1.
IMTA Annual Conference
Mark W. Schulte, FSA, EA, MAAA
June 24, 2019

2.
 Lots of information about GASB 75 during the past
few years; now it’s finally here
 Substantial changes to volume and content of OPEB
financial reporting
 Financial statement changes (and work involved)
are highly dependent upon OPEB plan details
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3.
Actuarial reporting
Financial reporting
Common pitfalls
What’s on the horizon?
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4.
What’s the same?
 Still project future retiree benefits and then
discount into “today’s dollars”
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-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
2019
2022
2025
2028
2031
2034
2037
2040
2043
2046
2049
2052
2055
2058
2061
2064
2067
2070
2073
2076
2079
2082
2085
Projected Retiree Benefit Payments
Current Retirees Future Retirees

5.
What’s the same?
 Lots of actuarial assumptions used to estimate the
value of future retiree costs
 Yes, we still have to value an “implicit subsidy”
- What would you spend on active employee health premiums
if retirees weren’t enrolled on the group health plan?
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6.
What’s different?
 More frequent reporting: biennial valuations for all
employers
 Also need roll-forward updates in the “off years”
 OPEB and pension reporting is moving towards
annual assessments, just like all private sector
accounting
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7.
 What should you look for in “off year” updates?
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Update Item Considerations
Discount rate  Municipal bond index rate
(spot rate input; not a long-term assumption)
 “Crossover” calculation for funded plans
Assets Must reflect actual year-end assets
Benefit payments  Need to use actual “direct subsidy” benefit payments
 Implicit subsidy payments usually estimated by actuary
Plan changes  Adjustments to eligibility or subsidies offered to retirees
 Unclear if changes to underlying group health plan need
to be reflected

8.
 Employers can measure liabilities up to 12 months
prior to fiscal year-end
 Much easier to use this “lookback” method than to
wait until after year-end to collect data
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Valuation Date &
Measurement Date
Reporting Date
Net amount
Reported at FYECalculate liabilities
4/30/2018 4/30/2019

9.
 Sample actuarial valuation/reporting schedule
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Date Year 1 Year 2
Reporting Date (FYE) 4/30/2019 4/30/2020
Valuation Type Full Roll-forward
Valuation Date 4/30/2018 Same as prior
Measurement Date 4/30/2018 4/30/2019

10.
 Alternative Measurement Method (AMM) is still
available if fewer than 100 participants (active +
retired)
 BUT … it’s pretty complicated
 Fewer providers offering AMMs
 Need to balance GASB 75’s specific requirements
(paragraphs 224-226) vs. what’s practical with a DIY
spreadsheet
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11.
 GASB 75 for OPEB will require more disclosure
information than GASB 68 for pensions
 Get started soon!
 GASB 75 needs to track:
 Total OPEB Liability (TOL)
 Fiduciary Net Position and Net OPEB Liability (funded plans)
 OPEB expense and deferred inflows/outflows of resources
 Sensitivity to discount rate and healthcare trend assumption
 GASB statements and Implementation Guides have
good sample note disclosures/RSI – use them!
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12.
 1st year restatement of prior position (i.e., replace
Net OPEB Obligation with Net OPEB Liability)
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GASB 45 GASB 75
Unfunded actuarial accrued liability $38M $37M
Balance sheet liability $12M $37M
 GASB 45 Net OPEB Obligation amortized unfunded
liability onto balance sheet very slowly
Net OPEB Obligation Net OPEB Liability

13.
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Sample Funded Plan

14.
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Lookback method requires small adjustment equal to
contributions between measurement and reporting
dates

15.
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 Fund accounting
 NOL allocations are straightforward
 Accounting allocations can get trickier when balancing
OPEB expense and deferred inflows/outflows of resources
 Cost-sharing multiple employer plans
 Separate employers with “shared” plans
 Applicable if have separate standalone financial statements
 Proportionate share calculations can be challenging

16.
 Discount rate and liability volatility
 Assumption scrutiny
 Crossover calculations for funded plans
 Cadillac Tax
 Funding policy considerations
 Risk analysis
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17.
2.50%
2.75%
3.00%
3.25%
3.50%
3.75%
4.00%
4.25%
4.50%
GASB 75 Discount Rate Volatility
Fidelity GO AA - 20 Yrs GASB 45 4.0%
 A 100bps discount rate change can change liabilities by 10% - 15%
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Assumption Considerations
Discount rate  Muni bond index rate is a reference “input”; should change annually
 Crossover calculations for partially-funded plans
Cadillac Tax GASB 75 requires this be included in liabilities
Health trend rates Newer models are more robust than old rule-of-thumb estimates
Participation rate  What % of future retirees will continue medical coverage?
 Significant effect on liability calculations
Expected asset return Should be based on advice from investment advisor; need to explain
rationale in notes to financial statements

19.
 Actuarial standards of practice now require disclosure
of rationale for selecting each assumption
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20.
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 Crossover calculations for discount rate

21.
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 40% excise tax on employer-sponsored health plan
costs that exceed certain thresholds
 Originally supposed to be effective in 2018, but
delayed to 2020 and again to 2022
 GASB 75: Projected plan costs “should include taxes or
other assessments expected to be imposed on benefit
payments”

22.
21
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
AnnualSinglePremiumRate
Illustration of Cadillac Tax
Cadillac Tax Tax Threshold Total Cost Annual Premium
Tax Threshold
“Excess” Cost
Cadillac Tax

23.
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 Various ways to estimate the cost, but each adds a
layer of complexity to the calculations
- Adjustments to medical trend increase assumption
- Load on liability calculation
 Effect on OPEB liability many not be substantial
since future cost increases are discounted with
interest

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 Older healthcare trend assumptions usually
converge to ultimate rate quickly
Year Increase Rate
FY2019 8.0%
FY2020 7.5%
FY2021 7.0%
FY2022 6.5%
FY2023 6.0%
FY2024 5.5%
FY2025 5.0%
 And then “reset” to new starting rate next year

25.
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 Society of Actuaries “Getzen Model” developed
several years ago
 Based on research of economy’s capacity to
support growing healthcare costs
 Typically:
- 5 years of short-term costs
- 50+ years of mid-term trends
- Ultimate trend ~ 4.0%
 Gaining wider use by actuaries and sometimes
required by auditors

26.
 No requirement to pre-fund OPEB, but there is an
incentive with the discount rate calculations
 Some OPEB funding policy considerations:
 OPEB liability volatility and predictability
 Implicit vs. direct subsidies
 Investment return volatility
 Time horizon
 Coordination with retiree payments from general assets
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27.
 Discretionary OPEB funding vs. mandatory pension
contributions
 Pension payments are generally more concrete and
predictable (investments … not so much)
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$0.0
$50.0
$100.0
$150.0
$200.0
Unfunded Liability ($MM) – Sample Pension Plan
Unfunded Liability Accrued Liability Market Asset Value

28.
 Assessment and Disclosure of Pension Risk (ASOP 51)
effective for all pension actuarial reports with a
measurement date on or after November 1, 2018
 Not applicable to OPEB … yet
 Very important to understand OPEB risks and volatility if
pre-fund OPEB and develop a funding policy
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29.
 Make sure you get a head start on FY2019 GASB 75
reporting
 Budget and plan for more frequent actuarial reporting and
data collection
 Evaluate assumptions (e.g., discount rate and participation
rate), how they’re determined, and consider how they will
affect GASB 75 calculations
 Balance OPEB and pension contribution commitments
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Mark W. Schulte, FSA, EA, MAAA
marks@vaniwaarden.com
Van Iwaarden Associates
612.596.5971
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.
L/D/C/R: 4/ms/sb
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