Review of changes coming with GASB74 and GASB75 accounting overhaul

1. 2017 MASBO Annual Conference
Mark Schulte, FSA, EA, MAAA
May 11, 2017

2. 1 Background
2 What’s changing
 Report frequency
 Report timing
 Terminology
 Financial disclosures
 Discount rate
3 What to do now
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3.  Compliance with GASB 45 since at least 2008
 Have a liability “on the books” (Net OPEB Obligation)
 Record annual accounting expense (based on the ARC)
 Biennial or triennial actuarial valuations
 MN school districts generally funded OPEB before
2009 when could issue bonds without voter
approval
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4. Why can’t we just keep using GASB 45?
Net OPEB Obligation hides true cost of OPEB
Cost recognition is too slow (never?)
Too much variation in liability calculation methods
Discount rate determination not appropriate
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5.  June 2015: GASB 74 and 75 published
 GASB 74
 Plan-perspective accounting
 Effective for fiscal years beginning after 6/15/2016
(i.e., FYE 6/30/2017)
 GASB 75
 Employer-perspective accounting
 Effective for fiscal years beginning after 6/15/2017
(i.e., FYE 6/30/2018)
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6.  Lots of new terminology and acronyms!
 More frequent actuarial reporting
 Accounting changes
 Unfunded liability goes on face of financial statements
 OPEB accounting “expense” more volatile
 More information to disclose
 Discount rate process standardized
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7.  How often do I need a new actuarial report?
 Movement towards annual valuations because of
OPEB volatility
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GASB 45 GASB 74/75
< 200 participants: Every 3 years All plans: Every 2 years
>= 200 participants: Every 2 years

8.  GASB 45
 Usually July 1 Valuation Date (beginning of year)
 Have 12+ months to complete calculations and report
 Get two years of accounting in one report
 Example
• July 1, 2015 valuation report
• Provides accounting information for FYE 2016 AND FYE 2017
 Updated reports in the “off-years” were relatively rare
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9.  GASB 74/75 require full actuarial reports every two
years for all employers
 “Update procedures” to reflect any changes since
the actuarial valuation date [GASB 74 Q&A #4.104]
 In many cases will need an updated “off-year”
report to reflect certain changes
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10.  GASB 74/75 report will likely only contain
accounting information for one fiscal year
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Update Item Considerations
Discount rate  Muni bond index rate
 “Crossover” calculation for funded plans
Assets Need to reflect actual year-end assets
Benefit payments  GASB 74/75 specify actual benefit payments for roll
forwards and other calculations.
 May not be practical for implicit subsidy “payments”
Plan changes What does this encompass? Retiree subsidies only; or
health plan/premiums in general?

11. 10
Date What it means
Valuation Date  Census and claims data gathered
 Liabilities calculated, but may then be “rolled forward”
to the Measurement Date
Measurement Date When liabilities and assets are “measured”
Reporting Date Fiscal year end
FYE2019 example (no trust)
Valuation Date Reporting DateMeasurement Date
“Roll” liabilities
Measure assets &
net OPEB liabilityCalculate liabilities Net amount
reported at FYE
6/30/2017 6/30/2018 6/30/2019

12.  “Synchronized” method
 Measurement Date = Reporting Date
 Used for plans with or without trusts
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6/30/2017 6/30/2018 6/30/2019
Valuation Date Measurement Date &
Reporting Date
“Roll” liabilities
Measure assets &
Report net amount at FYE
Calculate liabilities
“Roll” liabilities
Measure assets &
Report net amount at FYE

13. Timing considerations: synchronized method
‣ VD before MD/RD makes report timing easier
‣ Still need to wait until MD/RD for actual benefit
payments
‣ What happens if plan “changes” before MD/RD?
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6/30/2017 6/30/2018 6/30/2019
Valuation Date Measurement Date &
Reporting Date
“Roll” liabilities
Measure assets &
Report net amount at FYE
Calculate liabilities

14.  “Lookback” method
 Measurement Date up to one year before Reporting Date
 Used for plans without trusts
“Roll” liabilities
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Valuation Date &
Measurement Date
Reporting Date
Calculate liabilities &
Measure assets
6/30/2017 6/30/2018 6/30/2019
Net amount
Reported at FYEMeasure assets Net amount
Reported at FYE

15. Timing considerations: lookback method
 VD/MD before RD makes timing much easier
 Need to wait until RD for “deferred” contributions
 Don’t have to deal with plan changes after MD
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Valuation Date &
Measurement Date
Reporting Date
Net amount
Reported at FYE
Calculate liabilities &
Measure assets
6/30/2017 6/30/2018 6/30/2019

16.  Employers with irrevocable trusts should comply
with GASB 74 for FYE2017
 Include plan-perspective disclosures in Notes and RSI
(if trust doesn’t issue standalone financials)
 May be simplest to early adopt GASB 75 in FYE2017
 Avoid two sets of numbers in Notes/RSI
 Similar costs for GASB 74/45 vs. GASB 74/75 reporting
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17. 16
GASB 45 GASB 74/75
Actuarial Accrued Liability (AAL) Total OPEB Liability (TOL)
Plan assets Fiduciary Net Position (FNP)
Unfunded Actuarial Accrued Liability (UAAL) Net OPEB Liability (NOL)
N/A Deferred inflows/outflows of resources
Annual OPEB Cost OPEB expense
Net OPEB Obligation (NOO) Net OPEB Liability
Annual Required Contribution (ARC) Actuarially Determined Contribution
(ADC)

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24.  GASB 45: “long-term investment yield on the
investments that are expected to be used to
finance the payment of benefits”
 GASB 74/75: Single rate that reflects:
 Long-term expected rate of return on OPEB plan
investments [if have irrevocable OPEB trust]
 Index rate for 20-year, tax-exempt general obligation
municipal bonds with an average rating of AA/Aa or higher
 “Crossover” calculation for funded plans (irrevocable trust)
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27.  Funded plans (irrevocable trust)
 Figure out GASB 74 transition strategy – now!
 Confirm strategy with auditor
 Early adoption of GASB 75 for FYE2017 may be easiest route
 Funded plans (revocable trust)
 Understand effect of using muni bond index rate
 Consider making trust irrevocable (FY2017-18)
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28.  All plans
 Figure out reporting timing and implementation options
 Synchronized vs. Lookback: Is it a big deal if liabilities are a year old?
 Better tracking of retiree benefit payments
 Review contracts and benefit plans for potential cost savings
 Worthwhile/feasible to pre-fund OPEB?
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30. Mark Schulte, FSA, EA, MAAA
Van Iwaarden Associates
612.596.5960
marks@vaniwaarden.com
All information in this presentation is for general informational purposes only and should
not be relied upon without the express written consent of the author.
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