HomeMy WebLinkAboutCity of Pasco LEOFF 1 GASB 45 ReportCity of Pasco
GASB 45 LEOFF 1 OPEB Valuation
Report as of December 31, 2015
March 21, 2016
ealthcare
//,z Actu a ries
16519 107th Place NE
Bothell, Washington 98011
t: (425) 939-7444 f: (425) 939-0089
www.HeatthcareActuaries.com
ealtlleare
ctu aT es
Using Technology to Provide Cast -Effective Consulting
March 21, 2016
Mr. Ron Musson
Interim Finance Manager
City of Pasco
525 North Third Avenue
Pasco, Washington 99301
16519 107th Place NE I Bothell, wA 98011
t (425) 939-7444 1 f (425) 939-0089
w www.HealtheareActuaries.com
Re: GASB 45 LEOFF 1 OPEB Valuation Report as of December 31, 2015
Dear Ron:
At your request, we completed an actuarial valuation of the LEOFF Plan 1 retiree health and welfare
benefits as of December 31, 2015. This valuation is based on input from the City of Pasco, as well as our
understanding of GASB Statement No. 45 "Accounting and Financial Reporting by Employers for
Postemployment Benefits Other Than Pensions" (GASB 45).
As we understand it, the City adopted GASB 45 for the fiscal year ending December 31, 2010. In addition,
the City elected to perform full valuations every three years and projected valuations in between the full
valuations. This valuation represents a full valuation. We also understand that the City has no segregated
plan assets.
This report includes liabilities for projected taxes due under the Affordable Care Act's excise tax on high-
cost health benefit plans set to begin in 2020. This tax is also known as the "Cadillac Plan" tax. The report
also includes the effect on liabilities of the transitional reinsurance premiums.
We greatly appreciate your business. If you have any questions, please feel free to call us at (425) 939-
7444.
Best Regards,
—4, V ���
Roger T. Burton, FSA, FCA, MAAA
Executive Summary
Overview
Accounting Summary
Accounting Information
Contents
1
3
Annual Required Contribution (ARC) for Fiscal Year Ending December 31, 2015 4
Amortization of Unfunded Actuarial Accrued Liability (UAAL) 5
Funded Status for Fiscal Year Ending December 31, 2015 6
Net OPEB Obligation as of December 31, 2015 7
Cash Flow Projections 8
Draft Notes to the Financial Statements 10
Basis of Valuation
Substantive Plan 13
Participant Summary 14
Actuarial Assumptions 15
Development of Per Capita Claims Cost 17
Appendix
About GASB 45 19
Page i
Executive Summary
Overview
Purpose of the Report
Healthcare Actuaries prepared this report to meet employer financial accounting requirements under GASB
Statement No. 45 "Accounting and Financial Reporting by Employers for Postemployment Benefits Other
Than Pensions" (GASB 45), issued in April 2004. This report includes information with respect to the
obligation to provide future retiree health and welfare benefits for the fiscal year ending December 31,
2015.
Impact of the Affordable Care Act
This report includes liabilities for projected taxes due under the Affordable Care Act's excise tax on high-
cost health benefit plans set to begin in 2020. This tax is also known as the "Cadillac Plan" tax. The report
also includes the effect on liabilities of the transitional reinsurance premiums.
Page 1
Overview
Actuarial Certification
Our determinations reflect the provisions and methods prescribed by GASB 45. In preparing this report, we
relied on employee census, plan design, premium rates, administrative fees, and claims data provided
directly or indirectly by the plan sponsor. We based the results in this report on this information, along
with the actuarial assumptions and methods used. The plan sponsor, with the concurrence of its auditors,
selected the actuarial assumptions. In our opinion, the assumptions used represent reasonable
expectations of anticipated plan experience. We reviewed the census information for reasonableness, but
we did not audit it.
Actuarial computations under GASB 45 fulfill employer accounting and financial reporting requirements.
The calculations are on a basis consistent with our understanding of GASB 45. Determinations for purposes
other than meeting employer financial accounting requirements may be significantly different from the
results in our report. Accordingly, additional determinations may be necessary for other purposes, such as
judging benefit security at termination or adequacy of funding for an on-going plan.
The Board has the final decision regarding the appropriateness of the assumptions.
