COMMUNITY COLLEGE COMMUNITY COLLEGE BUSINESS OFFICERS BUSINESS OFFICERS

ANNUAL CONFERENCE ANNUAL CONFERENCE

Accounting and Financial Reporting for Accounting and Financial Reporting for Other Post-employment Benefits (OPEB)Other Post-employment Benefits (OPEB)

The next Big BangThe next Big Bang

OPEB OPEB

The next big bang in the State and Local Government The next big bang in the State and Local Government Industry Industry – No more pay as you go accountingNo more pay as you go accounting

Cash basisCash basis Accrual basisAccrual basis Private sector impact Private sector impact

OPEB OPEB GASB Statement No. 43, GASB Statement No. 43, Financial Reporting for Financial Reporting for

Postemployment Benefit Plans Other Than PensionsPostemployment Benefit Plans Other Than Pensions– Issued in April 2004Issued in April 2004– Accounting and financial reporting and disclosures requirements Accounting and financial reporting and disclosures requirements

for reporting by administrators or trustees of OPEB plan assets or for reporting by administrators or trustees of OPEB plan assets or by employer’s or sponsors that include OPEB plan assets as trust by employer’s or sponsors that include OPEB plan assets as trust or agency funds in their financial reports.or agency funds in their financial reports.

S-43 supersedes the guidance contained in GASB Statement No. 26, S-43 supersedes the guidance contained in GASB Statement No. 26, Accounting and Financial Reporting for Postemployment Healthcare Accounting and Financial Reporting for Postemployment Healthcare Plans Administered by Defined Benefit Pension Plans. Plans Administered by Defined Benefit Pension Plans.

S-43 is consistent with the guidance contained in GASB Statement S-43 is consistent with the guidance contained in GASB Statement No. 25, No. 25, Financial Reporting for Defined Benefit Pension Plans and Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution PlanNote Disclosures for Defined Contribution Plan

OPEB OPEB GASB Statement No. 45, GASB Statement No. 45, Accounting and Financial Accounting and Financial

Reporting by Employers for Postemployment Benefits Reporting by Employers for Postemployment Benefits Other Than PensionOther Than Pension– Issued in June 2004Issued in June 2004– Employer’s accounting and financial reporting for OPEB costs, Employer’s accounting and financial reporting for OPEB costs,

whether or not those costs are advance funded. whether or not those costs are advance funded. S-45 supersedes the guidance contained in GASB Statement S-45 supersedes the guidance contained in GASB Statement

No. 12, No. 12, Disclosure of Information on Postemployment Benefits Disclosure of Information on Postemployment Benefits Other Than Pension Benefits by State and Local Governmental Other Than Pension Benefits by State and Local Governmental Employers.Employers.

S-45 is generally consistent with GASB Statement No. 27,S-45 is generally consistent with GASB Statement No. 27, Accounting for Pensions by State and Local Governmental Accounting for Pensions by State and Local Governmental EmployersEmployers

OPEB OPEB Implementation dates for GASB S-45Implementation dates for GASB S-45

– Three phasesThree phases– Same phases as GASB S-34Same phases as GASB S-34– Phase IPhase I - periods beginning after December 15, 2006 (fiscal years - periods beginning after December 15, 2006 (fiscal years

ending December 31, 2007 and thereafter)ending December 31, 2007 and thereafter)– Phase IIPhase II - periods beginning after December 15, 2007 (fiscal - periods beginning after December 15, 2007 (fiscal

years ending December 31, 2008 and thereafter).years ending December 31, 2008 and thereafter).– Phase IIIPhase III - periods beginning after December 15, 2008 (fiscal - periods beginning after December 15, 2008 (fiscal

years ending December 31, 2009 and thereafter)years ending December 31, 2009 and thereafter)

OPEB OPEB Implementation dates GASB S-45Implementation dates GASB S-45

– Blended and/or discretely presented component units are required Blended and/or discretely presented component units are required to use the same implementation date as the primary governmentto use the same implementation date as the primary government

– Early implementation is encouraged, but not required. Early implementation is encouraged, but not required. If comparative financial statements are presented, the prior If comparative financial statements are presented, the prior

year figures should be restated. year figures should be restated. Implementation dates GASB S-43Implementation dates GASB S-43

– One year prior to implementation of GASB S-45One year prior to implementation of GASB S-45– Actuarial valuation done at beginning of year of implementing S-Actuarial valuation done at beginning of year of implementing S-

45 (end of previous year S-43)45 (end of previous year S-43)

OPEB OPEB Do I have an OPEB?Do I have an OPEB? What is OPEB?What is OPEB?

