OPEB - GASB 75
GAQC Web Event: OPEB - GASB 75: Special Emphasis and Considerations for Nontrusted Plans
OPEB - GASB 75:
Special Emphasis and Considerations for Nontrusted Plans
A Governmental Audit Quality Center Web Event
October 10, 2017
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October 10, 2017 1
GAQC Web Event: OPEB - GASB 75: Special Emphasis and Considerations for Nontrusted Plans
Continuing Professional Education
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Presenters
Joel Black, CPA Mauldin & Jenkins CPAs, LLC Stephen W. Blann, CPA, CGFM, CGMA Rehmann, LLC
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What We Will Cover
? How the new other postemployment benefits (OPEB) requirements differ from GASB's requirements for pensions
? The differences in accounting treatment when OPEB is administered through a trust versus when it is not administered through a trust
? The significant inputs and assumptions to OPEB elements ? Auditing considerations from the employer auditor's perspective
with an emphasis on audit evidence relevant to OPEB not administered through a qualifying trust (nontrusted plans)
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October 10, 2017 2
GAQC Web Event: OPEB - GASB 75: Special Emphasis and Considerations for Nontrusted Plans
OPEB Basics
A 10,000 foot view of the standards
GASB Statements 74/75 OPEB Basics
For detailed explanation of OPEB accounting and an illustrative journal entry view the GAQC archived web event
titled, "GASB 75 OPEB Implementation: Accounting and Auditing Considerations" available on the GAQC web site. ? GASB 74 (effective 06/30/2017) ? Applies to the financial statements of OPEB plans (OPEB trust
funds) ? GASB 75 (effective 06/30/2018)
? Applies to the financial statements of employers providing OPEB
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GASB Statements 74/75 Defining Pension & OPEB ? Pensions
? Retirement income and benefits (other than healthcare) provided through a pension plan
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GAQC Web Event: OPEB - GASB 75: Special Emphasis and Considerations for Nontrusted Plans
GASB Statements 74/75 Defining Pension & OPEB ? OPEB
? All postemployment healthcare benefits ? Medical, dental, vision, hearing, etc. ? Regardless of whether provided by a pension plan
? Postemployment benefits other than retirement income not administered by a pension plan ? Death benefits, life insurance, disability, long-term care
? Excludes termination benefits
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GASB Statements 74/75 Defining Pension & OPEB ? Termination benefits (GASB 47):
? An inducement to hasten the termination of services (e.g., early retirement incentives)
? May be voluntary or involuntary ? Requires professional judgment to determine employer's intent
and employee's understanding ? Recorded at the NPV of the benefits to be paid when the
agreement is made (not OPEB)
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GASB Statements 74/75 Defining Pension & OPEB
Pensions OPEB
? GASB has determined that OPEB plans are conceptually similar to pensions, and has largely replicated the guidance from GASB 67/68 in GASB 74/75
? Incorporates amendments from GASB 71 and 73
? Retains requirement for actuaries to consider the implicit rate subsidy
? Retains the option for small plans to use the alternative measurement method
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GAQC Web Event: OPEB - GASB 75: Special Emphasis and Considerations for Nontrusted Plans
GASB Statements 74/75 Net OPEB Liability (NOL)
? Recorded by the employer (not the plan)
Pensions OPEB
? Equal to the actuarially determined total OPEB liability (TOL), less the net position of the OPEB trust fund
? Nontrusted plans just report the TOL
? Recorded in full accrual financial statements [certain portions are offset by deferred outflows/inflows of resources (deferred O/I) and amortized]
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GASB Statements 74/75 TOL ? Calculated by the actuary:
? Project future benefits
? Discount to present value
? Attribute present value to specific periods
Pensions OPEB
Hire 14
Today
Retirement
Death
GASB Statements 74/75 TOL ? Calculated by the actuary:
? Project future benefits
? Discount to present value
? Attribute present value to specific periods
Pensions OPEB
Hire 15
