GASB Statement No. 74 GASB Statement No. 75 - Amazon Simple ...
Washington Finance Officers Association
GASB Statement No. 74 GASB Statement No. 75 Daniel Wade, FSA, EA, MAAA Arthur Rains-McNally, FSA, EA, MAAA September 14, 2017
Agenda ▪ Background regarding actuarial valuations for Other Postemployment Benefits (OPEBs) ▪ Overview of the New Statements ▪ New Terminology ▪ Timing and effective dates
▪ Implementation Considerations ▪ Key areas ▪ Discount Rate ▪ Expense Recognition
▪ Appendix – Outline of Statements
2
Why do an Actuarial Valuation? ▪ Required to be in compliance with GASB
▪ Provide projected benefit payments for cash-flow planning purposes ▪ If pre-funding, provide a “target” for funding and contribution amounts
3
What’s in an Actuarial Valuation? (applies to all plans)
Outputs
Inputs Participant Data
Plan Provisions
Actuarial Assumptions
Actuarial Calculations
Projected Benefit Payments
(demographic & medical assumptions)
4
Projected Benefit Payments
(by Status)
60
50
Millions ($)
40
30
20
10
0 2017
2027
2037
2047
2057
2067
2077
Year Retirees
Actives
5
The Implicit Rate Subisdy $1,800
$1,600 $1,400 $1,200 $1,000 $800 $600 $400
$200 $0 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 Monthly Medical Cost
Monthly Premium
If retirees or dependents have access to medical benefits but “pay their own way”, they are most likely paying far less than the true cost of the benefits they are receiving.
GASB Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other than Pension Plans GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other than Pension Plans (Employers) 7
GASB 74 and 75 – Current Status ▪ Statements 74&75: issued in June 2015 ▪ GASB 74: Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans; replaces GASB 43 ▪ GASB 75: Accounting and Financial Reporting for Post-employment Benefits Other Than Pensions (Employers); replaces GASB 45
▪ Largely parallel to GASB 67/68. ▪ Implementation guides: implementation guide out for 74, exposure draft for 75. June 15, 2016: GASB 74 Effective for Plan Year beginning after this date
June 2015: GASB 74/75 Released
2015
2016
April 2017: Implementation Guide for GASB 74
June 15, 2017: GASB 75 Effective for Plan Years beginning after this date
July 2017: Exposure Draft for Implementation Guide
2017
8
Overview of the Statements ▪ The new statements represent a complete overhaul of the previous (GASB 43/45) approach to public OPEB accounting ▪ One Fundamental Difference: Full Net OPEB Liability (similar to UAAL) on the Balance Sheet of Employer(s) ▪ GASB 43/45: Balance sheet item was Net OPEB Obligation based on cumulative comparison of Annual OPEB Expense vs. Actual Contribution
▪ Emphasis now is on comparability between reporting entities
9
Overview of the Statements New Terminology – Very Similar to GASB 67/68
▪ Total OPEB Liability (TOL) ▪ Actuarial Accrued Liability calculated in accordance with statements (Old AAL, but with more prescriptive methodology and only one actuarial cost method allowed)
▪ Fiduciary Net Position (FNP) ▪ Market value of plan assets
▪ Net OPEB Liability (NOL) ▪ TOL less FNP; formerly the Unfunded Actuarial Accrued Liability ▪ Note that for unfunded plans, TOL is what is disclosed
10
Overview of the Statements New Terminology – Very Similar to GASB 67/68 (continued) ▪ Deferred inflows and outflows of resources ▪ Accounts holding unrecognized changes in NOL ▪ Essentially unrecognized gains (deferred inflows) and losses (deferred outflows)
▪ Actuarially Determined Contribution ▪ Contribution target determined in accordance with actuarial standards of practice ▪ GASB does not prescribe method for determination.
▪ If calculated for a plan, reported in Required Supplementary Information (RSI), in comparison to actual contribution
11
Overview of the Statements Old Terminology (still used) ▪ Single-employer OPEB plan ▪ Plan provides benefits to employees of only one employer
▪ Multiple-employer OPEB plan ▪ Agent OPEB plan ▪ Cost-sharing OPEB plan ▪ Obligations are pooled and plan assets can pay benefits of employees of any employer
▪ Alternative Measurement Method ▪ Can still be used (with some modifications) for plans with under 100 members ▪ Milliman’s https://www.gasbhelp.com/ will be able to help. 12
Overview of the Statements Timing of Valuation, Measurement, and Reporting Dates ▪ GASB 74 – Plan reporting ▪ Plan reporting must present results measured as of plan’s fiscal year end (FYE) ▪ Either using a valuation at that date or roll-forward from a valuation date no more than 24 months before plan’s FYE
▪ Statement only applies for plans that are administered through irrevocable trusts (same definition as used in GASB 67 and 68) ▪ Statement 74 will not apply for plans without assets.