– Post employment benefits other than pensionsPost employment benefits other than pensions

– After termination, whether or not retiredAfter termination, whether or not retired

– Health care benefits, regardless of who provides themHealth care benefits, regardless of who provides them Medical, dental, vision, hearing, otherMedical, dental, vision, hearing, other Provided by a pension planProvided by a pension plan

– Account for separately Account for separately

– Life insurance, disability, long-term careLife insurance, disability, long-term care Unless provided by a pension planUnless provided by a pension plan

– Treated as a pension benefitTreated as a pension benefit

OPEB OPEB What is OPEB?What is OPEB?

– Exchange of benefits for employee services performedExchange of benefits for employee services performed

– Part of compensation package provided by employerPart of compensation package provided by employer

– All or portion of the cost paid by the employerAll or portion of the cost paid by the employer Exception for implicit subsidyException for implicit subsidy Retiree pays equivalent to active employeeRetiree pays equivalent to active employee

– Required by Statute in many statesRequired by Statute in many states Implicit subsidy creates an OPEBImplicit subsidy creates an OPEB

– Exception for “Community Rated Plans”Exception for “Community Rated Plans” Does not include special termination benefits Does not include special termination benefits

OPEB OPEB

Differentiate from Special Termination BenefitsDifferentiate from Special Termination Benefits GASB Statement No. 47, GASB Statement No. 47, Accounting for Termination BenefitsAccounting for Termination Benefits

– Issued in July 2004Issued in July 2004– Effective for fiscal years ending June 30, 2006 and thereafter. Effective for fiscal years ending June 30, 2006 and thereafter.

What is a special termination benefit?What is a special termination benefit?– An offer made by an employer for a short period of time to encourage An offer made by an employer for a short period of time to encourage

employees to retire.employees to retire.– Inducement to leave employment prior to retirement. Inducement to leave employment prior to retirement.

Includes both voluntary and involuntary retirement early retirement Includes both voluntary and involuntary retirement early retirement programs. programs.

Special Termination BenefitsSpecial Termination Benefits S-47 requires the government to recognize a liability as soon as employees S-47 requires the government to recognize a liability as soon as employees

accept the offer, and the liability can be reasonably estimated for both accept the offer, and the liability can be reasonably estimated for both voluntary and involuntary termination benefits.voluntary and involuntary termination benefits.

– Liability and expense in all financial statements using the accrual basis of Liability and expense in all financial statements using the accrual basis of accounting.accounting.

– expenditure in governmental funds as payments are made to or on-behalf of the expenditure in governmental funds as payments are made to or on-behalf of the former employees. former employees.

Sick leave conversions do not create an OPEBSick leave conversions do not create an OPEB– Guidance contained in GASB S-16Guidance contained in GASB S-16– Liability as earned by employeeLiability as earned by employee

OPEB OPEB

Now that I have an OPEB, what do I do?Now that I have an OPEB, what do I do?– Determine type of OPEB provided to employeesDetermine type of OPEB provided to employees

– Determine type of plan used to provide benefits to employeesDetermine type of plan used to provide benefits to employees

Two types of OPEBTwo types of OPEB– Defined contributionDefined contribution

Employee bears riskEmployee bears risk

– Defined benefitDefined benefit Employer bears riskEmployer bears risk

OPEB OPEB

Three types of OPEB Plans Three types of OPEB Plans – Single employerSingle employer

One employer contributesOne employer contributes Special funding situationsSpecial funding situations

– Multiple employerMultiple employer Cost-sharingCost-sharing

– One actuarial valuationOne actuarial valuation AgentAgent

– Separate actuarial valuation for each employerSeparate actuarial valuation for each employer

OPEB OPEB

Oakton Community College Oakton Community College – Two types of benefitsTwo types of benefits

Senior Service ProgramSenior Service Program

– Deferred salaryDeferred salary

– GASB S-47GASB S-47 Retiree health and Life insuranceRetiree health and Life insurance

– 5 years of benefits5 years of benefits

– Cap on amountsCap on amounts

– Provided through a state-wide poolProvided through a state-wide pool

– Determined to be a single employer planDetermined to be a single employer plan

OPEB OPEB

Oakton Community College Oakton Community College – Required Implementation June 30, 2009 Required Implementation June 30, 2009

Phase IIPhase II June 30, 2008 (comparative) June 30, 2008 (comparative)

