IMPLEMENTING GASB 75: WHAT YOU NEED TO KNOW Lindsey Oakley, CPA - PDF document

11/15/2017 IMPLEMENTING GASB 75: WHAT YOU NEED TO KNOW Lindsey Oakley, CPA Director loakley@bkd.com November 15, 2017 1

11/15/2017 TO RECEIVE CPE CREDIT • Participate in entire webinar • Answer polls when they are provided • If you are viewing this webinar in a group  Complete group attendance form with • Title & date of live webinar • Your company name • Your printed name, signature & email address  All group attendance sheets must be submitted to training@bkd.com within 24 hours of live webinar  Answer polls when they are provided • If all eligibility requirements are met, each participant will be emailed their CPE certificates within 15 business days of live webinar OBJECTIVES • Provide overview of GASB OPEB standards • Discuss employer accounting  Differences between trusted plans & nontrusted plans • Contrast pension & OPEB accounting & reporting • Discuss role of actuary 2

11/15/2017 THE STANDARDS • GASB Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, effective fiscal years beginning after June 15, 2016  Including for governments where the OPEB plan is presented as a fiduciary fund of the government • GASB 75 Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, effective for fiscal years beginning after June 15, 2017 OPEB IN BRIEF • GASB 74 & GASB 75 are almost identical to their pension siblings, i.e. , GASB 67 (Plans) & GASB 68 (Employers), except for  Pension lessons learned have been built into the base standards, e.g. , GASB 71 – transition guidance for contributions after the measurement date & GASB 73 – nontrusted plans  Minor tweaking to better fit retiree health care have been made, e.g. , recognizing implicit rate subsidies or requiring sensitivity analysis for health care trend rate  Alternative method for very small plans (100 or fewer total participants) is still included in the new guidance 3

11/15/2017 OPEB IN BRIEF • OPEB is divided into two categories  Postemployment health care benefits are always accounted for separately from pensions  Other forms of OPEB such as death benefits, life insurance & disability benefits only accounted for separately when provided separately from a pension plan • Implicit rate subsidy considerations built into GASB 75 • OPEBs do not include termination benefits or termination payments for sick leave OPEB IN BRIEF • Major impacts of GASB 75 vs. GASB 45  Net or total OPEB liability is now recorded in Statement of Net Position  Strictly prescribed actuarial methodology & discounting guidance will produce a different (often higher) OPEB liability than GASB 45  Annual measurement dates are now required using either annual or biennial valuations • Triennial valuations no longer allowed  Expense volatility is likely due to claims volatility, discount rate volatility & more frequent plan changes  More robust note disclosure & required supplementary information (RSI) is required 4

11/15/2017 ROLE OF THE EMPLOYER IN TRUSTED PLANS • Unlike pension plans that are most often independently staffed & governed, trusted OPEB plans are most often administered by the sponsoring employer  OPEB reimbursement trusts whose sole purpose is to accumulate & invest assets & make reimbursement payments to the employer is a common model PLAN STANDARD • GASB 74  Effective for June 30, 2017, plan year-ends & later  Implementation guide available on GASB website • Plan accounting & reporting required when a trust or equivalent arrangement exists  Plan financial statements may be either issued separately or as a fiduciary fund in the financial statements of the sponsoring government 5

11/15/2017 PLAN STANDARD • Employer reporting for governments holding assets accumulated for purposes of providing OPEB through nontrusted plans • Apply changes retroactively by restating financial statements for all periods presented, if practical  10-year RSI schedules present information that is available until 10 years has been accumulated TYPES OF PLANS • Insured plans  Benefits are financed through an arrangement whereby premiums are paid to an insurance company  Payments are made to the insurance company while employees are in active service  Insurance company unconditionally undertakes an obligation to pay the OPEB of those employees as defined in the OPEB plan terms  OPEB provided through insured plans is classified as insured benefits  Employer reporting requirements for insured plans provided for in GASB 75 6

11/15/2017 TYPES OF PLANS Single- Employer Trust or Equivalent Agent Prepare Arrangement Financial Multiple- (Trusted) Statements Employer Cost Sharing Multiple- Defined Employer Benefit Single- OPEB Plan No Trust or Equivalent Employer Arrangement Multiple- (Nontrusted) Employer Primary Government + CUs EMPLOYER STANDARD • GASB 75  Effective for June 30, 2018, employer year-ends & later  Implementation guide exposure draft currently available • Apply changes retroactively by restating financial statements for all periods presented, if practical  May not be practical to present balances all deferred outflows & inflows of resources at beginning of period  Report beginning deferred outflow of resources for any contributions (trusted plan) or OPEB payments (nontrusted plan) after the measurement date • Divided into two primary sections  OPEB provided through plans administered as trusts or equivalent arrangements, i.e. , meets Paragraph 4 of GASB 75 requirements  OPEB provided through plans that are NOT administered as trusts or equivalent arrangements, i.e. , does not meet Paragraph 4 of GASB 75 requirements 7

11/15/2017 GASB DEFINITION OF A TRUST • Paragraph 4 of GASB 75 creates three “substance over form criteria” for determining whether the plan is administered through a trust  Contributions from employers & nonemployer contributing entities to the OPEB plan & earnings on those contributions are irrevocable  OPEB plan assets are dedicated to providing OPEB to plan members in accordance with the benefit terms  OPEB plan assets are legally protected from the creditors of employers, nonemployer contributing entities & the OPEB plan administrator. If the plan is a defined benefit OPEB plan, plan assets also are legally protected from creditors of the plan members OPEB LIABILITY Less: Plan’s Fiduciary Net Total OPEB Liability Net OPEB Liability Position • Plan administered as a trust or equivalent arrangement  Employer reports a net OPEB liability in their financial statements • Plan NOT administered as a trust or equivalent arrangement  Employer reports a total OPEB liability in their financial statements Plans with fewer than 100 members (active & inactive) may use the alternative measurement method to determine the liability 8

11/15/2017 MEASUREMENT DATE If not already as of measurement date, actuarial valuation must be rolled forward to measurement date Potential Measurement Dates Potential Measurement Dates Potential Actuarial Valuation Dates Potential Actuarial Valuation Dates 12/31/15 6/30/16 6/30/17 6/30/18 30 Months & one day before Employer Current Year-End current year-endy Employer Standard Plan Standard Measurement of the net OPEB liability in employer’s Measurement of the net OPEB liability in plan’s notes to the financial statements must be as of a date no earlier financial statements must be as of the plan’s most recent than the end of the employer’s prior fiscal year. fiscal year-end. Measurement must be based on an actuarial Measurement must be based on an actuarial valuation valuation performed with 24 months of the plan’s year-end. performed within 30 months plus one day of the If actuarial valuation not performed as of the measurement employer’s year-end. If actuarial valuation not date, update procedures must be performed to roll forward performed as of measurement date, update amounts to measurement date procedures must be performed to roll forward amounts to measurement date MEASUREMENT DATE CONSIDERATIONS • A good measurement date should  Facilitate timely financial reporting  Minimize the need for rollforwards from the valuation date  Facilitate a quality actuarial valuation by • Allowing ample time for the gathering of related census & claims data • Coincide adequately with the plan year to be able to incorporate the most recent changes in plan provisions  Avoid different measurement dates for plan & employer when plan financial statements are included in the employer’s financial statements 9