Understanding GASB 74 and 75. Graham A. Schmidt, ASA, EA, FCA, MAAA Cheiron Anne Harper, FSA, EA, MAAA Cheiron

Transcription

1 Understanding GASB 74 and 75 Graham A. Schmidt, ASA, EA, FCA, MAAA Cheiron Anne Harper, FSA, EA, MAAA Cheiron

2 Background GASB Statements 67 and 68 issued in June 2012 Most retirement systems have reported three years under Statement 67 (fiscal years beginning after 6/15/2013) Most employers have reported two years under Statement 68 (fiscal years beginning after 6/15/2014) GASB Statements 74 and 75 issued in June 2015 Statement 74 for OPEB plans is effective for plan fiscal years beginning after 6/15/2016 Statement 75 for employers is effective for employer fiscal years beginning after 6/15/2017 1

3 GASB Statements 74 & 75 Other Postemployment Benefits What: The Board issued Statements 74 (plans) and 75 (employers), making OPEB accounting and financial reporting consistent with the pension standards in Statements 67 and 68 Why: Pension and OPEB standards were updated subsequent to a review of the effectiveness of the standards objective was to establish a consistent set of standards for all postemployment benefits, providing more transparent reporting of the liability and more useful information about the liability and costs of benefits 2

4 Statement 74: Plan and Asset Reporting Scope includes defined benefit and defined contribution OPEB plans administered through trusts that meet the specified criteria below: Contributions and earnings on contributions are nonrevocable OPEB plan assets dedicated to providing benefits to plan members OPEB plan assets legally protected from creditors of employers, non-employer contributing entities, the plan administrator, and plan members 3

5 Statement 74: Plan and Asset Reporting Also addresses assets accumulated for purposes of providing OPEB through defined benefit OPEB plans that are not administered through trusts that meet the criteria Assets reported as assets of the employer Assets held for another government reported in an agency fund May not be used as part of crossover test to determine discount rate 4

6 Statement 74: Plan and Asset Reporting Few changes from Statement 43 for financial statement recognition Notes/RSI changes primarily to reflect changes in measurement of defined benefit liabilities of employers 5

7 Statement 75: Scope Applies same definition of OPEB as used in Statement 45 All postemployment healthcare benefits Other forms of postemployment benefits, not provided through a pension plan, i.e., death benefits, life insurance, disability, and long term care (if part of pension plan, report with pension plan under GASB 67/68) Does NOT generally include conversions of unused sick leave to individual healthcare accounts (report as Termination Payment, GASB 16) Addresses both defined benefit OPEB and defined contribution OPEB 6

8 Types of DB OPEB Plans Single employer plans One employer including its component units Multiple employer cost sharing plans More than one employer Plan assets legally available to pay benefits of any plan member of any employer For employer accounting under GASB 75, liabilities and expense are allocated to each employer based on proportionate shares 7

9 Types of DB OPEB Plans Multiple employer agent plans More than one employer Plan assets legally separated by employer For employer accounting under GASB 75, each employer reports based on its own actuarial valuation results 8

10 Is It DB OPEB or DB Pension? Pension plan provides fixed dollar subsidy for health care costs, but does not require retirees to use it for that purpose This is a pension benefit Same situation as above, but amounts must be used to offset retiree s premium payments or for reimbursement of other health care costs This is an OPEB benefit 9

11 Is It DB OPEB or DC OPEB? Employer contributions into a member s account which credits interest at a fixed rate set by the plan. Member draws down the account after retirement to pay healthcare expenses This is DB OPEB due to the fixed interest rate (like a cash balance pension plan) Same as prior question, but interest rate varies based on outside index Still DB OPEB Individual accounts must be based on actual earnings for plan to be DC 10

12 Is It DB OPEB or DC OPEB? Employer pays fixed dollar amounts to retirees that must be used to cover healthcare costs This is DB OPEB Employer pays defined amounts to a trust, but trustees determine level of benefits subject to limitation that benefits only provided to the extent assets are available This is DB OPEB In this instance, benefits are not dependent only on contributions and earnings on those contributions 11

13 Terminology Terminology Compared to Other Statements GASB 74/75 GASB 43/45 GASB 67/68 Total OPEB Liability (TOL) Plan Fiduciary Net Position Net OPEB Liability (NOL) Actuarial Accrued Liability Actuarial Value or Market Value of Assets Unfunded Actuarial Accrued Liability Total Pension Liability (TPL) Plan Fiduciary Net Position Net Pension Liability (NPL) OPEB Expense Annual OPEB Cost Pension Expense Actuarially Determined Contribution (ADC) Annual Required Contribution (ARC) Actuarially Determined Contribution (ADC) 12

14 OPEB Expense Deferral Periods for Expense Compared to GASB 45 GASB 75 GASB 45 Investment gains/losses 5 years Up to 30 years Liability gains/loss Average working lifetime Up to 30 years Assumption changes Average working lifetime Up to 30 years Plan changes Immediate recognition Up to 30 years Investment gains/losses GASB 75 GASB 45 Average working lifetime includes all plan members including inactive (but only if they are or may become eligible to receive an OPEB benefit) 13

15 Statement 75: Employer Liability for OPEB Based on Total OPEB Liability (TOL) the portion of the actuarial present value of projected benefit payments that is attributed to past periods of employee service Is OPEB administered through a trust that meets the specified criteria? Yes > recognize Net OPEB Liability (NOL) (TOL less OPEB plan fiduciary net position) No > recognize Total OPEB liability (TOL) 14