– Chose to early implementChose to early implement June 30, 2006 (June 30,2005)June 30, 2006 (June 30,2005) Previous termination benefitPrevious termination benefit

OPEB OPEB

Oakton Community CollegeOakton Community College

– Single employer/agent multiple employer Single employer/agent multiple employer

– Need to hire an actuaryNeed to hire an actuary Annual Required Contribution (ARC) Annual Required Contribution (ARC) Actuarial valuationActuarial valuation

– Future cash flows of benefitsFuture cash flows of benefits

– Discount to present valueDiscount to present value

– Allocate costs to specific yearsAllocate costs to specific years

– Using one of five actuarial cost methods Using one of five actuarial cost methods

OPEB OPEB

Accounting and financial reporting Accounting and financial reporting – Actuarial Valuations Actuarial Valuations

>200 members, biennially>200 members, biennially <200 members, triennially<200 members, triennially <100 members, be your own actuary<100 members, be your own actuary MembersMembers

– Employees in active serviceEmployees in active service

– Terminated but not yet receiving benefitsTerminated but not yet receiving benefits

– Retired employees and beneficiariesRetired employees and beneficiaries Valuation in off years required if significant changes occurValuation in off years required if significant changes occur

OPEB OPEB Accounting and financial reporting Accounting and financial reporting

– Actuarial Valuations Actuarial Valuations Actuarial Accrued Liability (AAL)Actuarial Accrued Liability (AAL)

– Present value of promise to payPresent value of promise to pay Actuarial Value of Assets (AVA)Actuarial Value of Assets (AVA)

– Market relatedMarket related Unfunded or Over funded AALUnfunded or Over funded AAL

– UAAL or OAAL UAAL or OAAL NotesNotes RSIRSI

OPEB OPEB

What to look for in an actuaryWhat to look for in an actuary– Specific GASB S-45 experienceSpecific GASB S-45 experience

– FASB experience not requiredFASB experience not required

– Department of Labor not applicableDepartment of Labor not applicable

Actuarial AssumptionsActuarial Assumptions– Health care rate Health care rate

– Investment (discount rate)Investment (discount rate) Advance funded in a trustAdvance funded in a trust Not advance fundedNot advance funded

OPEB OPEB

Oakton Community College’s AssumptionsOakton Community College’s Assumptions– Entry age normal actuarial cost methodEntry age normal actuarial cost method

– Investment rate – 4%Investment rate – 4%

– Health care rate – 8%Health care rate – 8%

– Inflation rate – 3%Inflation rate – 3%

– Amortization periodAmortization period 15 years blended15 years blended ClosedClosed Level percentage of projected payrollLevel percentage of projected payroll

OPEB OPEB

Oakton Community College’s cost of OPEB?Oakton Community College’s cost of OPEB?– Actual claim costsActual claim costs– Age-adjusted premiumsAge-adjusted premiums

Need to convert from single premiumNeed to convert from single premium Can not use single premium Can not use single premium

– Actual costs usedActual costs used 2,249 Faculty; 2,211 non-faculty2,249 Faculty; 2,211 non-faculty 1,805 Faculty, 1,75 non-faculty1,805 Faculty, 1,75 non-faculty

– Amount of employer contribution (paid on behalf of retirees)Amount of employer contribution (paid on behalf of retirees)– Census informationCensus information

Active employeesActive employees Retirees and terminated employeesRetirees and terminated employees

OPEB OPEB Oakton Community College’s First Actuarial Valuation Oakton Community College’s First Actuarial Valuation

June 30, 2005June 30, 2005– ARCARC– Net OPEB ObligationNet OPEB Obligation– Funded statusFunded status

June 30, 2006June 30, 2006– Annual OPEB Cost (ARC adjusted for NOPEBO) Annual OPEB Cost (ARC adjusted for NOPEBO) – Net OPEB ObligationNet OPEB Obligation– Funded statusFunded status

OPEB OPEB

Oakton Community CollegeOakton Community College– Sample note disclosureSample note disclosure

– Sample required supplementary information Sample required supplementary information

Frederick G. Lantz, CPAFrederick G. Lantz, CPAPartner, Director of Government ServicesPartner, Director of Government Services

Sikich LLPSikich LLP998 Corporate Boulevard998 Corporate Boulevard

Aurora, Illinois 60502Aurora, Illinois 60502direct phone - 630-566-8557direct phone - 630-566-8557

direct fax - 630-499-7557direct fax - 630-499-7557email - email - flantz@sikich.comflantz@sikich.com