Explicit vs. This benefit may have been negotiated in a collective bargaining agreement, or individual contract, whereby the employer agreed to pay either a percentage or a set amount of the insurance premium when that employee retires. The retiree health insurance premiums are paid entirely by the retiree, or in many cases, paid in part by a subsidy payment from the New Hampshire Retirement System with the retiree paying the remaining balance, if any.
Just like the explicit subsidy, this implicit subsidy also requires an actuarial valuation of the future cost of that hidden subsidy. The initial certification will be completed early in for those calendar year communities that have a Phase II implementation date. The certification for fiscal year communities will be after that time.
These implicit rate subsidies can only be provided for those employee groups fully covered by HealthTrust and where the entity can be discretely identified if it is rated with other municipalities or school units. Groups covered by other providers will also need a similar computation for those employees. That is, the small number of participants from a particular municipality may not have an impact on the rating of the entire pool.
The Actuarial Valuation How often and what type of actuarial valuation is needed depends upon the number of plan members. Membership includes active employees, terminated employees who have accumulated benefits but are not yet receiving them, and retired employees currently receiving benefits. Costs should include all benefits covered by the current plan at the time of each valuation and should take into consideration the pattern of sharing benefit costs between employer and employee.
The current plan is defined as the plan as understood by the employer and the employee. Since this statement provides for prospective implementation, employers generally set the OPEB obligation at zero in the year of implementation. OPEB expenditures should be recognized on a modified accrual basis in governmental fund financial statements. Furthermore, investment strategies and vehicles available for funds held in trust often earn very significant returns over time.
The benefits of prefunding OPEBs can be seen in the chart below. If possible, a city should prefund as much of its OPEB obligation as it can, and some cities are already doing that in phases.
Trusts may realize investment earnings substantially higher than a municipality can obtain because they can be structured as legally distinct from the city and, therefore, not subject to the legal restrictions placed on investments permitted in city portfolios. If your agency or city chooses not to set up an irrevocable trust but instead places the money into another fund such as a reserve fund, for example , GASB 45 does not allow you to offset the liability by that amount.
In such a case, your agency would simply report the ARC as a liability, which will grow. If the likelihood of higher interest earnings can be substantiated, the actuarial liability of the retiree medical cost can be valued at a more favorable interest rate, thereby reducing the size of the liability.
While CalPERS has not yet established a trust to hold and invest funds for retiree medical costs, creating such a trust is under consideration. Additionally, several private firms have recently entered this market offering to create trusts and investment services for this purpose. Since any trust established for OPEB obligations will be irrevocable, it is probably prudent for a local agency to delay any investment decision until the OPEB services market is mature and the possibility of CalPERS services has been resolved.
Independent auditors are employed by public agencies to express their opinion as to whether the content of the annual financial report of a city fairly presents its financial condition. Auditors must certify that an annual financial report was prepared in accordance with generally accepted accounting principles.
Implementation of GASB 45 will be the required generally accepted accounting practice for many local governments starting in FY —08, and those cities that do not comply will receive a qualified opinion. This may be of concern to outside entities that review financial reports, such as rating agencies or bond holders. From a legal perspective, many attorneys believe post-employment benefits should be considered compensation that is earned with each year of service, with payment deferred until retirement is reached and promised benefits are received.
Many attorneys also think that these benefits constitute a vested right that cannot be unilaterally changed, cut off or reduced by an employer. Retirees and the benefits they have been promised have legal protections that must be understood when considering changes.
They also present serious impediments to cost-control strategies while at the same time protecting vulnerable retirees relying on employer promises. Active employees who have met the vesting requirements necessary to receive a retirement benefit may also have certain legal protections. Vesting requirements usually involve some combination of service years and age. Changes to the retiree benefit must be agreed to by vested employees and cannot be unilaterally modified or reduced.
Some attorneys believe that benefit changes and reductions affecting vested employees must be negotiated by trading off compensation of similar value to the retirement benefit being reduced. The definitions and cutoff points for that purpose are the same as those in Statement No.
Earlier implementation is encouraged. Unless otherwise specified, pronouncements of the GASB apply to financial reports of all state and local governmental entities, including general purpose governments; public benefit corporations and authorities; public employee retirement systems; and public utilities, hospitals and other healthcare providers, and colleges and universities. Paragraphs 4 and 6 discuss the applicability of this Statement.
We have updated our Privacy Policy. By continuing to use this website, you are agreeing to the new Privacy Policy and any updated website Terms. Technical Issues Summary of Statement No. Summary of Standards Measurement the Parameters Employers that participate in single-employer or agent multiple-employer defined benefit OPEB plans sole and agent employers are required to measure and disclose an amount for annual OPEB cost on the accrual basis of accounting.
Alternative Measurement Method A sole employer in a plan with fewer than one hundred total plan members including employees in active service, terminated employees who have accumulated benefits but are not yet receiving them, and retirees and beneficiaries currently receiving benefits has the option to apply a simplified alternative measurement method instead of obtaining actuarial valuations. Those circumstances are: The plan issues a financial report prepared in conformity with the requirements of Statement 43 but is not required to obtain an actuarial valuation because a the plan has fewer than one hundred total plan members all employers and is eligible to use the alternative measurement method, or b the plan is not administered as a qualifying trust, or equivalent arrangement, for which Statement 43 requires the presentation of actuarial information.
The plan does not issue a financial report prepared in conformity with the requirements of Statement Financial Statement Recognition and Disclosure Sole and agent employers should recognize OPEB expense in an amount equal to annual OPEB cost in government-wide financial statements and in the financial statements of proprietary funds and fiduciary funds from which OPEB contributions are made.
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