Other Postemployment Benefits (OPEB)

Transcription

1 Other Postemployment Benefits (OPEB) A Webinar for Users of State & Local Government Financial Information Scott Reeser, Project Manager Emily Clark, Project Research Associate Dean Mead, Research Manager The views expressed in this presentation are those of the speakers. Official positions of the GASB on accounting matters are determined only after extensive due process and deliberation. Copyright 2014 by Financial Accounting Foundation, Norwalk, CT 1

2 Presenters for Today s Webcast Scott Reeser GASB Project Manager Emily Clark GASB Project Research Associate Dean Mead GASB Research Manager 2

3 Housekeeping Items Slides can be downloaded by clicking on the button below the slides window. To ask a question, type into the designated text box on your screen and click submit. Remember to turn off your pop-up blocker. 3

4 Archived Webcasts A recording of the webcast will be available online at for 90 days. 4

5 Learning Objectives for Participants At the end of this program, participants will have a general understanding of the GASB s recently issued Exposure Draft, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, and be able to respond to a survey of their views on the proposed standards. 5

6 Agenda Scope and applicability Defined benefit OPEB measurements - Liabilities - Expense Proposed disclosure requirements Question and answer period Survey for users of governmental financial information 6

7 Fundamental Approach Fundamental approach for OPEB is the same as required for pensions in Statement 68 - Viewed in the context of an ongoing, career-long employment relationship - Focus on the cost to taxpayers over time of providing government services - Accounting-based versus funding-based approach to measurement 7

8 Scope & Applicability Applies same definition of OPEB as used in current standards - All postemployment healthcare benefits - Postemployment benefits not provided through a pension plan Addresses defined benefit OPEB and defined contribution OPEB Applies to employers and nonemployer contributing entities that have a legal obligation to make contributions directly to an OPEB plan or to make benefit payments as those payments come due - Special funding situations Nonemployer contributing entity would recognize proportionate share of liability similar to a cost-sharing employer - Other circumstances 8

9 Scope & Applicability Differentiates requirements based on whether OPEB is provided through plans administered through trusts in which the following criteria are met: - Employer/nonemployer contributions irrevocable - Plan assets dedicated to providing OPEB - Plan assets legally protected from creditors If any part of the OPEB plan is administered through a trust that meets the specified criteria, governments would apply the requirements for OPEB provided through an OPEB plan administered through a trust that meets the criteria 9

10 Defined Benefit OPEB Liabilities Current standards - Net OPEB obligation: cumulative difference between annual required contribution (ARC) and amount of contributions made - ARC based on unfunded actuarial liability Proposed standards - Based on total OPEB liability portion of actuarial present value of projected benefit payments attributed to past periods of employee service - Is OPEB administered through a trust that meets the specified criteria? Yes net OPEB liability (total OPEB liability, net of OPEB plan fiduciary net position) reported No total OPEB liability reported 10

11 Total OPEB Liability: Measurement Timing & Frequency Current standards - ARC from actuarial valuation within 24 months of beginning of fiscal year (or first fiscal year if biennial or triennial) Actuarial valuations at least biennially (triennially, if plan membership < 200) Proposed standards - Measured no earlier than end of prior fiscal year - Total OPEB liability from actuarial valuation no more than 30 months prior to most recent fiscal year-end Actuarial valuations at least biennially If actuarial valuation date measurement date, updated to measurement date - OPEB plan fiduciary net position measured as of same date as total OPEB liability 11

12 Total OPEB Liability: Measurement Three broad steps - Project benefit payments - Discount projected benefit payments to actuarial present value - Attribute actuarial present value to periods Assumptions (for example, healthcare cost trend rate and inflation) generally made in conformity with Actuarial Standards of Practice 12

13 Total OPEB Liability: Measurement Projection Projections would include current employees (active and inactive) in accordance with benefit terms and any additional legal agreement(s) in force at the measurement date and would include expectations, if relevant, of: - Salary changes - Service credits - Automatic postemployment benefit changes (including COLAs) - Ad hoc postemployment benefit changes (including COLAs) if substantively automatic - Taxes or other assessments expected to be imposed on benefit payments 13

14 Total OPEB Liability: Measurement Projection Projections would also consider: - Established pattern of practice with regard to sharing of benefit-related costs with inactive employees - Consider legal or contractual caps if determined to be effective Projections would be based on claims costs or ageadjusted premiums approximating claims costs, in accordance with Actuarial Standards of Practice 14

15 Total OPEB Liability: Measurement Discounting Current standards - Estimated long-term investment yield on investments expected to be used to finance payment of benefits Proposed standards - Single discount rate that reflects: Long-term expected rate if plan fiduciary net position is projected to be sufficient to make projected benefit payments and is expected to be invested using a strategy to achieve that return Otherwise, yield or index rate for 20-year, tax-exempt general obligation municipal bond rated AA/Aa (or equivalent) or higher - If not administered through a trust in which the specified criteria is met, the tax-exempt municipal bond rate would be used 15

16 Total OPEB Liability: Measurement Attribution Current standards - Six actuarial cost methods used - Level percentage of pay or level dollar Proposed standards - Only one method Entry age actuarial cost method - Level percentage of pay 16

