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2015 MASBO Fall Conference

GASB 73, 74 and 75Postemployment Benefits Other Than Pensions

An Actuarial Perspective

November 13, 2015

2Copyright 2015 Hildi Incorporated

2015 MASBO Fall Conference

• This presentation was prepared for the 2015 MASBO Fall

Conference at the Double Tree Park Place in

Minneapolis, MN.

• This presentation may not be used for any other purpose

without the written consent of Hildi Inc.

• Readers/Participants at this conference are cautioned to

examine original source materials and to consult experts

before making decisions related to the subject matter of this

presentation.

• Acknowledgment: Thank you to Michelle C. at GASB for

answering questions and providing background and

information on these new Statements.

Overview of the session• Reason for changes and development of

new Statements 73,74 & 75

• Inventory of postemployment benefits

• GASB 73 vs. GASB 75

• Overview of changes

• New terminology

• Implementation process

• Implementation strategies


Reason for Change

The GASB’s approach to postemployment benefit accounting is to establish and maintain a single, consistent set of standards for all postemployment benefits—both pensions and OPEB

– Relevant and comparable– Useful– Transparent

• From GASB “Understanding Costs and Benefits”

• Bold format emphasis added by Hildi Inc.


Reason for Change

More information on the GASB website

www.GASB.org

There is a project page on Other Postemployment Benefits (OPEBs) on the GASB website


Current Inventory of Post-Employment Benefits

• OPEBs (both funded and pay-as-you go)– GASB 45

• Payouts on Accumulated Unused Sick Leave– GASB 16

• Pension-like benefits (pay-as-you go)(not OPEBs and not GASB 16)– GASB 27

• Pension benefits with assets (ex: TRA and/or PERA – not OPEBs)– GASB 68 (formerly GASB 27)


New Inventory of Post-Employment Benefits

7

• OPEBs (both funded and pay-as-you go)– GASB 75 formerly GASB 45

• Payouts on Accumulated Unused Sick Leave– GASB 16

• Pension-like benefits (pay-as-you-go)(not OPEBs and not GASB 16)– GASB 73 formerly GASB 27

• Pension benefits with assets (ex: TRA and/or PERA – not OPEBs)– GASB 68

Copyright 2015 Hildi Incorporated

GASB 73 vs. GASB 75

GASB 27 Plans will now follow GASB 73 for Post-employment benefits that are not OPEBs- Non-trusted post employment benefits (pension-like benefits)

GASB 45 Plans will now follow GASB 75 for OPEBs- All Other Post-Employment Benefits other than Pensions (OPEBs)- For both trusted and non-trusted OPEBs


Previous Statement New Statement

GASB 27 GASB 73 (unfunded) / GASB 68 (funded)

GASB 45 GASB 75

GASB 73 & 75 BackgroundOverview of Changes From GASB 27 & 45

• Accounting and funding treatments are separated

– The concepts of Annual Required Contribution (ARC) and Net Pension

Obligation/Net OPEB Obligation (NPO/NOO) are no longer applicable

– A Net Pension/OPEB Liability (NPL/NOL) will be shown on the

employer’s financial statements, rather than as supplemental

information

• Changes in the NPL/NOL will be recognized in Expense over shorter periods

– Amortization periods for deferred inflows and outflows are reduced

– 5-years for investment gains/losses

– Average future service for assumption changes and liability gains/losses

– Immediate recognition of plan changes


GASB 73 & 75 BackgroundOverview of Changes From GASB 27 & 45

• New method for developing the discount rate

• The Entry Age actuarial cost method is required for disclosure and expense

calculations

– Costs measured as a level percentage of pay over entire working career

• Asset smoothing methods are disallowed for balance sheet items, but

mandated for determining pension expense

• Additional Footnotes and Required Supplementary Information (RSI)

schedules on financial statements

• Any material changes between the valuation date and measurement date

may require a new valuation to be prepared

• Liabilities at additional healthcare trend rates and discount rates are

required for disclosures

• Biennial cycle for all plans


GASB 75

Overview of Changes From GASB 45New method for developing the discount rate

– OPEB Plan with an Irrevocable Trust

• Based on expected long-term rate of return until trust funds exhausted

• Municipal bond rates apply to unfunded obligations

– OPEB Plan with Revocable OPEB Trust or Pay-as-you-go

• Discount rate should be a yield or index rate for

20-year, tax exempt general obligation municipal bonds

with an average rating of AA/Aa or higher


GASB 75

New Terminology

• Entry Age actuarial cost method

• Service costs

• OPEB Expense

• Total OPEB liability

• Fiduciary Net Position

• Net OPEB liability

• Measurement Date/Reporting Date


GASB 75 The Old and the New Terminology


GASB 45 GASB 75

Normal Cost Service Cost

Annual Required

Contribution / Annual OPEB

Cost

OPEB Expense

Net OPEB Obligation None – N/A

Accrued Liability Total OPEB Liability

Assets Fiduciary Net Position

Unfunded Accrued Liability Net OPEB Liability

GASB 73

• Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB 68

• GASB 27 now GASB 73 for Postemployment benefits that are not OPEBs– Non-trusted post employment benefits

