1. Other Postemployment Benefits Financial Accounting Webcast Kathy Guralski, Auditor, School Finance Team Lori Ames, Consultant, School Finance Team June 28, 2006

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3. Agenda Intro & Media Site Technical Issues Trust Contribution Amount Financial Accounting Annual Meeting Reporting Requirements Questions & Answers Polls

4. Presentation Assumptions This presentation is focused on the financial accounting requirements as it relates to a trust. Given those parameters, we make the following assumptions: The actuarial study or alternative method has been completed. The Annual Required Contribution is known. The District has already established an Employee Benefit Trust (Fund 73).

5. Presentation Assumptions If you need information relating to the actuarial determination or establishment of a trust, please refer to the following document. “Employee Benefit Fund (Fund 73) Requirements” located at: http://www.dpi.wi.gov/sfs/ben_trust.html

6. Trust Contribution Amount The amount of postemployment benefits to be funded in any given year is dependent on various factors. Size of the district’s liability Requirements for current year payment for post employment benefits Available resources in the district’s budget Amount of the district’s fund balance

7. Potential Contribution Amounts The District may choose to fund: the entire unfunded actuarial accrued liability plus normal cost in a single payment The annual required contribution An amount less than the annual required contribution An amount more than the annual required contribution but not in excess of the actuarial accrued liability plus normal cost

8. Trust Contribution Amount In order for a trust contribution to recorded in the current fiscal year, a physical segregation of assets must occur by June 30 th. In other words, the contribution should be made and the cash have cleared the district’s bank account by June 30 th.

9. Contribution Amounts and Applicable State Aid General Equalization Aid Any contribution to the trust, not in excess of the unfunded actuarial accrued liability plus normal cost will be included in the calculation of shared cost. Positive tertiary aid districts – may receive additional equalization aid Negative tertiary aid districts – may fall more heavily into negative aid

10. Contribution Amounts and Applicable State Aid Federal and State Grants If the grant allows, a school district may include all costs of funding eligible staff postemployment benefits, up to a maximum of the annual required contribution (ARC), in the calculation of costs subject to federal and state grants.

11. Contribution Amounts and Applicable State Aid State Categorical Aid ( i.e. special education categorical aid) A school district may include all costs of funding eligible staff postemployment benefits, up to a maximum of the annual required contribution (ARC), in the calculation of costs subject to categorical aid.

12. Financial Accounting Concept: District decides to set up a trust District decides on current fiscal year contribution amount Physically makes a contribution to the trust Pay all future retiree benefits from the trust http://www.dpi.wi.gov/sfs/doc/ben_acct.doc

13. Financial Accounting Steps to funding the trust Allocate contribution amount to proper account codes

14. Financial Accounting Make contribution and allocate to proper account codes Determine which postemployment benefits to include in the funding and the employee groups that are eligible for those benefits Equitable distribution of the contribution DPI sample methods

15. Financial Accounting Make contribution and allocate to proper account codes Method A Determine amount of eligible payroll for the employees included Divide the value of the postemployment benefits for the group by the eligible payroll for the group to get a contribution rate Apply the contribution rate to each employee

16. Financial Accounting Example facts: Contribution to trust$275,820 # of total employees in group funded150 Total payroll of employees in group funded$4,500,000

17. Financial Accounting Allocation under Method A: Divide $275,820 by $4.5 million for a contribution rate of 6.13% Apply the contribution to each employee Susie has a wage of $35,000 times 6.13% equals $2,145.50 annually Susie has a bi-monthly wage of $1,458 times 6.13% equals $89 each pay period

18. Financial Accounting Make contribution and allocate to proper account codes Method B Divide the contribution dollar amount for the group by the eligible employees in the group to get a contribution dollar amount Apply the dollar amount to each employee

19. Financial Accounting Example facts: Contribution to trust$275,820 # of total employees in group funded150

20. Financial Accounting Allocation under Method B: Divide $275,820 by 150 employees for a contribution amount of $1,838.80 annually Apply the contribution to each employee Susie has $1,838.80 benefit annually Susie has a bi-monthly benefit of $77 each pay period

21. Financial Accounting Allocate contribution amount to proper account codes Steps to funding the trust Record financial transactions for contribution made

22. Financial Accounting When contribution is made may affect the timing of the journal entries and transactions recorded: Contribution accounted for during the year through the payroll system Contribution accounted for when lump sum amount is paid to trust

23. Financial Accounting Entries to account for contribution during the year through the payroll system : 1) 10E XXXXXX 218$ 77 27E XXXXXX 218 77 10B 811600$77 27B 811600 77

24. Financial Accounting Example facts: Contribution to trust$275,820 # of total employees in group funded150 # of special education employees included in group funded10

25. Financial Accounting Entries to account for contribution during the year through the payroll system : 1) 10E XXXXXX 218$257,432 27E XXXXXX 218 18,388 10B 811600$257,432 27B 811600 18,388

26. Financial Accounting Entries to account for contribution made to trust : 2) 10B 811600$257,432 27B 811600 18,388 10B 711000$257,432 27B 711000 18,388

27. Financial Accounting Entries to account for contribution at year end when lump sum amount is paid to trust: 3) 10E XXXXXX 218$257,432 27E XXXXXX 218 18,388 10B 811600$257,432 27B 811600 18,388 4) 10B 811600$257,432 27B 811600 18,388 10B 711000$257,432 27B 711000 18,388

28. Financial Accounting Contribution in excess of ARC When the contribution to the trust exceeds the ARC amount, the difference between ARC and contribution would not be allocated to employee functions but rather would be reported in fund 10, function 291000, object 218.