Healthcare Actuaries' work is prepared solely for the internal business use of the City of Pasco. To the
extent that Healthcare Actuaries' work is not subject to disclosure under applicable public record laws, our
work may not be provided to third parties without Healthcare Actuaries' prior written consent.
No third -party recipient of Healthcare Actuaries' work product should rely on Healthcare Actuaries' work
product. Any third -party recipient should engage qualified professionals for advice appropriate to their own
needs.
There is no relationship between Healthcare Actuaries, its owner, subcontractors, or staff, and the City of
Pasco beyond the contractual services that we perform for the City of Pasco.
On the basis of the foregoing, we hereby certify that, to the best of our knowledge and belief, the report is
complete and accurate and we prepared it in accordance with generally recognized and accepted actuarial
principles and practices which are consistent with the applicable "Actuarial Standards of Practice" and
"Actuarial Compliance Guidelines" as promulgated by the American Academy of Actuaries.
The undersigned is a member of the American Academy of Actuaries and meets the Qualification Standards
of the American Academy of Actuaries to render the actuarial opinion contained herein.
W. _,M9 1�0
March 21, 2016
Roger T. Burton, FSA, FCA, MAAA Date
Fellow of the Society of Actuaries (FSA)
Member of the American Academy of Actuaries (MAAA)
Fellow of the Conference of Consulting Actuaries (FCA)
Page 2
A summary of the key valuation results follows.
Change in Net OPEB Obligation
Annual required contribution (ARC)
Interest on net OPEB obligation
Adjustment to annual required contribution
Annual OPEB cost (expense)
Employer contributions*
Change in net OPEB obligation
Net OPEB obligation — Beginning of year
Net OPEB obligation — End of year
Funded Status
Actuarial accrued liability (AAL) — Entry Age
Normal
Actuarial value of plan assets
Unfunded actuarial accrued liability (UAAL)
Funded ratio (= actuarial value of plan assets
AAL)
Covered payroll
UAAL as a percentage of covered payroll
Accounting Summary
For Fiscal Year For Fiscal Year For Fiscal Year
Ending Ending Ending
12/31/2013 12/31/2014 12/31/2015
$ 934,928 $ 1,290,122 $ 1,579,238
73,793 79,263 69,395
(207,988) (178,226) (202,022)
800,733 1,191,159 1,446,611
(514,297) (649,284) (638,987)
286,436 541,875 807,624
1,695,149 1,981,585 2,523,460
$ 1,981,585 $ 2,523,460 $ 3,331,084
As of
12/31/2013 As of 12/31/2014 As of 1/1/2015
$ 19,361,802
* "Contributions made" for 2015 are actual payments made for the year.
Page 3
$ 19,361,802
0.0%
0.0%
0.0%
n/a
n/a $
218,161
n/a
n/a
8875%
Accounting Information
Annual Required Contribution (ARC) for
Fiscal Year Ending December 31, 2015
The calculation of the Annual Required Contribution (ARC) follows. The ARC is the sum of the Normal Cost
for the year plus amortization of the Unfunded Actuarial Accrued Liability (UAAL). The Normal Cost is the
portion of the Actuarial Present Value of benefits allocated to a valuation year in accordance with the
selected Actuarial Cost Method. The UAAL is the excess of the Actuarial Accrued Liability over the Actuarial
Value of Assets.
Normal Cost — Unit Credit
Amortization of Unfunded Actuarial Accrued Liability (UAAL)
Annual Required Contribution (ARC)
Discount Rate
Page 4
$ 31,718
1,547,520
$ 1,579,238
2.75%
Amortization of Unfunded Actuarial Accrued
Liability (UAAL)
A summary of the information used to establish the amortization amount for the current year, with
respect to the Unfunded Actuarial Accrued Liability (UAAL), follows. We recalculate the amortization of
the UAAL as of the beginning of each fiscal year.
Actuarial Accrued Liability (AAL) as of January 1, 2015 — Entry Age Normal $ 18,812,734
Actuarial Value of Plan Assets as of January 1, 2015 - -
Unfunded Actuarial Accrued Liability/ (Asset) as of January 1, 2015 = $ 18,812,734
Interest Rate Used to Determine Amortization Payment 2.75%
Amortization Period 15 years
Amount Recognized (Principal Et Interest) $ 1,547,520
Page 5
Funded Status for Fiscal Year Ending December 31, 2015
The funded status of the Plan as well as other required disclosure information follows.