(pension-like benefits)

• Effective for fiscal years beginning after June 15, 2016– Fiscal Year beginning July 1, 2016 and ending

June 30, 2017


GASB 73• Discuss implementation transition

with your District’s actuary and auditor

• Today we will focus on the implementation transition to GASB 75 from GASB 45– GASB 75 provides options

– Other options can be reviewed that we will not discuss/review today


GASB 75

• Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions

• GASB 45 now GASB 75 for OPEBs

• Effective for fiscal years beginning after June 15, 2017– Fiscal Year beginning July 1, 2017 and ending

June 30, 2018


GASB 75 – Implementation Options

Terminology

• Valuation Date (VD)

• Measurement Date (MD)

• Reporting Date (RD)



• Actuarial Liabilities (AL) are initially calculated as of the

Valuation Date (VD)

• Actuarial Liabilities (AL) at the Valuation Date (VD) are

then rolled forward for financial reporting purposes to the

Measurement Date (MD) to become a Total OPEB

Liability (TOL)

• Assets are measured as of the Measurement Date (MD)

– never rolled forward

• Reporting Date (RD) aligns with the fiscal year end



VD

MD1RD1

MD2 RD2


Valuation Date (VD)Measurement Date (MD)Reporting Date (RD)

Biennial Cycle

7/1/Year 6/30/Year+1 6/30/Year+2

GASB 75 – Implementation OptionsMost recent GASB 45 was 7.1.2014 and next cycle is 7.1.2016

2016-2017 Fiscal Year GASB 45 GASB 75

Reporting Date June 30, 2017 N/A

Measurement Date1 July 1, 2016 N/A

Actuarial Valuation Date2 July 1, 2016 N/A



Reporting Date N/A June 30, 2018

Measurement Date1 N/A June 30, 2017

Actuarial Valuation Date2 July 1, 2016 July 1, 2016

1. A GASB 75 Measurement Date may look back as far as the employer’s prior fiscal year-end

2. A GASB 75 Valuation Date may be up to 30 months prior to the Reporting Date




Measurement Date1 N/A July 1, 2017

Actuarial Valuation Date2 N/A July 1, 2017









(normally would have been 7.1.2018)












GASB 75 Implementation Strategies• Revocable OPEB Trust to Irrevocable OPEB Trust

• Plan Design – Current GASB 27 benefits changed to GASB 45 (GASB 75)

– Current GASB 45 benefits designed with cost controls

• Develop formal written funding policies

• Review all actuarial assumptions– Retirement patterns

– Retirement election/participation decisions

– Withdrawal/turnover

• Implicit Rate Subsidies

• Audit issues may be fewer than with GASB 68 since employers control the OPEB data

• Alternative Measurement Method is still allowed


GASB 75 Data Request Items

• Same data requested at Valuation Date as current process

• Employer contribution and benefit payment information

needed at each measurement date

• OPEB Trust reconciliation needed at each measurement date

• More detail requested on investment policy for Irrevocable

OPEB Trust


GASB 75 – Off year cycles

• Increase in actuarial calculations

• Benefit Payments

• Employer Contributions

• Market value of assets

• Asset reconciliation

• Plan provision changes / Early Retirement Incentives


GASB 75

Anticipated Operational Costs

• Education and training to become familiar with the new

standards

– Update your Finance Committees and Boards now on the new OPEB disclosures when discussing GASB 67/68 changes for public pensions

• Increase in actuarial calculations

• Changes in accounting systems and procedures

• Loss of consistent historical financial trends for financial

analysis


GASB 75 Expected Benefits of the New Statements

• Improved information for accountability and interperiod equity

• New OPEB liability and expense measures

• Greater comparability across governments (Districts)

• Increased consistency over time

• More informative note disclosures and supporting information



Contact Information

Jill M. Urdahl, FSA

President/Consulting Actuary

Hildi Incorporated

Specializing in Actuarial Retirement Plan Services

11800 Singletree Lane, Suite 305

Minneapolis, MN 55344

P 952.934.5554

F 952.934.3027

E [email protected]

W www.hildiinc.com

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