▪ Also provides some guidance in paragraphs 58 and 59 if there are assets set aside, but not in a trust meeting definition
13
Overview of the Statements Timing of Valuation, Measurement, and Reporting Dates ▪ GASB 75 – Employer reporting ▪ Employer’s Reporting Date is employer’s FYE ▪ NOL is measured at “Measurement Date”, which can be up to one year earlier than Reporting Date ▪ Shown at Reporting Date without adjustment
▪ TOL is based on valuation either at Measurement Date or rolled forward from date not more than 30 months and 1 day before FYE
14
Overview of the Statements Structure of GASB 75 ▪ DB OPEB other than Insured Benefits: paragraph numbers 21-226 ▪ “Insured benefits” are for “insured plans”, which would be the rare case where an insurance company unconditionally undertakes an obligation to pay the OPEB for employees as defined in the OPEB plan terms ▪ OPEB administered through Trusts meeting criteria: paragraph numbers 23-142 ▪ Single and agent employers: paragraph numbers 27-58 ▪ Cost-sharing employers without a special funding situation: paragraph numbers 59-86 ▪ All cost-sharing employers: paragraph numbers 87-98 ▪ Special funding situations: paragraph numbers 99-137
▪ OPEB not administered through Trusts meeting criteria: paragraph numbers 143-223
15
Overview of the Statements Timing and Effective Dates ▪ Biennial actuarial valuation required - more frequent encouraged ▪ GASB 45 had allowed triennial valuations for plans with less than 200 plan members
▪ Effective dates:
▪ GASB 74: Effective for plan fiscal years beginning after June 15, 2016 (e.g., FYE June 30, 2017) ▪ GASB 75: Effective for employer’s fiscal years beginning after June 15, 2017 (e.g., FYE June 30, 2018) ▪ No phased implementation as was done with GASB 43/45 ▪ GASB encouraged early implementation
16
Overview of the Statements Requirements ▪ The statements specify information to include in four areas of a plan’s or employer’s financial reporting: ▪ Financial Statements ▪ Notes to Financial Statements ▪ Required Supplementary Information ▪ Notes to the Required Schedules
▪ Detailed outline of requirements in the appendix of this presentation ▪ Similar or identical required items recur frequently ▪ Typically, distinctions made between appropriate location based on employer or plan type (Single, Agent, CostSharing, Unfunded) ▪ Whether item appears in plan or employer financials, for example
▪ Separate section in GASB 75 for those without irrevocable trusts. 17
Overview of the Statements Requirements (continued) ▪ Significant schedules or required items: ▪ Assumptions/inputs to determining TOL ▪ Includes detail on discount rate determination
▪ Sensitivity of the NOL to +/-1% discount rate ▪ Sensitivity of the NOL to +/-1% healthcare cost trend rate
18
Overview of the Statements Requirements (continued) ▪ 10-year schedules: ▪ Changes in NOL ▪ TOL, FNP, NOL, funded status, covered payroll, and NOL as % of payroll
▪ Schedule of Actuarially Determined Contribution (if applicable), including comparison to actual contributions ▪ If different, Schedule of statutory/contractual (if applicable), including comparison to actual contributions ▪ Money-weighted rate of return ▪ Balances of deferred outflows/inflows and scheduled recognition 19
Two Approaches to Valuation Timing In both approaches, assume the following: ▪ Biennial valuation due January 1, 2017 and December 31 reporting date ▪ Unfunded plan with no significant changes to plan population, assumptions, or benefits ▪ Full actuarial valuation in compliance with GASB 45 as of January 1, 2017. ▪ Used for December 31, 2017 financial reporting under GASB 45.
20
Two Approaches to Valuation Timing Scenario #1 – One-year lag between measurement and reporting under GASB 75
▪ Roll forward January 1, 2017 valuation in compliance with GASB 75 for a measurement date of December 31, 2017 and reporting date of December 31, 2018 ▪ Full valuation as of January 1, 2019 in compliance with GASB 75 ▪ Would form the basis for the December 31, 2019 and December 31, 2020 financial reporting. ▪ Use December 31, 2018 measurement date for December 31, 2019 financial reporting. ▪ Roll forward the January 1, 2019 actuarial valuation to December 31, 2019 and use that measurement date for the December 31, 2020 financial reporting. ▪ January 1, 2019 actuarial valuation report could be completed in early 2020 and have it cover both 2019 and 2020 financial reporting.