Funded Status
For Fiscal Year
Ending December
31, 2015
Actuarial accrued liability (AAL) as of December 31, 2015 — Entry Age Normal $ 19,361,802
Actuarial value of plan assets as of December 31, 2015
Unfunded actuarial accrued liability/ (asset) as of December 31, 2015 $ 19,361,802
Funded ratio ( = actuarial value of plan assets : AAL)
Covered payroll
UAAL as a percentage of covered payroll
Page 6
0.0%
218,161
8875.0%
Net OPEB Obligation as of December 31, 2015
An illustration of the change in the net OPEB obligation during the fiscal year follows. The net OPEB
obligation represents the cumulative difference between the ARC and contributions made by the employer.
This is the "balance sheet liability" for financial reporting.
For Fiscal Year
Ending December
Change in the Net OPEB Obligation
31, 2015
Annual required contribution (ARC)
$ 1,579,238
Interest on net OPEB obligation
69,395
Adjustment to annual required contribution
(202,022)
Annual OPEB cost (expense)
1,446,611
Employer contributions*
(638,987)
Change in net OPEB obligation
807,624
Net OPEB obligation — Beginning of year
2,523,460
Net OPEB obligation — End of year
$ 3,331,084
„ "Contributions made" for 2015 are actual payments made for the year.
Page 7
Cash Flow Projections
The following shows the cash flow projections for the next twenty years.
Page 8
Affordable
Projected
Average Cash
Care Act
Number of
Flow Per
Calendar Year
Medical
Taxes
Total
Retirees
Retiree
2016
$ 632,369
$ 97 $
632,466
30.6
$ 20,689
2017
665,846
-
665,846
30.3
21,968
2018
690,478
690,478
29.9
23,062
2019
707,009
-
707,009
29.4
24,015
2020
715,257
156,470
871,727
28.9
30,216
2021
725,822
156,983
882,805
28.2
31,327
2022
754,722
164,240
918,962
27.5
33,478
2023
779,800
170,330
950,130
26.8
35,519
2024
803,273
176,013
979,286
25.9
37,854
2025
819,632
181,219
1,000,851
25.0
40,098
2026
838,154
186,156
1,024,310
24.0
42,680
2027
850,075
190,222
1,040,297
23.1
45,113
2028
855,407
193,689
1,049,096
22.0
47,621
2029
861,388
196,472
1,057,860
21.0
50,446
2030
861,402
198,481
1,059,883
19.9
53,260
2031
860,992
199,626
1,060,618
18.8
56,386
2032
850,468
199,822
1,050,290
17.7
59,406
2033
829,967
198,997
1,028,964
16.6
62,136
2034
810,228
197,083
1,007,311
15.4
65,367
2035
788,330
194,020
982,350
14.3
68,840
Page 8
$1.2M
$1.0m —
$0.8M
$0.6M
$0.4M
$0.2M
$O.OM
LEOFF 1 OPEB Cash Flow Projections
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035
Medical ■ Affordable Care Act Taxes
Page 9
Draft Notes to the Financial Statements
A draft of the required notes to the City's financial statements, based on the requirements of GASB 45 and
our understanding of the City's LEOFF 1 Plan, follows.
Notes to the Financial Statements
for the Year Ended December 31, 2015
Note X. Postemployment Healthcare Plan
Effective December 31, 2010, the City adopted the provisions of GASB Statement No. 45, "Accounting and
Financial Reporting by Employers for Postemployment Benefits Other Than Pensions" (GASB No. 45), which
requires the City to accrue other postemployment benefits (OPEB) expense related to its postretirement
healthcare plan based on a computed annual required contribution (ARC) that includes the current period's
service cost and an amount to amortize unfunded actuarial accrued liabilities. Instead of recording expense
on a "pay-as-you-go" basis, the City, under GASB No. 45, has recorded a liability of approximately
$3,331,084 for the difference between the actuarially calculated ARC and the estimated contributions
made since the adoption of GASB No. 45. This liability is included in other noncurrent liabilities in the
accompanying December 31, 2015 balance sheet. The effect of GASB No. 45 for the current fiscal year was
to decrease the City's excess of revenue over expenses for the year ended December 31, 2015 by
approximately $807,624.
