GASB 45 Other (than Pension) Post Employment Benefits Date Here 2/24/2019 GASB 45 Other (than Pension) Post Employment Benefits Date Here TITLE SLIDE, OPTION #1 Presented by: Name Here

TEXT SLIDE, LIGHT BACKGROUND 2/24/2019 Discussion Agenda What is OPEB? Why OPEB? How Big is the Liability? Implicit Rate Subsidy Effective Dates Why pay attention now? Alternative Measurement Method Funding TEXT SLIDE, LIGHT BACKGROUND February 24, 2019

2/24/2019 What is OPEB? The Governmental Accounting Standards Board (GASB) has issued two statements for Other (than pension) Post Employment Benefits (OPEB) GASB 45 applies to the retiree benefit plans that we provide GASB 43 would apply to a trust that we might establish to funds those benefits February 24, 2019

Other Post Employment Benefits (OPEB) are: 2/24/2019 Other Post Employment Benefits (OPEB) are: Retiree Health Benefits (pre and post 65) Health insurance Dental Vision Prescription drugs Post Employment Benefits Life insurance Long-term care February 24, 2019

2/24/2019 Why OPEB? OPEB is part of total compensation for services rendered by employees Benefits are “earned” during each period of employment Employers must recognize the cost of the obligation over the period of employment OPEB and pension benefits should be subject to consistent accounting rules (i.e., accrual accounting) February 24, 2019

How Big is the Liability? 2/24/2019 How Big is the Liability? Many variables involved (e.g., pre 65 coverage only versus both pre and post 65 coverage) Often between 10 to 100 times the annual cost of benefits (e.g., if current annual benefit cost is $250,000, OPEB liability might be between $2.5 million and $25 million February 24, 2019

What is an Implicit Rate Subsidy? 2/24/2019 What is an Implicit Rate Subsidy? Retirees might pay 100% of the blended active/retiree rate but the true cost for the retirees is higher than the average cost Retiree experience is melded with actives Actives subsidize the retirees Difference between rates and expected retiree claims utilization is an implicit rate subsidy February 24, 2019

Implicit Rate Subsidy 25 30 35 40 45 50 55 60 65 2/24/2019 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 Premium Amount 25 30 35 40 45 50 55 60 65 Age True Cost of Medical Benefits COBRA Premium February 24, 2019

2/24/2019 When is OPEB effective? Three phases based upon total annual revenues for first fiscal year after 6/15/99 (just like GASB 34): Phase 1-Revenues in excess of $100 million GASB 45 is effective fiscal year beginning after December 15, 2006 Phase 2-Revenues in excess of $10 million but less than $100 million GASB 45 is effective fiscal year beginning after December 15, 2007 Phase 3-Revenues less than $10 million GASB 45 is effective fiscal year beginning after December 15, 2008 Effective date is one year earlier for funded plans (GASB 43) February 24, 2019

2/24/2019 Why Pay Attention Now? The Valuation is Necessary for Financial Reporting Purposes, but if performed early you can: Get an idea of the magnitude of the numbers Plan for the cash flow needed in coming years Examine ways in which the overall cost of providing medical benefits can be reduced. GASBhelp.com subscribers receive a white paper with ideas that can reduce the cost of retiree benefits Evaluate the cost impact of proposed benefit changes in the context of union negotiations February 24, 2019

Alternative Measurement Method 2/24/2019 Alternative Measurement Method Must Qualify (fewer than 100 plan members) Approach developed by GASB Approximately 20% to 30% of the cost of a full actuarial valuation GASBhelp.com February 24, 2019

2/24/2019 Funding The Unfunded Accrued Actuarial Liability (UAAL) can be amortized over (as much as) 30 years. Funds contributed to the OPEB cost in excess of the current year’s cost must be placed in an irrevocable trust (or similar vehicle) in order to get the benefit of a higher discount rate (which lowers the UAAL and subsequent payments) Failure to pay the amortized amount will result in a liability Refer to the GASBhelp.com sample report for further details February 24, 2019

2/24/2019 Next Steps Check eligibility for using Alternative Measurement Method (test available on GASBhelp.com) Gather Required Data for using GASBhelp.com (list available on GASBhelp.com) Enter Data on GASBhelp.com and Print Report February 24, 2019

2/24/2019 QUESTIONS ? TITLE SLIDE, OPTION #2