Today
Future Benefits
Retirement
Death
October 10, 2017 5
GAQC Web Event: OPEB - GASB 75: Special Emphasis and Considerations for Nontrusted Plans
GASB Statements 74/75 TOL ? Calculated by the actuary:
? Project future benefits
? Discount to present value
? Attribute present value to specific periods
Pensions OPEB
Hire 16
Today
Discount Rate
Future Benefits
Retirement
Death
GASB Statement 74/75 TOL ? Calculated by the actuary:
? Project future benefits
? Discount to present value
? Attribute present value to specific periods
Service Cost TOL
Discount Rate
Pensions OPEB
Future Benefits
Hire 17
Today
Retirement
Death
GASB Statements 74/75 Key Actuarial Changes
? Actuarial cost method
Pensions OPEB
? Entry Age, Level Percent of Pay
? Project future benefits using age-adjusted premiums (implicit rate subsidy)
? Small plans (fewer than 100 members) may use the alternative measurement method that does not require an actuary
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GAQC Web Event: OPEB - GASB 75: Special Emphasis and Considerations for Nontrusted Plans
GASB Statements 74/75 Key Actuarial Changes
? Expected return/discount rate
Pensions OPEB
? Single blended rate comprised of:
? Expected rate of return (years w/ sufficient assets)
? AA 20 year muni bond rate (years w/ insufficient assets)
? A lower discount rate produces a higher liability and vice versa
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GASB Statements 74/75 Key Actuarial Changes
? Amortization of unfunded liability
? GASB 45 permitted wide latitude in amortization periods
? GASB 75 requires: ? Plan changes ? immediately
Pensions OPEB
? Assets returns other than expected ? 5 years
? Other actuarial liability gains and losses ? average future service life of all plan members (including inactives)
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GASB Statements 74/75 Key Actuarial Changes ? Sensitivity analyses
? Changes in the discount rate
? Changes in the healthcare cost trend rate
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GAQC Web Event: OPEB - GASB 75: Special Emphasis and Considerations for Nontrusted Plans
GASB Statements 74/75
Measurement Date (MD)
If not already as of MD, actuarial valuation must be rolled forward to MD
Pensions OPEB
Potential MDs
Potential Actuarial Valuation Dates
12/31/15
6/30/16
Thirty Months and a day before current year-endy
GASB 74 - Employer Standard
Measurement of the TOL in employer's financial statements must be as of a date no earlier than the end of
the employer's prior fiscal year.
Measurement must be based on an actuarial valuation performed within 30 months plus 1 day of the employer's year-end. If actuarial valuation not performed as of MD,
update procedures must be performed to roll forward amounts to MD.
6/30/17
6/30/18
Employer Current YearEnd
GASB 75 - Plan Standard
Measurement of the TOL in plan's financial statements must be as of the plan's fiscal year end.
Measurement must be based on an actuarial valuation performed with 24 months of the plan's year-end. If
actuarial valuation not performed as of the MD, update procedures must be performed to roll forward amounts
to MD.
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GASB Statements 74/75
MD Considerations
? A good MD should:
Pensions OPEB
? Facilitate timely financial reporting
? Minimize the need for roll-forwards from the valuation date
? Facilitate a quality actuarial valuation by:
? Allowing ample time for the gathering of related census and claims data
? Coincide adequately with the plan year to be able to incorporate the most recent changes in plan provisions.
? Avoid different MDs for plan and employer when plan financial statements are included in the employer's financial statements.
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Determining OPEB Expense
Pensions OPEB
? GASB defines OPEB expense almost identically to that of pensions:
? Begin with the change in liability from beginning to ending MD
? Defer any amounts specifically required by GASB 75
? Actuarial gains (inflows) and losses (outflows) ? Difference between expected and actual investment return
N/A for nontrust
? Defer an outflow for contributions (trust) or employer OPEB payments (non-trust) made subsequent to the MD
? Amortize and recognize into expense deferred O/I from previous years
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