Plan Description: As required by the Revised Code of Washington (RCW) Chapter 41.26, the City provides
Lifetime medical care for members of the Law Enforcement Officers and Firefighters (LEOFF) retirement
system hired before October 1, 1977, under a defined -benefit healthcare plan administered by the City. The
members' necessary hospital, medical, and nursing care expenses not payable by worker's compensation,
social security, insurance provided by another employer, or other pension plan, or any other similar source,
are covered.
Funding Policy: Pursuant to state statute, the City reimburses 100% of authorized LEOFF 1 retiree
healthcare costs. The City pays a monthly insurance premium to cover each retiree under its medical
insurance program as well as any remaining eligible out-of-pocket expenses. Retirees are not required to
contribute to the plan.
For the fiscal year ended December 31, 2015, the City contributed $638,987 to the Health Plan. The City's
contribution was entirely to fund 'pay-as-you-go' costs under the Health Plan and not to prefund benefits.
There were no retiree contributions.
Page 10
Draft Notes to the Financial Statements
Annual OPEB Cost and Net OPEB Obligation: The basis for the City's annual OPEB cost (expense) is the ARC.
The ARC represents a level of funding that, if paid on an ongoing basis, we project will cover the normal
cost each year and amortize any unfunded actuarial liabilities. The following displays the components of
the City's annual OPEB cost, the estimated amount contributed to the Health Plan, and changes in the
City's net OPEB obligation to the Health Plan for the year ended December 31, 2015:
Normal cost — Entry Age Normal Method
$ 19,361,802
Actuarial value of plan assets
$ 31,718
Amortization of unfunded actuarial accrued liability (UAAL)
$ 19,361,802
1,547,520
ARC
Covered payroll
$ 218,161
1,579,238
Interest on net OPEB obligation
69,395
Adjustment to annual required contribution
(202,022)
Annual OPEB cost (expense)
1,446,611
Contributions made
(638,987)
Increase in net OPEB obligation
807,624
Net OPEB obligation — beginning of year
2,523,460
Net OPEB obligation — end of year
$ 3,331,084
The City's annual OPEB cost, the percentage of annual OPEB cost
contributed to the Health
Plan, and the
net OPEB obligation follow:
Percentage of
Employer
Annual OPEB Cost
Fiscal Year Ended Annual OPEB Cost
Contributions
Contributed
Net OPEB Obligation
12/31/2013 $ 800,733
$ 514,297
64.23%
$ 1,981,585
12/31/2014 1,191,159
649,284
54.51%
2,523,460
12/31/2015 1,446,611
638,987
44.17%
3,331,084
Funded Status and Funding Progress: The funded status of the Health Plan as of December 31, 2015,
Actuarial accrued liability (AAL) — Entry Age Normal
$ 19,361,802
Actuarial value of plan assets
-
Unfunded actuarial accrued liability (UAAL)
$ 19,361,802
Funded ratio (actuarial value of plan assets : AAL)
0.0%
Covered payroll
$ 218,161
UAAL as a percentage of covered payroll
8875%
Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and
assumptions about the probability of occurrence of events far into the future. Examples include
assumptions about future employment, mortality, and healthcare cost trend. Actuarially determined
amounts are subject to continual revision as actual results are compared with past expectations and new
estimates are made about the future. GASB 45 requires that the schedule of funding progress, presented as
required additional information following the notes to the financial statements, presents multi-year trend
information that shows whether the actuarial value of Health Plan assets is increasing or decreasing over
time relative to the actuarial accrued liabilities for benefits.
Page 11
Draft Notes to the Financial Statements
Actuarial Methods and Assumptions: The basis of projections of benefits for financial reporting purposes is
the substantive plan (the Health Plan as understood by the City and members of the Health Plan) and
includes the types of benefits provided at the time of each valuation and the historical pattern of sharing
of benefit costs between the City and members of the Health Plan to that point. The actuarial methods and
assumptions used include techniques that are designed to reduce the effects of short-term volatility in
actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of
the calculations.
The January 1, 2015 valuation used the entry age normal actuarial cost method. The actuarial assumptions
included a 2.75% investment rate of return (net of administrative expenses) and an initial annual
healthcare cost trend rate of 8.5% for pre -Medicare expenses, to an ultimate rate of 3.84% after 61 years.
