This document summarizes key points from an annual conference on GASB 75 requirements for other post-employment benefits (OPEB) reporting. Some of the main topics discussed include: changes to the frequency and content of OPEB financial reporting; differences from prior GASB 45 requirements including more frequent actuarial valuations and measurements; considerations for "off year" updates and lookback valuations; disclosure requirements and sample financial statement notes; and assumptions like discount rates, healthcare trends, and participation rates that significantly impact OPEB liability calculations. The presentation also covers issues like the Cadillac tax, funding policy implications, and risks to consider in OPEB plan management and reporting.
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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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
15. 14
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
18. 17
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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21. 20
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”
23. 22
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
24. 23
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. 24
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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31. 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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Notas del editor
Add commentary re unfunded liability on face of financial statements and potential increased scrutiny on OPEB costs
GASB is looking for something a little more precise than some of the GASB 45 historical AMM calculations.
Story about helping finance director with their own AMM worksheet.
2-4 pages in Notes/RSI for GASB 45; 10+ for GASB 75
Pretty much like GASB 68, but with a few additional items … and you have to put it all together
Example 2: UAAL = $10M but NOO = $100K
Example 3: UAAL = $300M but NOO = $150M