributions and proportionate share of total contributions 19

20 Changes in Net OPEB Liability Defer recognition over a five-year closed period Difference between projected earnings on plan investments and actual experience Defer recognition for one year only show as deferred outflow Contributions made subsequent to the measurement date of the net OPEB liability, but before the end of the reporting period 20

21 Governmental Fund Statements Net OPEB liability is recognized consistent with modified accrual accounting To the extent the liability is normally expected to be liquidated with expendable available financial resources. Expenditures are recognized equal to the total of: 1) Amounts paid by the employer to the OPEB plan, including amounts paid directly by the employer for OPEB as the benefits come due, and 2) Change between the beginning and ending balances of amounts normally expected to be liquidated with expendable available financial resources 21

22 Note Disclosures and RSI Note disclosures are expanded to include: More descriptive information about the plan and assumptions Information on the changes in the total OPEB liability and net OPEB liability Detail of deferred inflows of resources and deferred outflows of resources Calculation of discount rate, target allocation and long-term expected rate of return by asset classes Net OPEB liability with a discount rate 1% higher and 1% lower than the discount rate used 22

23 Sensitivity Analysis 23

24 Changes in the Net OPEB Liability 24

25 Note Disclosures and RSI New 10-year RSI tables will show trends: Schedule of changes in the net OPEB liability and related ratios Plan s fiduciary net position as a percentage of the total OPEB liability and the net OPEB liability as a percentage of covered-employee payroll If contributions are actuarially or contractually determined, a schedule of contributions compared to required contributions and related ratios Plans will show a schedule of the money-weighted rate of return 25

26 Schedule of Contributions 26

27 OPEB Plans Not Administered Through Trusts Provide insured benefits defined benefit OPEB Premiums are paid to an insurance company while employees are in active service, in return for which the insurance company unconditionally undertakes an obligation to pay the OPEB of those employees Recognition of OPEB expense/expenditures equal to the annual contributions or premiums Disclosures - brief description of the benefits provided through the arrangement 27

28 GASB Statement 72 Fair Value Measurement and Application

29 Purpose Objective is to improve financial reporting by clarifying the definition of fair value, establishing general principles for measuring fair value, providing additional fair value application guidance and enhancing disclosures about fair value measurement 29 29

30 Fair Value Measurement Defines fair value as price received for asset or paid for transfer of liability in an orderly transaction between market participants at the measurement date Fair value is an exit price at the measurement date Measurement depends on the unit of account of the asset or liability. The unit of account is the level at which an asset or liability is aggregated/ disaggregated for measurement, recognition or disclosure purposes Valuation techniques: market, cost or income approaches 30

31 Market Assumes a transaction to sell an asset or transfer a liability takes place in either in a: Principal market or Government s most advantageous market, in the absence of a principal market Search need not be exhaustive, but should be reasonable Should consider transaction and transportation costs Consider characteristics that distinguish market participants 31

32 Fair Value Hierarchy of Inputs Level 1: quoted prices in active markets for identical assets/liabilities Level 2 Quoted prices for similar assets/liab. in active markets Quoted prices for identical assets/liab. in inactive markets Other than quoted prices that are observable inputs, directly or indirectly Level 3: unobservable inputs 32

33 Investments Measured at fair value, except: Investments in nonparticipating interest-earning investment contracts (cost-based) Investment in unallocated insurance contracts (interestearning investment contracts) Money market investments and participating interestearning investment contracts maturing < 1 year (amortized cost) Investments held by 2a7-like external investment pools (amortized cost) Synthetic guaranteed investment contracts (contract value) Investments in life insurance contracts (CSV) 33

34 Disclosures Organized by type of asset or liability Considerations: Assets & liabilities that share the same nature, characteristics or risks may be aggregated Level of FV hierarchy (level 3 may require greater disaggregation) Disaggregated based on type as required by standards (derivatives) Characteristic of the government (structure of funds) Relative significance of assets and liabilities Whether have separately issued financial statement 34

35 GASB Statement 77 Tax Abatements

36 The objective is to provide financial statement users with essential information about the nature and magnitude of the reduction in tax revenues through tax abatement programs in order to better assess: a) whether current-year revenues were sufficient to pay for current-year services, b) compliance with finance-related legal or contractual requirements, c) Where a government s financial resources come from and how it uses them, and d) financial position and economic condition and how they have changed over time. 36 Purpose 36

37 What Is It? A tax abatement results from an agreement between a government and an individual or entity in which the government promises to forgo tax revenues and the individual or entity promises to subsequently take a specific action that contributes to economic development or otherwise benefits the government or its citizens 37 37

38 What Is Required? Statement requires disclosure of tax abatement information about: a reporting government s own tax abatement agreements, and those that are entered into by other governments that reduce the reporting government s tax revenues 38 38

39 What Is Required? Must disclose the following about the agreements: Brief descriptive information, such as the tax being abated, the authority under which tax abatements are provided, eligibility criteria, the mechanism by which taxes are abated, provisions for recapturing abated taxes, and the types of commitments made by tax abatement recipients The gross dollar amount of taxes abated during the period Commitments made by a government, other than to abate taxes, as part of a tax abatement agreement Governments should organize those disclosures by major tax abatement program and may disclose information for individual tax abatement agreements within those programs 39 39