The Medicare trend assumption is 5.5%, to an ultimate rate of 3.84% after 61 years.The trend for the Excise
Tax threshold is 0% until 2020, when a trend rate of 4.24% is used. The trend for all future years after that
year is 3.24%. All trend rates include a 3.0% inflation assumption. The UAAL is amortized as a level dollar
amount on an open basis over 15 years.
REQUIRED SUPPLEMENTARY INFORMATION
Schedule of Funding Progress for the Plan
Page 12
Actuarial Accrued
UAAL as a
Actuarial Value
Liability (AAL) —
Unfunded AAL
Covered
Percentage of
Actuarial
of Assets
Entry Age Normal
(UAAL)
Funded Ratio
Payroll
Covered Payroll
Valuation Date
(a)
(b)
(b - a)
(a _ b)
(c)
((b - a) _ c)
12/31/2013
$0
0.0%
n/a
n/a
12/31/2014
$0
0.0%
n/a
n/a
12/31/2015
$0
$19,361,802
$19,361,802
0.0%
$218,161
8875.0%
Page 12
Basis of Valuation
Substantive Plan
A summary of the substantive plan used as the basis of the valuation follows. This is a general summary only.
GENERAL INFORMATION
Eligibility As required by the Revised Code of Washington (RCW) Chapter 41.26, the City
provides lifetime medical care for members of the Law Enforcement Officers and
Firefighters (LEOFF) retirement system hired before October 1, 1977, under a
defined -benefit healthcare plan administered by the City.
Duration of coverage Coverage continues for the retiree's lifetime
Dependent coverage Spouses and children are not covered.
PLAN SUMMARY
Benefits Covered The members' necessary hospital, medical, and nursing care expenses not payable
by worker's compensation, social security, insurance provided by another
employer, or other pension plan, or any other similar source, are covered.
Page 13
Participant Summary
Census Date January 1, 2015
Age and service determined as of the census date.
Active Participants
Inactive Participants
Age
Years of Service
< 50
Age
0-4 5-9 10-14 15-19 20-24 25+
Total
< 20
0
20-24
65-69
0
25-29
4
0
30-34
80-84
0
35-39
0
40-44
Total
0
45-49
0
50-54
0
55-59
1
1
60-64
1
1
65+
0
Total
0 1 0 0 0 1
2
Inactive Participants
Age
Inactives
< 50
50-54
55-59
60-64
7
65-69
15
70-74
4
75-79
3
80-84
2
85-89
90+
Total
31
Page 14
Actuarial Assumptions
A summary of the actuarial assumptions used for this valuation follows. We considered the reasonableness
of each assumption independently based on its own merits, consistent with each other assumption, and the
combined impact of all assumptions.
Assumption
Rates
Actuarial Cost Method
Entry Age Normal method.
Asset Valuation Method
Not applicable.
Measurement Date
January 1, 2015
Discount Rate (or
Selected the assumed discount rate of 2.75% based on current 20 -year
Investment Return)
municipal bond yields.
Healthy Mortality
RPH-2014 mortality table (headcount weighted), total dataset, fully
0.12
generational with mortality improvement scale MP -2014, set back one
0.10
year for males and set forward one year for females.
Disabled Mortality
RPH-2014 mortality table (headcount weighted), total dataset, fully
0.20
generational with mortality improvement scale MP -2014, set forward two
0.13
years for males and females.
Turnover
None assumed. All LEOFF 1 actives are fully eligible for retirement.
Disability
None assumed.
Retirement
Same as Washington PERS LEOFF Plan 1:
Per Capita Claims Cost
Aging or Morbidity Factors
Assumed annual per capita claims costs are as follows:
Age
Annual Cost
Service
$ 24,022
Service less
greater than
65
than 30
or equal to
Age
years
30 years
50-53
0.07
0.12
54
0.10
0.16
55-56
0.10
0.20
57-59
0.13
0.20
60-69
0.23
0.25
70+
1.00
1.00
Assumed annual per capita claims costs are as follows:
Age
Annual Cost
55
$ 24,022
60
30,825
65
16,918
70
18,585
75
19,749
80
20,148
Aging/morbidity factors are included in the per capita claims costs shown
above.
Page 15
Actuarial Assumptions
Assumption Rates
Medicare Part D Subsidy None.
