GASB 74/75 implementation

1. GASB 74/75 implementation South Carolina Higher Education Controller’s Group November 16, 2017

2. New GASB pronouncements for OPEB Trust financial reporting • GASB 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans • GASB 75, Accounting and Financial Reporting For Postemployment Benefits Other Than Pensions

3. Key changes from GASB 43 and 45 accounting • Discount Rate is calculated in the same way as GASB 67 and 68. • Due to the Retiree Health Insurance Trust Fund not being fully funded, the 20-year tax exempt municipal bond rate was used. • OPEB Trusts no longer have a choice and must use the entry age normal cost method. • Actuarial gains and losses must be amortized over five years. • Immediate recognition of plan changes for OPEB expense. • OPEB Trusts must have a valuation at least every two years. • Additional sensitivity measurements require for both discount and trend rate sensitivity.

4. Plan accounting (similarities to GASB 67) • The measurement date is the Plan’s fiscal year end. • Liabilities can be rolled forward from a valuation date within 24 months of fiscal year end. • Professional judgment to reflect significant changes that have occurred since the last valuation. • Plan assets must be stated as of the measurement date and cannot be rolled forward.

5. Key changes in employer accounting due to GASB 75 • Net OPEB Liability goes on employer’s Balance Sheet and is no longer a footnote (similar to GASB 68). • The Annual Required Contribution (ARC) is no longer calculated and is replaced by OPEB expense (calculated similar to pension expense under GASB 68). • Deferred inflows and outflows similar to GASB 68. • Market value of assets must be used with no smoothing. • Five year amortization of gains/losses • Discount rate is determined under crossover test and more than likely be less than the current discount rate.

6. Summary of Retiree Health Insurance Trust Fund GASB 74 valuation

7. How is the Retiree Insurance Trust funded? • Participating employers contribute a 5.50% surcharge on covered payroll (FY2017 contributions totaled $411,799,086) • Excess PEBA-Insurance Benefits’ reserves above 140% of incurred but not reported claims, as of December 31st of each year, to the extent available in order to maintain a reserve balance equal to not less than six weeks of claims expense (FY2017 transfer was $76,931,437) • State Appropriations (since FY2009 $2,375,000 annually) • Investment earnings (FY2017 net investment income was $13,460,171 and the annual money-weighed return was 1.36%)

8. Example of proportionate share calculation (RHITF OPEB liability)

9. Example of net OPEB liability allocation (RHITF OPEB liability)

10. GASB 75 employer schedules and financial reporting disclosures • PEBA will provide the following financial reporting and audit resources for June 30, 2017 and 2018 measurement dates: • Audit Report on the Schedules of Employer Allocations, Schedules of OPEB Amounts by Employer, and Related Notes • Actuarial Valuation Report • OPEB Disclosure Memorandum • Net OPEB Liability roll forward template • Change in Net OPEB Liability Memorandum • Please note that we are still in the process of working with our actuaries and have not procured an independent audit firm on GASB 75 implementation. Therefore, the financial reporting and audit resources stated above may change. We will notify all employers once we have finalized these financial reporting and audit resources and the timing of the availability of these resources.

11. Group-specific questions on GASB 74/75 implementation • Will these GASB Statements apply to retirees that we re-employ to work as “working retirees”, or will it apply to our employer contributions for the benefits available to the PEBA retiree population in general regardless of current employment?  If both groups are included, will there be different schedules needed for the current “working retirees” employed during the fiscal year and another for those not currently employed, or will all of these benefits be combined together into one reported amount in one schedule? • The GASB statement applies to all employees that the employer is responsible for contributing the 5.50% payroll surcharge on. • What is the timing for the release of the actuarial valuations and reporting required under GASB 74? • Our actuaries should have the GASB 75 reports completed by March 2018 for 2018 financial reporting. However, the GASB 75 Implementation Guide has not been released so this timeframe is subject to change.

12. Group-specific questions on GASB 74/75 implementation (cont.) • Will PEBA be engaging CLA to issue a report over the GASB 74 schedules, similar to their practice with the GASB 67 schedules? • PEBA will have an independent audit firm procured by January 2018 to perform procedures and reports similar to GASB 67/68. • What is the timing for the release of the audit report over the GASB 74 schedules, if PEBA will be engaging CLA to do this? • Until an independent audit firm is procured we cannot provide an exact release date. However, as part of the procurement, PEBA will require the audit firm to release the audit report no later than May 2018. • What is the extent of the procedures that CLA will be engaged to perform over the census data being used in the actuarial valuations? • PEBA will require the procured independent audit firm to adhere to the audit procedures as set forth by the Whitepaper guidance.