An overview of the changes from GASB 43/45 to GASB 74/75 accounting for Other Post-Employment Benefits (OPEB)

1. MNCPA Audits of Local Governments Conference
Mark Schulte, FSA, EA, MAAA
October 24, 2017

2. 1 Background
2 What’s changing
 Terminology
 Report frequency
 Report timing
 Discount rate
 Financial disclosures
 Experiences (so far)
3 What to do now
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3.  Compliance with GASB 45 since at least 2008
 Have a liability “on the books” (Net OPEB Obligation)
 Record annual accounting expense (based on the ARC)
 Biennial or triennial actuarial valuations
 OPEB trusts (if any) were often established in early
years of GASB 45
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4. Why can’t we just keep using GASB 45?
Net OPEB Obligation hides true cost of OPEB
Cost recognition is too slow (never?)
Too much variation in liability calculation methods
Discount rate determination not appropriate
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5.  June 2015: GASB 74 and 75 published
 GASB 74
 Plan-perspective accounting (if have an OPEB trust)
 Effective for fiscal years beginning after 6/15/2016
(i.e., FYE 2017)
 GASB 75
 Employer-perspective accounting
 Effective for fiscal years beginning after 6/15/2017
(i.e., FYE 2018)
 Some employers are electing to early-adopt GASB 75 instead of
disclosing both GASB 74 and GASB 45 in their FY2017 financial
statement notes and RSI
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6.  Lots of new terminology and acronyms!
 More frequent actuarial reporting
 Financial reporting changes
 Unfunded liability goes on face of financial statements
 OPEB accounting “expense” more volatile
 More information to disclose
 Discount rate process standardized
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GASB 45 GASB 74/75
Actuarial Accrued Liability (AAL) Total OPEB Liability (TOL)
Plan assets Fiduciary Net Position (FNP)
Unfunded Actuarial Accrued Liability (UAAL) Net OPEB Liability (NOL)
Deferred inflows/outflows of resources
Annual OPEB Cost OPEB expense
Net OPEB Obligation (NOO) Net OPEB Liability
Annual Required Contribution (ARC) Actuarially Determined Contribution
(ADC)

8.  GASB 45
 Usually January 1 Valuation Date (beginning of year)
 Have 12+ months to complete calculations and report
 Get at least two years of accounting in one report
 Example
• January 1, 2016 valuation report
• Provides accounting information for FYE 2016 AND FYE 2017
• Small employers (< 200 participants) had triennial actuarial reports
 Updated reports in the “off-years” were relatively rare
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9.  GASB 74/75 require full actuarial reports every two
years for all employers
 “Update procedures” to reflect any changes since
the actuarial valuation date [GASB 74 Q&A #4.104]
 In most cases, employers will need an updated
“off-year” report to reflect certain changes
 Movement towards annual valuations because of
OPEB volatility
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10.  GASB 74/75 report will likely only contain
accounting information for one fiscal year
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Update Item Considerations
Assets Need to reflect actual year-end assets
Discount rate  Muni bond index rate
 “Crossover” calculation for funded plans
Benefit payments  GASB 74/75 specify actual benefit payments for roll
forwards and other calculations.
 May not be practical for implicit subsidy “payments”
Plan changes What does this encompass? Retiree subsidies only; or
group health plan/premiums in general?

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Date What it means
Valuation Date  Census and claims data gathered
 Liabilities calculated, but may then be “rolled forward”
to the Measurement Date
Measurement Date When liabilities and assets are “measured”
Reporting Date Fiscal year end
 Valuation Date can be up to 30 months and 1 day earlier than the
Reporting Date (i.e., one valuation as basis for up to 2 fiscal years)
 Measurement Date should be no earlier that the prior fiscal year
end (i.e., prior Reporting Date)

12.  “Synchronized” method
 Measurement Date = Reporting Date
 Used for plans with or without trusts
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12/31/2017 12/31/2018 12/31/2019
Valuation Date Measurement Date &
Reporting Date
“Roll” liabilities
Measure assets &
Report net amount at FYE
Calculate liabilities

13. Timing considerations: Synchronized method
‣ VD before MD/RD makes report timing easier
‣ Still need to wait until MD/RD for actual benefit
payments, assets, and discount rates
‣ What happens if plan “changes” before MD/RD?
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12/31/2017 12/31/2018 12/31/2019
Valuation Date Measurement Date &
Reporting Date
“Roll” liabilities
Measure assets &
Report net amount at FYE
Calculate liabilities

14.  “Lookback” method
 Measurement Date up to one year before Reporting Date
 Usually used for plans without trusts
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Valuation Date &
Measurement Date
Reporting Date
Calculate liabilities &
Measure assets
12/31/2017 12/31/2018 12/31/2019
Net amount
Reported at FYE

15. Timing considerations: Lookback method
 VD/MD before RD makes timing much easier
 Need to wait until RD for “deferred” contributions
 Don’t have to deal with plan changes after MD
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Valuation Date &
Measurement Date
Reporting Date
Net amount
Reported at FYE
Calculate liabilities &
Measure assets
12/31/2017 12/31/2018 12/31/2019

16.  Employers with irrevocable trusts should comply
with GASB 74 for FYE2017
 Include plan-perspective disclosures in Notes and RSI
(if trust doesn’t issue standalone financials)
 May be simplest to early adopt GASB 75 in FYE2017
 Avoid two sets of numbers in Notes/RSI
 Similar costs for GASB 74/45 vs. GASB 74/75 reporting
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17.  GASB 45: “long-term investment yield on the
investments that are expected to be used to finance the
payment of benefits”
 GASB 74/75: Single rate that reflects:
 Long-term expected rate of return on OPEB plan investments
(to the extent irrevocable assets are able to pay future benefits)
 Index rate for 20-year, tax-exempt general obligation
municipal bonds with an average rating of AA/Aa or higher
 Funded plans (irrevocable trust) use “crossover” calculation to
determine blended discount rate
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26. ‣ GASB 75 early adoption
‣ Timely asset information
‣ Payables/receivables
‣ Actual retiree benefit payments
‣ What’s a “contribution”?
‣ Understanding all of the dates
‣ Volatility
‣ When are updates needed?
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27.  Funded plans (irrevocable trust)
 Figure out GASB 74 transition strategy – now!
 Early adoption of GASB 75 for FYE2017 may be easiest route
 Funded plans (revocable trust)
 Understand effect of using muni bond index rate vs. expected
investment return for discount rate
 Consider making trust irrevocable (FY2017-18)
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28.  All plans
 Figure out report timing and implementation options
 Synchronized vs. Lookback: Is it a big deal if liabilities are a year old?
 Better tracking of retiree benefit payments
 Worthwhile/feasible to pre-fund OPEB?
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30. Mark Schulte, FSA, EA, MAAA
Van Iwaarden Associates
612.596.5960
marks@vaniwaarden.com
All information in this presentation is for general informational purposes only and should
not be relied upon without the express written consent of the author.
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