21
Two Approaches for Valuation Timing Proposed timing for Scenario #1
Project January 1, 2017 full actuarial valuation
Comments
December 31, 2017 financial reporting
Last reporting done under GASB 45. Included with the January 1, 2017 actuarial valuation report. “Roll forward” of the January 1, 2017 actuarial valuation. Based on December 31, 2017 measurement date. Delivered in early 2019. Delivered in early 2020. Included with the January 1, 2019 actuarial valuation. Based on December 31, 2018 measurement date. Included with the January 1, 2019 actuarial valuation report. Based on December 31, 2019 measurement date from roll forward of January 1, 2019 actuarial valuation.
December 31, 2018 financial reporting
January 1, 2019 full actuarial valuation December 31, 2019 financial reporting December 31, 2020 financial reporting
22
Two Approaches for Valuation Timing Scenario #2 – Measurement Date = Reporting Date under GASB 75 ▪ Full valuation as of January 1, 2019 in compliance with GASB 75 ▪ Would form the basis for the December 31, 2018 and December 31, 2019 financial reporting. ▪ Reporting date same as measurement date for December 31, 2018 ▪ December 31, 2019 financial reporting based on a roll forward of the January 1, 2019 actuarial valuation and delivered in early 2020 in a separate report.
23
Two Approaches for Valuation Timing Proposed timing for Scenario #2
Project January 1, 2017 full actuarial valuation
Comment
December 31, 2017 financial reporting
Last reporting done under GASB 45. Included with the January 1, 2017 actuarial valuation report. Included with January 1, 2019 actuarial valuation. Delivered in spring 2019. Roll forward of the January 1, 2019 actuarial valuation. Delivered in early 2020.
December 31, 2018 financial reporting January 1, 2019 full actuarial valuation December 31, 2019 financial reporting
24
Some Timing Approaches Won’t Work For All Plans (resulting in more frequent valuations or updates during non-valuation years) ▪ Some pre-fund benefits based on actuarially determined contribution ▪ Some already do annual valuations ▪ Some don’t want valuation delivered 13-15 months after the valuation date
▪ Some don’t want reporting based on 24-month old information valuation date, 12-month old asset values ▪ Discount rate for partially prefunded plans can change annually due to fluctuations in the 20 year bond index ▪ Note, the Implementation Guide (4.102) specifically provides for changing the valuation date from period to period
25
Key Areas – Discount Rate ▪ One of the most notable aspects of the new standards is the conception of the discount rate to be used ▪ Represents a “blended” rate equivalent to combination of: ▪ Long-term expected rate of return on assets (LT-ROR) ▪ Used to the extent plan assets are projected to be sufficient to meet benefit payments
▪ 20-year tax-exempt municipal bond yield or index rate ▪ Applied after projected depletion date where plan assets don’t cover benefit payments
26
Key Areas – Discount Rate Unfunded Plans ▪ Since many plans are unfunded, discount rate will often just be bond yields ▪ August 2017 yields based on The Bond Buyer General Obligation 20-bond municipal index = 3.50% ▪ Up roughly 0.7% from its low last year. ▪ Yields have ranged from 2.8% - 5.0% over the past five years
▪ For unfunded plans, we have been using 3.0% - 4.0% under GASB 45 ▪ Should expect more volatility
27
01/01/2017
01/01/2016
01/01/2015
01/01/2014
01/01/2013
01/01/2012
01/01/2011
01/01/2010
01/01/2009
01/01/2008
01/01/2007
01/01/2006
01/01/2005
01/01/2004
01/01/2003
01/01/2002
01/01/2001
01/01/2000
Key Areas – Discount Rate
Historical 20-Year Muni Bond Yields 20-Bond General Obligation Bond Index
7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00
28
Key Areas – Expense Recognition
29
Key Areas – Expense Recognition Expense =
Service cost
+ Interest on TOL + Plan changes (recognized immediately) + Changes in FNP from other than investments (e.g., admin expenses) - Projected earnings on plan investments +/- Recognition of portion of deferred inflows/outflows
30
Key Areas – Expense Recognition (continued) Deferred recognition items: ▪ Recognized over closed period = expected remaining service (actives and zero for inactives) ▪ Economic/Demographic gains or losses ▪ Changes in assumptions or input ▪ Cost-sharing ERs only: change in proportionate share or difference between ER contributions and share of total contributions
▪ Recognized over closed five-year period ▪ Difference between projected and actual investment earnings
31