17 Total OPEB Liability: Measurement Alternative Method As in current standards, an alternative measurement method may be applied if fewer than 100 employees (active and inactive) are provided with benefits through the OPEB plan as of the beginning of the measurement period Generally, same simplifications to assumptions can be used, for example: - Expected point in time at which benefit payments will begin to be made can be single assumed age - Marriage and dependency status may be based on current status 17

18 OPEB Expense Current standards - Based on ARC (including amortization of UAAL) - Included interest and adjustment if net OPEB liability recognized in prior year Proposed standards - Based on changes in OPEB liability - Includes most changes in liability in the period in which the change occurs, for example changes caused by: Service cost Interest on total OPEB liability Effect of benefit changes Projected earnings on OPEB plan investments (if applicable) 18

19 OPEB Expense Proposed standards (cont.) - Other changes reflected as expense over time, beginning in current period: Over average expected remaining service lives of plan members: Differences between expected and actual experience in relation to economic and demographic factors Changes in assumptions Over 5 years for difference between projected and actual earnings on plan investments, if applicable Amounts not reflected as expense deferred inflows of resources/deferred outflows of resources related to OPEB - Contributions and payments of benefits as they come due no impact on expense During measurement period reduction of OPEB liability After the measurement period deferred outflow of resources 19

20 Cost-Sharing Employers Relevant only for OPEB administered through trust in which specified criteria are met Proportionate shares of collective net OPEB liability, OPEB expense, and deferred outflows of resources/deferred inflows of resources related to OPEB are reported Proportion (%) consistent with contributions with use of relative long-term projected contribution effort encouraged 20

21 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 and how determined 21

22 Note Disclosures Employers Significant assumptions/other inputs in total OPEB liability, including (cont.) - OPEB liability recognized using all combinations of Discount rate, discount rate +1%, and discount rate 1% Healthcare cost trend rate, healthcare cost trend rate +1%, and healthcare cost trend rate 1% 1% Decrease (6.0%) Discount Rate (7.0%) 1% Increase (8.0%) 1% Decrease (8.5% 4.5%) $ (12,963) $ (61,284) $ (104,773) Healthcare Cost Trend Rates (9.5% 5.5%) $ 54,687 $ 6,366 $ (51,620) 1% Increase (10.5% 6.5%) $ 165,825 $ 88,512 $ 20,862 22

23 Note Disclosures Employers OPEB expense in current reporting period Balances of deferred outflows/deferred inflows of resources by source 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 Net impact on OPEB expense in each of the next 5 years and thereafter in the aggregate and amount that will be reduction of OPEB liability 23

24 Note Disclosures Employers All employers except cost sharing: - Number of employees - 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.) Cost-sharing employers only: - Employer s proportion, basis for proportion, change in proportion - Employer s proportionate share (amount) of collective net OPEB liability 24

25 Illustrative Disclosure of Changes in Liability by Source For OPEB administered through trust in which specified criteria are met, all employers except cost-sharing: 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: Service cost Interest Differences between expected and actual experience Contributions employer Net investment income Benefit payments Administrative expense $ 432,472 $ 418,254 $ 14,218 19,051 19,051 30,663 30,663 8,925 8,925 22,424 (22,424) 44,215 (44,215) (7,899) (7,899) - (148) 148 Net changes 50,740 58,592 (7,852) Balances at 6/30/X9 $ 483,212 $ 476,846 $ 6,366 25

26 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 26

27 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 27

28 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% 28

29 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 % % % % % 29

30 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) $ - $ - $ - $ - $ - 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% If no ADEC, but statutory or contractual contribution requirements, schedule similar to ADEC schedule 30

31 RSI Employers Other Than Cost Sharing 10-year schedules (cont.) - For OPEB not administered through trust in which specified criteria are met: If actuarially determined employer contribution (ADEC) ADEC, covered-employee payroll, ADEC as % of covered-employee payroll, amounts paid for OPEB as benefits came due Example (5 of 10 required years shown): 20X9 20X8 20X7 20X6 20X5 Actuarially determined contribution $ 53,247 $ 55,247 $ 53,668 $ 61,355 $ 58,966 Covered-employee payroll $ 561,026 $ 547,748 $ 560,763 $ 561,588 $ 535,807 Actuarially determined contribution as a percentage of covered-employee payroll 9.49% 10.09% 9.57% 10.93% 11.01% Benefit payments $ 23,983 $ 22,744 $ 19,056 $ 17,962 $ 16,979 31

32 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 covered-employee payroll, OPEB plan s net position as % of total OPEB liability - Example (5 of 10 required years shown): 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% % 32

33 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% 33

34 Effective Date and Transition Fiscal years beginning after December 15, 2016 Prior years restated - Beginning OPEB liability - Deferred outflow of resources/deferred inflows of resources Contributions and payment of benefits as they come due after the measurement date deferred outflow All others all or nothing RSI schedules prospective if information not initially available (except for contribution schedules, if applicable) 34

35 OPEB Plan Reporting Notable changes from Statement 43 - Note disclosures/rsi (10-year schedules) would include annual money-weighted rate of return - Agent plans would not report OPEB liability measurements or ratios in notes/rsi Effective for fiscal years beginning after 12/15/2015 RSI schedules prospective, if information not initially available (except for actuarially determined contribution schedule, if applicable) 35

36 Questions? 36