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NCTR Directors Meeting GASB OPEB

NCTR Directors Meeting GASB OPEB. June 22, 2007 Ed Macdonald. The GASB Statements. GASB 43 - Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans. GASB 45 - Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions.

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NCTR Directors Meeting GASB OPEB

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  1. NCTR Directors MeetingGASB OPEB June 22, 2007 Ed Macdonald

  2. The GASB Statements • GASB 43 - Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans. • GASB 45 - Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions.

  3. The Statements in General • Postemployment healthcare benefits, whether provided separately or through a defined benefit pension plan. • Other forms of non-pension postemployment benefits (e.g., life insurance, disability, long-term care) unless provided through a defined benefit pension plan.

  4. The Implicit Rate Subsidy By collecting contributions based on illustrative premium, the true incidence of cost is different, employers are “implicitly” subsidizing the retiree rate (true cost).

  5. Valuation Process

  6. Inputs • Data Collection • Census • Claims • Claims Analysis • Plan Provisions • Assets • Valuation Assumptions • Withdrawal • Mortality • Disability

  7. Outputs • ARC • Normal Cost • Unfunded Accrued Liability • Accrued Liability • Schedule of Funding Progress • Net OPEB Obligation • Reconciliation of Assets

  8. 2006 OPEB Plan Findings

  9. Pre-65 vs Post-65 Plans

  10. Coverage Types

  11. OPEB Benefit Types

  12. Pre-65 Per Retiree Claim Cost Average Pre-65 Retiree cost is $542. Median Pre-65 Retiree cost is $520.

  13. Post-65 Per Retiree Claim Cost Average Post-65 Retiree cost is $286. Median Post-65 Retiree cost is $296.

  14. Normal Cost as a Percentageof Payroll Results Average Normal Cost = 8.7% of payroll Median Normal Cost = 7.4% of payroll

  15. Unfunded Accrued Liabilities as a Percentage of Payroll Results Average Unfunded Accrued Liabilities = 5.0% of payroll Median Unfunded Accrued Liabilities = 3.6% of payroll

  16. ARC as Percentageof Payroll Results Average ARC = 13.5% of payroll Median ARC = 11.3% of payroll

  17. Impact of Prefunding

  18. ARC Variance Sample Alternate Interest Rate Assumption Results

  19. Plan Preservation Strategies

  20. Asset Trust for OPEB Plans • Requires additional budget appropriation(s) • Could allocate the Retiree Drug Subsidy (if qualified) for partial advance funding • Positive impact on bond rating

  21. Strategies for Controlling the Liability and Expense • Capping the employer share of the obligation • Terminating or “sunsetting” all or a portion of the benefits (i.e. post-65 Rx coverage) • Tightening eligibility requirements, either for all employees or for future hires • Restricting retiree plan elections – direct retirees towards lower cost option

  22. Strategies for Controlling the Liability and Expense • Increasing retiree premium contributions • Indexing fixed dollar plan features, such as deductibles and copays • Restrict spousal coverage and/or increase required contributions for spousal coverage

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