Key Areas – Expense Recognition (continued) Key equation: EOY NOL = BOY NOL + Expense – Employer Contributions + EOY Deferred Outflows/(Inflows) – BOY Deferred Outflows/(Inflows)
32
More Information ▪ http://www.milliman.com/GASB-73-74-75/ ▪ https://www.gasbhelp.com/
33
More Information ▪ http://www.milliman.com/GASB-73-74-75/ ▪ https://www.gasbhelp.com/
34
Appendix
Outline of the Statements Requirements – GASB 74 ▪ Financial Statements ▪ Statement of Fiduciary Net Position ▪ Statement of Changes in Fiduciary Net Position
▪ Notes to Financial Statements ▪ All Plans: ▪ Plan description ▪ Plan investments ▪ Includes reporting money-weighted rate of return ▪ Receivables (if applicable) ▪ Allocated insurance contracts (if applicable) ▪ Reserves (if applicable)
36
Outline of the Statements Requirements – GASB 74 ▪ Notes to Financial Statements (continued) ▪ Single-ER and Cost-Sharing Plans: ▪ Exhibit showing TOL, FNP, NOL, and FNP as percentage of TOL (i.e., funded status) ▪ Assumptions and inputs to measuring TOL ▪ Sensitivity of the NOL to +/-1% discount rate ▪ Sensitivity of the NOL to +/-1% healthcare cost trend rate ▪ Date of actuarial valuation and mention of roll-forward (if applicable)
37
Outline of the Statements Requirements – GASB 74 ▪ Required Supplementary Information (Single-ER and Cost-Sharing Plans) ▪ 10-year schedule of changes in NOL ▪ 10-year schedule of TOL, FNP, NOL, funded status, covered payroll, and NOL as % of payroll ▪ 10-year schedule of Actuarially Determined Contributions, including comparison to actual contributions ▪ 10-year schedule of money-weighted rate of return
▪ Required Supplementary Information (Agent Plans) ▪ 10-year schedule of money-weighted rate of return
38
Outline of the Statements Requirements – GASB 74 ▪ Notes to the Required Schedules ▪ Significant methods and assumptions used in calculating Actuarially Determined Contribution (if applicable) ▪ Information on any factors affecting trends in items reported in RSI ▪ For example, changes in benefits or assumptions
39
Outline of the Statements Requirements – GASB 75 ▪ Financial Statements – Balance sheet ▪ Single/Agent employer ▪ Recognize NOL
▪ Cost-sharing employer ▪ Recognize proportionate share of collective NOL
▪ Financial Statements – Income statement ▪ Single/Agent employer ▪ Recognize changes in NOL with deferrals ▪ Economic gain/loss or assumption change over average expected remaining service of all employees – including zero for inactives ▪ Difference between expected and actual earnings recognized over 5 years
▪ Amounts not yet recognized reported as deferred outflows/inflows 40
Outline of the Statements Requirements – GASB 75 ▪ Financial Statements – Income statement ▪ Cost-Sharing employer ▪ Recognize proportion of collective plan expense and deferred outflows/inflows ▪ Recognize over average expected remaining service for: ▪ Change in proportionate share ▪ Difference between employer’s contributions and proportionate share of all contributions
41
Outline of the Statements Requirements – GASB 75 ▪ Notes to Financial Statements ▪ Aggregate total NOL for all plans of employer ▪ Plan description ▪ Information about NOL ▪ Assumptions/inputs, including discount rate and sensitivity
▪ Plan’s FNP ▪ Changes in NOL ▪ Balances of deferred outflows/inflows and scheduled recognition ▪ ER’s proportionate share of NOL (cost-sharing ER only)
42
Outline of the Statements Requirements – GASB 75 ▪ Required Supplementary Information (Single/Agent employers) ▪ 10-year schedule of changes in NOL ▪ 10-year schedule of TOL, FNP, NOL, funded status, covered payroll, and NOL as % of payroll ▪ Schedule of Actuarially Determined Contribution (if applicable), including comparison to actual contributions ▪ If different, Schedule of statutory/contractual (if applicable), including comparison to actual contributions
43
Outline of the Statements Requirements – GASB 75 ▪ Required Supplementary Information (Cost-sharing employers) ▪ 10-year schedule of proportionate TOL, FNP, NOL, funded status, covered payroll, and NOL as % of payroll ▪ If contributions statutory/contractual, 10-year schedule of such amounts compared to actual contributions
▪ Notes to the Required Schedules ▪ Significant methods and assumptions used in calculating Actuarially Determined Contribution (if applicable) – [Single/Agent ERs only] ▪ Information on any factors affecting trends in items reported in RSI ▪ For example, changes in benefits or assumptions
44
GASB Statement No. 74 GASB Statement No. 75 Daniel Wade, FSA, EA, MAAA Arthur Rains-McNally, FSA, EA, MAAA September 14, 2017