29. Financial Accounting Example: Contribution$275,820 ARC$200,000 Allocated to proper employee function$200,000 Reported to function 291000, object 218 $75,820

30. Financial Accounting Accounting for the contribution in fund 73: 1) 73B 711000$275,820 73R 951$275,820

31. Financial Accounting Allocate contribution amount to proper account codes Record financial transactions for contribution made Steps to funding the trust Withdraw retiree benefits from trust Pay health provider/retiree for benefit

32. Financial Accounting All future retiree benefits paid from trust Amount withdrawn will include cost of benefit to be paid provider plus implicit rate subsidy The implicit rate subsidy will be allocated in the same manner as the original contribution but will reduce the employees health benefit, object 240 rather than the 218.

33. Financial Accounting Example facts: Contribution to trust$275,820 # of total employees in group funded150 # of special education employees included in group funded10 Insurance premium paid$479 Value of retiree premium$699 Implicit rate subsidy$220 # of retirees on plan15

34. Financial Accounting Retiree benefits paid: 15 retirees at a premium value of $699/month each equals $125,820 that needs to be withdrawn from the trust. Trust either pays health provider directly or reimburses district who paid health provider for retirees on one invoice including active employees.

35. Financial Accounting Trust pays directly to health provider: 73E 420000 991$125,820 73B 711000$125,820 Trust reimburses district: 73E 420000 991$125,820 73B 711000$125,820

36. Financial Accounting Example facts: Contribution to trust$275,820 # of total employees in group funded150 # of special education employees included in group funded10 Insurance premium paid$479 Value of retiree premium$699 Implicit rate subsidy$220 # of retirees on plan15 Cost of insurance premium$86,220 Implicit rate subsidy withdrawn$39,600

37. Financial Accounting Withdrawal of $125,820 Retirees insurance in fund 10$ 86,220 Implicit Rate Subsidy Fund 10 (140 employees)$ 36,960 Fund 27 (10 employees)$ 2,640 $125,820

38. Financial Accounting District originally reported the payment to the health provider as an expenditure Original entry was a debit to fund 10, function 290000, object 210 for the $86,200 and a credit to cash for payment to health provider District originally reported the payment to the health provider as a liability Original entry was a debit to fund 10, balance sheet account 811600 and credit to cash for payment to health provider

39. Financial Accounting District originally reported the payment as an expenditure 10B 711000$123,180 27B 711000 2,640 10E 290000 210$ 86,220 10E XXXXX 240 36,960 27E XXXXX 240 2,640 District originally reported the payment as a liability 10B 711000$123,180 27B 711000 2,640 10B 811600$ 86,220 10E XXXXX 240 36,960 27E XXXXX 240 2,640

40. Contribution same dollar amount as “pay as you go” What if your district elects to contribute only enough to the trust to pay the current year retiree costs? Often referred to as contributing the same dollar amount as the district would expend on the “pay as you go” method No effect on shared cost

41. Contribution same dollar amount as “pay as you go” For you to draw out the insurance premium plus the implicit rate subsidy you need to make a contribution larger than the “pay as you go” or the actual cost to the insurance provider. The implicit rate subsidy when withdrawn from the trust will reduce the total expenditures of the district so that the net between the two will equal the “pay as you go”

42. Contribution same dollar amount as “pay as you go” Example: Contribution$125,820 Expenditure Payment to Ins. Co.$ 86,220 Liability Reimbursement from trust$125,820 Implicit rate subsidy$ (39,600) Expenditure Pay as you go amount$ (86,220) Liability

43. Retiree makes a contribution towards health benefit If the retiree makes a contribution towards the insurance premium that should be accounted for in fund 73 as a revenue

44. Retiree makes a contribution towards health benefit Example: Sally is a retiree who contributes $30 towards her insurance premium. She pays the district the $30. 73B 711000$30 73R 952$30

45. Annual Reporting Requirements Wisconsin Act 99, new legislation in regards to trusts, relates to the investment by school districts of funds held in trust to provide postemployment benefits. Act 99 also requires additional annual reporting. (even if the district chooses not to invest under this new authority)

46. Annual Reporting Requirements Reporting required for ALL Districts who have established a trust accounted for in fund 73 Annual Meeting – Common or Union High School Districts Public Budget Hearing – Unified School Districts

47. Annual Reporting Requirements Information to be reported: Amount in the trust Investment return earned since the last annual meeting Total of disbursements made since the last annual meeting Name of the investment manager if investment authority has been delegated.

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