Participant Contributions None.
Affordable Care Act (ACA) All Other
Excise Tax Threshold Ages 55-64 Ages
Single $ 11,850 $ 10,200
ACA Base Premium Assumed annual plan costs on which the ACA tax calculation is based:
Medicare ineligible $ 30,728
Medicare eligible $ 17,780
ACA Tax • We assumed a 40% excise tax rate on premiums above the ACA threshold.
• We assumed the City of Pasco pays no federal taxes.
ACA Transitional Annual The fee is not levied on retirees where Medicare is the primary payer.
Reinsurance Premiums Year Premium (PMPY)
2015 $ 44.00
2016 27.00
Trend Rates Medical Long -Term Trends* from Getzen SOA Model version 2014_b using
baseline assumptions.
Excise Tax
Year
Pre -Medicare
Medicare
Threshold
2015
8.500%
5.500%
0.00%
2016
7.500%
5.500%
0.00%
2017
6.500%
5.500%
0.00%
2018
5.500%
5.500%
0.00%
2019
5.500%
5.500%
0.00%
2020
5.465%
5.465%
4.24%
2021-2074
...
...
3.24%
2075+
3.835%
3.835%
3.24%
* The trend rates include assumed inflation of 3% for all future years.
Page 16
Development of Per Capita Claims Cost
Development of Per Capita Claims Costs
We developed the per capita claims cost assumptions for the claims costs using the following process.
The exhibit on the following page shows this process in more detail.
1) Collected historical paid claims for the experience period.
2) Summarized adjusted paid claims into 12 -month periods and determined an average annual
3) Adjusted this amount further for changes in participation, trend, and from a paid to an incurred
basis, resulting in projected incurred claims.
4) Added estimated administrative costs to this amount to arrive at total projected costs.
The resulting annual per capita claims cost assumptions follow:
Age Claims Cost
55 $
24,022
60
30,825
65
16,918
70
18,585
75
19,749
80
20,148
85
19,457
90
18,204
Per Capita Claims Cost Summary by Medicare Age
We determined the annual per capita claims cost for those under age 65 and those age 65 and older,
using the information from the development of per capita healthcare costs above.
Medicare ineligible $ 30,728
Medicare eligible $ 17,780
Page 17
Development of Per Capita Claims Cost
Total Projected Costs for the 12 -month Period Ending December 31, 2015
Adjusted paid claims
January 1, 2012 - December 31, 2012 $ 423,901
January 1, 2013 - December 31, 2013 514,296
January 1, 2014 - December 31, 2014 649,284
Total $ 1,587,481
Average annual paid claims $ 529,160
Participation adjustment
Census data 31
Experience period 31
Participation adjustment 1.0164
Trend adjustment
Trend rate 8.5%
Months from midpoint of experience period to midpoint of projection period 24.0
Trend adjustment 1.1772
Incurred adjustment
Trend rate 8.5%
Lag between incurred and paid claims (months) 2.0
Trend adjustment 1.0137
Projected incurred claims $ 641,817
Administrative costs $
Total projected costs $ 641,817
Page 18
Appendix
About GASB 45
This section includes a brief summary of GASB 45, as well as definitions of some of the key terminology
used in this report.
About GASB 45
In General. The GASB released an initial GASB ED, "Accounting and Financial Reporting by Employers for
Postemployment Benefits Other Than Pensions" on February 14, 2003. Based on the public comments, the
GASB revised the ED and re -issued it on January 30, 2004. The GASB issued a final Statement No. 45 (GASB
45) in April 2004, establishing standards for the measurement, recognition, financial reporting, and
disclosure of Other Postemployment Benefits (OPEBs) for state and local governmental employers.
Accounting Change. In general, GASB 45 requires a change in the financial accounting and disclosure of
OPEB obligations. Currently, most governmental employers disclose only limited information with respect
to their OPEB plans (under GASB 12) and account for such plans on a pay-as-you-go basis, where the annual
expense is based only on benefits or premiums paid in that year. GASB 45 requires governmental employers
to account for their OPEBs on an accrual basis, recognizing the pro rata portion of future benefits earned
by each employee in that year. In this manner, the allocation of the cost of the Plan to the taxpayers who
benefit from the public services provided by these employees will be closer. In addition, the change will
mean that OPEB accounting requirements will be consistent with pension plan accounting requirements.