Agenda ▪ Background regarding actuarial valuations for Other Postemployment Benefits (OPEBs) ▪ Overview of the New Statements ▪ New Terminology ▪ Timing and effective dates
▪ Implementation Considerations ▪ Key areas ▪ Discount Rate ▪ Expense Recognition
▪ Appendix – Outline of Statements
2
Why do an Actuarial Valuation? ▪ Required to be in compliance with GASB
▪ Provide projected benefit payments for cash-flow planning purposes ▪ If pre-funding, provide a “target” for funding and contribution amounts
3
What’s in an Actuarial Valuation? (applies to all plans)
Outputs
Inputs Participant Data
Plan Provisions
Actuarial Assumptions
Actuarial Calculations
Projected Benefit Payments
(demographic & medical assumptions)
4
Projected Benefit Payments
(by Status)
60
50
Millions ($)
40
30
20
10
0 2017
2027
2037
2047
2057
2067
2077
Year Retirees
Actives
5
The Implicit Rate Subisdy $1,800
$1,600 $1,400 $1,200 $1,000 $800 $600 $400
$200 $0 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 Monthly Medical Cost
Monthly Premium
If retirees or dependents have access to medical benefits but “pay their own way”, they are most likely paying far less than the true cost of the benefits they are receiving.
GASB Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other than Pension Plans GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other than Pension Plans (Employers) 7
GASB 74 and 75 – Current Status ▪ Statements 74&75: issued in June 2015 ▪ GASB 74: Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans; replaces GASB 43 ▪ GASB 75: Accounting and Financial Reporting for Post-employment Benefits Other Than Pensions (Employers); replaces GASB 45
▪ Largely parallel to GASB 67/68. ▪ Implementation guides: implementation guide out for 74, exposure draft for 75. June 15, 2016: GASB 74 Effective for Plan Year beginning after this date
June 2015: GASB 74/75 Released
2015
2016
April 2017: Implementation Guide for GASB 74
June 15, 2017: GASB 75 Effective for Plan Years beginning after this date
July 2017: Exposure Draft for Implementation Guide
2017
8
Overview of the Statements ▪ The new statements represent a complete overhaul of the previous (GASB 43/45) approach to public OPEB accounting ▪ One Fundamental Difference: Full Net OPEB Liability (similar to UAAL) on the Balance Sheet of Employer(s) ▪ GASB 43/45: Balance sheet item was Net OPEB Obligation based on cumulative comparison of Annual OPEB Expense vs. Actual Contribution
▪ Emphasis now is on comparability between reporting entities
9
Overview of the Statements New Terminology – Very Similar to GASB 67/68
▪ Total OPEB Liability (TOL) ▪ Actuarial Accrued Liability calculated in accordance with statements (Old AAL, but with more prescriptive methodology and only one actuarial cost method allowed)
▪ Fiduciary Net Position (FNP) ▪ Market value of plan assets
▪ Net OPEB Liability (NOL) ▪ TOL less FNP; formerly the Unfunded Actuarial Accrued Liability ▪ Note that for unfunded plans, TOL is what is disclosed
10
Overview of the Statements New Terminology – Very Similar to GASB 67/68 (continued) ▪ Deferred inflows and outflows of resources ▪ Accounts holding unrecognized changes in NOL ▪ Essentially unrecognized gains (deferred inflows) and losses (deferred outflows)
▪ Actuarially Determined Contribution ▪ Contribution target determined in accordance with actuarial standards of practice ▪ GASB does not prescribe method for determination.
▪ If calculated for a plan, reported in Required Supplementary Information (RSI), in comparison to actual contribution
11
Overview of the Statements Old Terminology (still used) ▪ Single-employer OPEB plan ▪ Plan provides benefits to employees of only one employer
▪ Multiple-employer OPEB plan ▪ Agent OPEB plan ▪ Cost-sharing OPEB plan ▪ Obligations are pooled and plan assets can pay benefits of employees of any employer
▪ Alternative Measurement Method ▪ Can still be used (with some modifications) for plans with under 100 members ▪ Milliman’s https://www.gasbhelp.com/ will be able to help. 12
Overview of the Statements Timing of Valuation, Measurement, and Reporting Dates ▪ GASB 74 – Plan reporting ▪ Plan reporting must present results measured as of plan’s fiscal year end (FYE) ▪ Either using a valuation at that date or roll-forward from a valuation date no more than 24 months before plan’s FYE
▪ Statement only applies for plans that are administered through irrevocable trusts (same definition as used in GASB 67 and 68) ▪ Statement 74 will not apply for plans without assets.
