Alameda Unified School District GASB 45 Actuarial Report GBS Public Entity & Scholastic Group April 8, 2008

Purpose of GASB 43 & 45 Address how Other Post Employment Benefits (OPEB) are recorded in financial statements Create a greater recognition of the actual financial impact of making future benefit promises Have financial statements reflect benefit costs as they are earned, accrual accounting vs. pay as you go Recognize that benefits are earned throughout a working life, not when paid as a retiree

Key Terminology Actuarial Accrued Liability (AAL) – the present value of all future postretirement benefits attributable to past service Annual Required Contribution (ARC) – the annual expense for the fiscal year (Normal Cost + amortization of prior accrued liability) Normal Cost – the liability developed in the year being measured Net OPEB Obligation (NOO) – the cumulative difference between the ARC and the employers contributions to the plan, first realized at Alameda Unified June 30, 2008

Funded vs. Unfunded Plans Funded Plans – Benefits are paid through a Trust Fund – Investment portfolio is long-term (similar to pension plan) – Discount rates between 7% and 8% Unfunded Plans – Benefits are typically pay as you go, typically from general fund – Investment portfolio is short-term (low fixed rate returns) – Discount rates between 3% and 5%

The Numbers – AAL & ARC UnfundedFunded Accrued Actuarial Liability (AAL)$12,133,000$8,128,000 Annual Required Contribution (ARC)UnfundedFunded - Normal Cost$467,000$256,000 - Amortization$537,000$506,000 Total ARC$1,004,000$762,000

The Numbers – NOO UnfundedFunded Net OPEB Obligation (NOO)$0 Annual OPEB Cost$1,004,000$762,000 Employer Contributions$626,000$762,000 Increase in Net OPEB Obligation$378,000$0 NOO – End of Year$378,000$0

Common Questions Does GASB require the District to fund OPEBs? – No. However your financial statements must recognize the ARC as an annual expense and the NOO as a balance sheet liability. What can we expect if we do not fund our OPEBs? – Greater financial resources available for other immediate needs. – Lower discount rates will result in higher long-term liability. – Growth in NOO may have a negative effect on financial ratings.

Common Questions Can we reduce our current OPEB costs? – Possibly, depending upon the nature of the current promise to provide benefits and the ability to make changes to this promise moving forward. What type of program changes could agencies consider to reduce their OPEB costs? – Limit the level of benefits for future retirees or new hires. – Tie the value of the benefit to length of service. – Reduce benefits provided for dependents. – Limit the benefits provided to pre-65 retirees.

What do we do next? District needs to evaluate the impact of funding the OPEBs or remaining pay as you go (unfunded). 2008/09 and future financials must reflect the ARC and NOO. Actuarial review needs to be completed at least every two years.