Cost Calculations. Specifically, GASB 45 requires employers to calculate an annual accrued cost and to
disclose the cumulative difference between the annual accrued costs and amounts actually prefunded for
their other postemployment benefits (OPEBs). The required methods and disclosures are similar to those
that currently apply to pensions (GASB 27). GASB 45 requires actuarial valuations every three years for
plans with fewer than 200 plan members, and every two years for all other plans. GASB 45 applies to most
OPEBs, including:
• all postemployment healthcare benefits, whether or not a pension plan provides them; and
• other postemployment benefits (such as life insurance), only if provided separately from a pension plan.
Page 19
About GASB 45
Key Terminology
Actuarial Accrued The Actuarial Present Value of benefits attributed to employee service
Liability (AAL) rendered to the valuation date, based on application of an Actuarial Cost
Method.
Actuarial Cost Method A method by which the Actuarial Present Value of benefits is allocated to
specific time periods, usually in the form of a Normal Cost. Under GASB 45,
employers may select from six different Actuarial Cost Methods: (1) entry age,
(2) frozen entry age, (3) attained age, (4) frozen attained age, (5)
unprojected unit credit, and (6) aggregate.
Actuarial Gain (Loss) or The difference between actual experience and expected experience, where
Experience Gain (Loss) expected experience is determined by the actuarial assumptions.
Actuarial Present Value The present value of the cost to finance future benefits, discounted to reflect
the time value of money and the probabilities of payment. Or, the amount
that would need to be invested as of the valuation date such that with
investment earnings it would be sufficient to pay all future benefits when due,
assuming all actuarial assumptions are exactly realized.
Annual Required The amount that is actuarially determined so that, if paid on an ongoing basis,
Contributions (ARC) it would be expected to be sufficient to fund the Normal Cost for each year
plus amortization of the Unfunded Actuarial Accrued Liability (UAAL). The
Normal Cost is that portion of the Actuarial Present Value of benefits which is
allocated to a valuation year in accordance with the selected Actuarial Cost
Method. The UAAL is the excess of the Actuarial Accrued Liability over the
Actuarial Value of Assets. The UAAL may be amortized over a period not to
exceed 30 years with a minimum 10 -year amortization due to a decrease in
liabilities as the result of a change in the actuarial cost method or asset
valuation method.
Actuarial Valuation Date The date as of which an actuarial valuation is performed. Under GASB 45, the
valuation date may not be more than 24 months prior to the beginning of the
first fiscal year for which the ARC is calculated. For plans with less than 200
plan members, valuations must be performed at least triennially; for all other
plans, valuations must be performed at least biennially.
Actuarial Value of Assets The Market -Related Value of Plan Assets, where the Market -Related Value is
the fair value, the market value or a calculated value that recognizes changes
in the fair value or market value over a period of, for example, three to five
years. Plan Assets include only those assets that have been segregated and
restricted in a trust or similar arrangement, in which (1) employer
contributions are irrevocable, (2) assets are only for the payment of benefits
under the Plan and (3) assets are legally protected from the employer's
creditors.
Annual OPEB Cost An accrual -basis measure of the periodic cost of an OPEB plan.
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About GASB 45
Key Terminology (cont. )
Covered Payroll Annual compensation paid to active employees covered under the OPEB Plan.
If employees are covered by a pension plan also, the covered payroll should
include all elements included in compensation on which contributions to the
pension plan are based.
Funding Policy The program for the amounts and timing of contributions to be made by
retirees and the employer(s) to provide the benefits specified by an OPEB
Plan.
Net OPEB Obligation Generally, it is the cumulative difference since the effective date of the OPEB
Statement between the Annual OPEB Cost and the employer's contributions to
the plan, including the OPEB liability (asset) at transition, if any, with some
minor adjustments.
OPEB Other Postemployment Benefits or postemployment benefits other than
pensions. Under GASB 45, this includes all postemployment healthcare
benefits, whether provided separately or through a pension plan, plus other
types of postemployment benefits (such as life insurance) only if provided
separately from a pension plan.
Substantive Plan The plan terms as understood by the employer and the plan members at the
time of the valuation, including only changes to plan terms that have been
made and communicated to employees.
Transition Year The fiscal year in which the OPEB Statement is first implemented.
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