▪ Also provides some guidance in paragraphs 58 and 59 if there are assets set aside, but not in a trust meeting definition
13
Overview of the Statements Timing of Valuation, Measurement, and Reporting Dates ▪ GASB 75 – Employer reporting ▪ Employer’s Reporting Date is employer’s FYE ▪ NOL is measured at “Measurement Date”, which can be up to one year earlier than Reporting Date ▪ Shown at Reporting Date without adjustment
▪ TOL is based on valuation either at Measurement Date or rolled forward from date not more than 30 months and 1 day before FYE
14
Overview of the Statements Structure of GASB 75 ▪ DB OPEB other than Insured Benefits: paragraph numbers 21-226 ▪ “Insured benefits” are for “insured plans”, which would be the rare case where an insurance company unconditionally undertakes an obligation to pay the OPEB for employees as defined in the OPEB plan terms ▪ OPEB administered through Trusts meeting criteria: paragraph numbers 23-142 ▪ Single and agent employers: paragraph numbers 27-58 ▪ Cost-sharing employers without a special funding situation: paragraph numbers 59-86 ▪ All cost-sharing employers: paragraph numbers 87-98 ▪ Special funding situations: paragraph numbers 99-137
▪ OPEB not administered through Trusts meeting criteria: paragraph numbers 143-223
15
Overview of the Statements Timing and Effective Dates ▪ Biennial actuarial valuation required - more frequent encouraged ▪ GASB 45 had allowed triennial valuations for plans with less than 200 plan members
▪ Effective dates:
▪ GASB 74: Effective for plan fiscal years beginning after June 15, 2016 (e.g., FYE June 30, 2017) ▪ GASB 75: Effective for employer’s fiscal years beginning after June 15, 2017 (e.g., FYE June 30, 2018) ▪ No phased implementation as was done with GASB 43/45 ▪ GASB encouraged early implementation
16
Overview of the Statements Requirements ▪ The statements specify information to include in four areas of a plan’s or employer’s financial reporting: ▪ Financial Statements ▪ Notes to Financial Statements ▪ Required Supplementary Information ▪ Notes to the Required Schedules
▪ Detailed outline of requirements in the appendix of this presentation ▪ Similar or identical required items recur frequently ▪ Typically, distinctions made between appropriate location based on employer or plan type (Single, Agent, CostSharing, Unfunded) ▪ Whether item appears in plan or employer financials, for example
▪ Separate section in GASB 75 for those without irrevocable trusts. 17
Overview of the Statements Requirements (continued) ▪ Significant schedules or required items: ▪ Assumptions/inputs to determining TOL ▪ Includes detail on discount rate determination
▪ Sensitivity of the NOL to +/-1% discount rate ▪ Sensitivity of the NOL to +/-1% healthcare cost trend rate
18
Overview of the Statements Requirements (continued) ▪ 10-year schedules: ▪ Changes in NOL ▪ TOL, FNP, NOL, funded status, covered payroll, and NOL as % of payroll
▪ Schedule of Actuarially Determined Contribution (if applicable), including comparison to actual contributions ▪ If different, Schedule of statutory/contractual (if applicable), including comparison to actual contributions ▪ Money-weighted rate of return ▪ Balances of deferred outflows/inflows and scheduled recognition 19
Two Approaches to Valuation Timing In both approaches, assume the following: ▪ Biennial valuation due January 1, 2017 and December 31 reporting date ▪ Unfunded plan with no significant changes to plan population, assumptions, or benefits ▪ Full actuarial valuation in compliance with GASB 45 as of January 1, 2017. ▪ Used for December 31, 2017 financial reporting under GASB 45.
20
Two Approaches to Valuation Timing Scenario #1 – One-year lag between measurement and reporting under GASB 75
▪ Roll forward January 1, 2017 valuation in compliance with GASB 75 for a measurement date of December 31, 2017 and reporting date of December 31, 2018 ▪ Full valuation as of January 1, 2019 in compliance with GASB 75 ▪ Would form the basis for the December 31, 2019 and December 31, 2020 financial reporting. ▪ Use December 31, 2018 measurement date for December 31, 2019 financial reporting. ▪ Roll forward the January 1, 2019 actuarial valuation to December 31, 2019 and use that measurement date for the December 31, 2020 financial reporting. ▪ January 1, 2019 actuarial valuation report could be completed in early 2020 and have it cover both 2019 and 2020 financial reporting.
