Handling GASB 45Handling GASB 45

Margaret Wallace

CTA NOD Department

Orange RRC

Preparing for Bargaining

• Talking Points• Educate everyone on

REAL requirements• Do not fuel “crisis”

rhetoric• Assess current OPEB • Actuarial valuation• Learn options• Bad faith bargaining

A Quick Summary

• What is GASB?

• Are the new accounting standards mandatory?

• Will bond ratings fall if employers do not pre-fund now?

• What should employee organizations expect?

• What is CHCRS?

Union Perspective of GASB 45

Impact of STRSOPEB EvolutionOPEB CostsHealth Care Costs

Union Perspective of GASB 45

Less than 50% offer some form of OPEBLess than 10% offer OPEB on lifetime basisOver 70% have teachers paying a share of premiumNearly all OPEB require 10 to 15 years of serviceFew chapters are adding to this benefit

Current Contracts

Walk in their SHOES, but don’t buy them.

• What are the pressures on employers?

– Political– Internal Budget– Bond Vendors– Lawyers– Consultants

True or False

• The new rules do not require actions beyond calculating costs and reflecting them on financial statements.

• GASB does not require funding action.

• Employers can take time to make prudent assessments and plans.

True

True

True

GASB Requirement to Calculate and to Report Schedule

Applies for fiscal years starting after:

If revenue is:

Dec 15, 2006 Over $100 million

Dec 15, 2007At least $10 million but less than $100 million

Dec 15, 2008 Less than $10 million

• Changes in health plan provisions

• Changes in health care benefit funding management mechanisms

• Changes in sources of funding for benefits

Reducing Liabilities

Calculating Cost

• Assemble documents

• Census of employees

• Separate costs for retirees from active employees

• Separate medical costs for Medicare retirees

• Engage a qualified actuary to calculate liability

• Identify OPEB programs

The Actuarial Valuation Process

Input Data Annual

financial

statement

costs

Project

benefits/calculate

liability

An actuarial report can include different projections based on different scenarios with respect to actuarial assumptions and actuarial methods.

Common Actuarial Assumptions

• Economic– Rate of investment

return– Health cost increase

trend– Current cost of

coverage– Plan expenses

• Demographic– Mortality incidence– Retirement incidence– Employee turnover– Martial status and

number of dependents– Coverage selection– Disability

• CalPERS will offer a range of model assumptions for actuarial valuations used by participants in the CalPERS health care purchasing program.

• The CalPERS model assumptions should be available in late September or October, 2007, and will be offered as an example for organizations.

• Be certain that the information and the assumptions that actuaries are using are proper and correct.

• Watch how employers use financial figures in bargaining.

• GASB valuations are with respect to the employer share of the premium.

• Pre-funding advantages and disadvantages.• Bonds and how they may affect future

options

What shouldyou look out for?

Possible changes in benefits plans and provisions

• Be Warned• Be Cautious• Do your

homework

• Be Open• Be Realistic• Do your

homework

Set Aside Options

• Set dollars aside within existing general fund budgets including pay-as-you-go

• Set up irrevocable pre-funded trusts

• Institute individual accounts

There are some options that are not recommended by CTA. Please

consult with your Primary Contact Staff and NODD Staff prior to any

commitment..

Financing Options• General funds, reserve funds, state

contributions• Bonds• Whole Life Insurance Policy• Unused Accumulated Sick Leave• Lottery Funds• Excess Earnings• On-Time State Budget Augmentation to

Schools• Public Private Partnerships

There are some options that are not recommended by CTA. Please

consult with your Primary Contact Staff and NODD Staff prior to any

commitment..