16 Statement 75: Timing & Frequency Employer s liability for OPEB measured as of a date no earlier than the end of the employer s prior fiscal year and no later than the employer s current fiscal year Based on an actuarial valuation obtained at least biennially, but No more than 30 months and 1 day earlier than the employer s most recent fiscal year-end 15

17 Statements 74/75: Timing & Frequency Challenges (with Biennial actuarial valuations) Valuation Date Measurement Date GASB 74 (Plan) Reporting Date 7/1/2016 7/1/2016 6/30/2017 (12 month liability roll-forward) 6/30/2018 (24 month liability roll-forward) GASB 75 (Employer) Reporting Date 6/30/2017 6/30/2018 6/30/2018 6/30/2019 Employer can t use valuation date more than 30 months + 1 day from Employer s FYE 16

18 Statements 74/75: Options Valuation Date Measurement Date GASB 74 (Plan) Reporting Date 7/1/2016 7/1/2016 6/30/2017 (12 month liability roll-forward) 6/30/2018 (24 month liability roll-forward) 6/30/2017 GASB 75 (Employer) Reporting Date 6/30/2018 6/30/2018 Challenge: sometimes difficult to get Plan s FYE reporting completed in time to use for same year employer FYE financial statement 17

19 Statements 74/75: Options Valuation Date Measurement Date GASB 74 (Plan) Reporting Date 7/1/2017 7/1/2017 6/30/2017 (no liability rollforward) 6/30/2018 (12 month liability roll-forward) GASB 75 (Employer) Reporting Date 6/30/2017 6/30/2018 6/30/2018 6/30/2019 Challenge: sometimes difficult to get actuarial valuation completed in time to use for Plan s same year FYE financial statement 18

20 Statements 74/75: Options Valuation Date Measurement Date GASB 74 (Plan) Reporting Date 1/1/2017 1/1/2017 6/30/2017 (6 month liability rollforward) 6/30/2018 (18 month liability roll-forward) GASB 75 (Employer) Reporting Date 6/30/2017 6/30/2018 6/30/2018 6/30/2019 Challenge: potential for additional administrative/actuarial expense from valuation date different from FYE (especially if data collected as part of pension valuation) 19

21 Statements 74/75: Options Valuation Date Measurement Date GASB 74 (Plan) Reporting Date GASB 75 (Employer) Reporting Date 7/1/2016 6/30/2017 (12 month liability roll-forward) 6/30/2017 6/30/2018 7/1/2016 7/1/2018 6/30/2018 (24 month liability roll-forward) 6/30/2018 (no roll-forward) 6/30/2018 6/30/2019 Challenge: some auditors have expressed concern in using different Plan and Employer actuarial valuations for same measurement date 20

22 Statements 74/75: Options Valuation Date Measurement Date GASB 74 (Plan) Reporting Date 7/1/2016 7/1/2017 6/30/2017 (12 month liability roll-forward) 6/30/2018 (12 month liability roll-forward) GASB 75 (Employer) Reporting Date 6/30/2017 6/30/2018 6/30/2018 6/30/2019 Challenge: additional actuarial and administrative expenses from moving to annual actuarial valuations 21

23 Statement 75: Measurement Three broad steps Project benefit payments Discount projected benefit payments to determine actuarial present value Attribute actuarial present value to service periods Methods and assumptions Generally, assumptions in conformity with Actuarial Standards of Practice Single attribution method entry age, level percentage of pay 22

24 Statement 75: Measurement Projection Based on claims costs or age-adjusted premiums approximating claims costs, in accordance with Actuarial Standards of Practice Consider legal or contractual benefit caps only if determined to be effective Alternative measurement method may be applied if fewer than 100 employees (active and inactive) are provided benefits through plan as of the beginning of the measurement period 23

25 Statement 75: Measurement Discounting Single discount rate that reflects: Long-term expected rate of return on OPEB plan investments to extent that plan fiduciary net position from specified resources is: Projected to be sufficient to make benefit payments Expected to be invested using a strategy to achieve that return Yield or index rate for 20-year, tax-exempt general obligation municipal bond rated AA/Aa (or equivalent) or higher, to extent that conditions for long-term expected rate of return are not met Calculated using the same process as required for pensions in Statement 68 If not administered through a trust in which the specified criteria is met, the tax-exempt municipal bond rate is required to be used 24

26 Statement 75: Expense Recognition Immediately recognize most changes in total OPEB liability for the current reporting period as OPEB expense, except: Differences between expected and actual experience with regard to economic and demographic factors in the measurement of the total OPEB liability Changes of assumptions in the measurement of the total OPEB liability For OPEB administered through trust in which specified criteria are met: Difference between projected and actual earnings on OPEB plan investments Difference between projected and actual employer contributions 25

27 Statement 75: Cost-Sharing Employers Relevant only for OPEB plans administered through a trust in which the specified criteria are met Recognize proportionate shares of collective net OPEB liability, OPEB expense, and deferred outflows of resources/deferred inflows of resources related to OPEB Proportion (%) Basis required to be consistent with contributions Use of relative long-term projected contribution effort encouraged Consider separate rates related to separate portions of collective net OPEB liability Collective measure proportion = proportionate share of collective measure 26

28 Statement 75: Notes & Required Supplementary Information Similar to those required for pensions Disclosure of effect on net OPEB liability of a discount rate +/- 1 percent Disclosure of effect on net OPEB liability of a healthcare cost trend rate +/- 1 percent Single and agent employers: 10-year schedules for changes in the net OPEB liability, ratios, and actuarially determined contributions (statutorily or contractually determined contributions, if no actuarially determined contribution is calculated) Cost-sharing employers: 10-year schedules of proportions and ratios, and statutorily or contractually determined contributions 27

29 GASB Website: 28