21
Two Approaches for Valuation Timing Proposed timing for Scenario #1
Project January 1, 2017 full actuarial valuation
Comments
December 31, 2017 financial reporting
Last reporting done under GASB 45. Included with the January 1, 2017 actuarial valuation report. “Roll forward” of the January 1, 2017 actuarial valuation. Based on December 31, 2017 measurement date. Delivered in early 2019. Delivered in early 2020. Included with the January 1, 2019 actuarial valuation. Based on December 31, 2018 measurement date. Included with the January 1, 2019 actuarial valuation report. Based on December 31, 2019 measurement date from roll forward of January 1, 2019 actuarial valuation.
December 31, 2018 financial reporting
January 1, 2019 full actuarial valuation December 31, 2019 financial reporting December 31, 2020 financial reporting
22
Two Approaches for Valuation Timing Scenario #2 – Measurement Date = Reporting Date under GASB 75 ▪ Full valuation as of January 1, 2019 in compliance with GASB 75 ▪ Would form the basis for the December 31, 2018 and December 31, 2019 financial reporting. ▪ Reporting date same as measurement date for December 31, 2018 ▪ December 31, 2019 financial reporting based on a roll forward of the January 1, 2019 actuarial valuation and delivered in early 2020 in a separate report.
23
Two Approaches for Valuation Timing Proposed timing for Scenario #2
Project January 1, 2017 full actuarial valuation
Comment
December 31, 2017 financial reporting
Last reporting done under GASB 45. Included with the January 1, 2017 actuarial valuation report. Included with January 1, 2019 actuarial valuation. Delivered in spring 2019. Roll forward of the January 1, 2019 actuarial valuation. Delivered in early 2020.
December 31, 2018 financial reporting January 1, 2019 full actuarial valuation December 31, 2019 financial reporting
24
Some Timing Approaches Won’t Work For All Plans (resulting in more frequent valuations or updates during non-valuation years) ▪ Some pre-fund benefits based on actuarially determined contribution ▪ Some already do annual valuations ▪ Some don’t want valuation delivered 13-15 months after the valuation date
▪ Some don’t want reporting based on 24-month old information valuation date, 12-month old asset values ▪ Discount rate for partially prefunded plans can change annually due to fluctuations in the 20 year bond index ▪ Note, the Implementation Guide (4.102) specifically provides for changing the valuation date from period to period
25
Key Areas – Discount Rate ▪ One of the most notable aspects of the new standards is the conception of the discount rate to be used ▪ Represents a “blended” rate equivalent to combination of: ▪ Long-term expected rate of return on assets (LT-ROR) ▪ Used to the extent plan assets are projected to be sufficient to meet benefit payments
▪ 20-year tax-exempt municipal bond yield or index rate ▪ Applied after projected depletion date where plan assets don’t cover benefit payments
26
Key Areas – Discount Rate Unfunded Plans ▪ Since many plans are unfunded, discount rate will often just be bond yields ▪ August 2017 yields based on The Bond Buyer General Obligation 20-bond municipal index = 3.50% ▪ Up roughly 0.7% from its low last year. ▪ Yields have ranged from 2.8% - 5.0% over the past five years
▪ For unfunded plans, we have been using 3.0% - 4.0% under GASB 45 ▪ Should expect more volatility
27
01/01/2017
01/01/2016
01/01/2015
01/01/2014
01/01/2013
01/01/2012
01/01/2011
01/01/2010
01/01/2009
01/01/2008
01/01/2007
01/01/2006
01/01/2005
01/01/2004
01/01/2003
01/01/2002
01/01/2001
01/01/2000
Key Areas – Discount Rate
Historical 20-Year Muni Bond Yields 20-Bond General Obligation Bond Index
7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00
28
Key Areas – Expense Recognition
29
Key Areas – Expense Recognition Expense =
Service cost
+ Interest on TOL + Plan changes (recognized immediately) + Changes in FNP from other than investments (e.g., admin expenses) - Projected earnings on plan investments +/- Recognition of portion of deferred inflows/outflows
30
Key Areas – Expense Recognition (continued) Deferred recognition items: ▪ Recognized over closed period = expected remaining service (actives and zero for inactives) ▪ Economic/Demographic gains or losses ▪ Changes in assumptions or input ▪ Cost-sharing ERs only: change in proportionate share or difference between ER contributions and share of total contributions
▪ Recognized over closed five-year period ▪ Difference between projected and actual investment earnings
31
