GASB 45 Other (than Pension) Post Employment Benefits Date Here

1. GASB 45 Other (than Pension) Post Employment BenefitsDate Here Presented by:Name Here

2. 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

3. 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

4. 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

5. 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)

6. 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

7. 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

8. Implicit Rate Subsidy $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 0 Premium Amount 25 30 35 40 45 50 55 60 65 Age True Cost of Medical Benefits COBRA Premium

9. 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)

10. 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

11. 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

12. 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

13. 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

14. QUESTIONS ?