Key Areas – Expense Recognition (continued) Key equation: EOY NOL = BOY NOL + Expense – Employer Contributions + EOY Deferred Outflows/(Inflows) – BOY Deferred Outflows/(Inflows)
32
More Information ▪ http://www.milliman.com/GASB-73-74-75/ ▪ https://www.gasbhelp.com/
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More Information ▪ http://www.milliman.com/GASB-73-74-75/ ▪ https://www.gasbhelp.com/
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Appendix
Outline of the Statements Requirements – GASB 74 ▪ Financial Statements ▪ Statement of Fiduciary Net Position ▪ Statement of Changes in Fiduciary Net Position
▪ Notes to Financial Statements ▪ All Plans: ▪ Plan description ▪ Plan investments ▪ Includes reporting money-weighted rate of return ▪ Receivables (if applicable) ▪ Allocated insurance contracts (if applicable) ▪ Reserves (if applicable)
36
Outline of the Statements Requirements – GASB 74 ▪ Notes to Financial Statements (continued) ▪ Single-ER and Cost-Sharing Plans: ▪ Exhibit showing TOL, FNP, NOL, and FNP as percentage of TOL (i.e., funded status) ▪ Assumptions and inputs to measuring TOL ▪ Sensitivity of the NOL to +/-1% discount rate ▪ Sensitivity of the NOL to +/-1% healthcare cost trend rate ▪ Date of actuarial valuation and mention of roll-forward (if applicable)
37
Outline of the Statements Requirements – GASB 74 ▪ Required Supplementary Information (Single-ER and Cost-Sharing Plans) ▪ 10-year schedule of changes in NOL ▪ 10-year schedule of TOL, FNP, NOL, funded status, covered payroll, and NOL as % of payroll ▪ 10-year schedule of Actuarially Determined Contributions, including comparison to actual contributions ▪ 10-year schedule of money-weighted rate of return
▪ Required Supplementary Information (Agent Plans) ▪ 10-year schedule of money-weighted rate of return
38
Outline of the Statements Requirements – GASB 74 ▪ Notes to the Required Schedules ▪ Significant methods and assumptions used in calculating Actuarially Determined Contribution (if applicable) ▪ Information on any factors affecting trends in items reported in RSI ▪ For example, changes in benefits or assumptions
39
Outline of the Statements Requirements – GASB 75 ▪ Financial Statements – Balance sheet ▪ Single/Agent employer ▪ Recognize NOL
▪ Cost-sharing employer ▪ Recognize proportionate share of collective NOL
▪ Financial Statements – Income statement ▪ Single/Agent employer ▪ Recognize changes in NOL with deferrals ▪ Economic gain/loss or assumption change over average expected remaining service of all employees – including zero for inactives ▪ Difference between expected and actual earnings recognized over 5 years
▪ Amounts not yet recognized reported as deferred outflows/inflows 40
Outline of the Statements Requirements – GASB 75 ▪ Financial Statements – Income statement ▪ Cost-Sharing employer ▪ Recognize proportion of collective plan expense and deferred outflows/inflows ▪ Recognize over average expected remaining service for: ▪ Change in proportionate share ▪ Difference between employer’s contributions and proportionate share of all contributions
41
Outline of the Statements Requirements – GASB 75 ▪ Notes to Financial Statements ▪ Aggregate total NOL for all plans of employer ▪ Plan description ▪ Information about NOL ▪ Assumptions/inputs, including discount rate and sensitivity
▪ Plan’s FNP ▪ Changes in NOL ▪ Balances of deferred outflows/inflows and scheduled recognition ▪ ER’s proportionate share of NOL (cost-sharing ER only)
42
Outline of the Statements Requirements – GASB 75 ▪ Required Supplementary Information (Single/Agent employers) ▪ 10-year schedule of changes in NOL ▪ 10-year schedule of TOL, FNP, NOL, funded status, covered payroll, and NOL as % of payroll ▪ Schedule of Actuarially Determined Contribution (if applicable), including comparison to actual contributions ▪ If different, Schedule of statutory/contractual (if applicable), including comparison to actual contributions
43
Outline of the Statements Requirements – GASB 75 ▪ Required Supplementary Information (Cost-sharing employers) ▪ 10-year schedule of proportionate TOL, FNP, NOL, funded status, covered payroll, and NOL as % of payroll ▪ If contributions statutory/contractual, 10-year schedule of such amounts compared to actual contributions
▪ Notes to the Required Schedules ▪ Significant methods and assumptions used in calculating Actuarially Determined Contribution (if applicable) – [Single/Agent ERs only] ▪ Information on any factors affecting trends in items reported in RSI ▪ For example, changes in benefits or assumptions
44
