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Other Postemployment Benefits Financial Accounting Webcast Kathy Guralski, Auditor, School Finance Team Lori Ames, Consultant, School Finance Team June 28, 2006 Audio Difficulties? Make sure the volume on Media Site live is turned up (volume button located beneath the speaker’s picture)

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other postemployment benefits financial accounting webcast

Other Postemployment BenefitsFinancial Accounting Webcast

Kathy Guralski, Auditor, School Finance Team

Lori Ames, Consultant, School Finance Team

June 28, 2006

audio difficulties
Audio Difficulties?
  • Make sure the volume on Media Site live is turned up (volume button located beneath the speaker’s picture)
  • Make sure the volume on your computer is turned up (volume icon located on the right hand side of your computer task bar)
  • Contact your IT department
agenda
Agenda
  • Intro & Media Site Technical Issues
  • Trust Contribution Amount
  • Financial Accounting
  • Annual Meeting Reporting Requirements
  • Questions & Answers
  • Polls
presentation assumptions
Presentation Assumptions
  • This presentation is focused on the financial accounting requirements as it relates to a trust. Given those parameters, we make the following assumptions:
    • The actuarial study or alternative method has been completed.
    • The Annual Required Contribution is known.
    • The District has already established an Employee Benefit Trust (Fund 73).
presentation assumptions5
Presentation Assumptions
  • If you need information relating to the actuarial determination or establishment of a trust, please refer to the following document.

“Employee Benefit Fund (Fund 73) Requirements” located at:

http://www.dpi.wi.gov/sfs/ben_trust.html

trust contribution amount
Trust Contribution Amount
  • The amount of postemployment benefits to be funded in any given year is dependent on various factors.
    • Size of the district’s liability
    • Requirements for current year payment for post employment benefits
    • Available resources in the district’s budget
    • Amount of the district’s fund balance
potential contribution amounts
Potential Contribution Amounts
  • The District may choose to fund:
    • the entire unfunded actuarial accrued liability plus normal cost in a single payment
    • The annual required contribution
    • An amount less than the annual required contribution
    • An amount more than the annual required contribution but not in excess of the actuarial accrued liability plus normal cost
trust contribution amount8
Trust Contribution Amount
  • In order for a trust contribution to recorded in the current fiscal year, a physical segregation of assets must occur by June 30th.
  • In other words, the contribution should be made and the cash have cleared the district’s bank account by June 30th.
contribution amounts and applicable state aid
Contribution Amounts and Applicable State Aid
  • General Equalization Aid
    • Any contribution to the trust, not in excess of the unfunded actuarial accrued liability plus normal cost will be included in the calculation of shared cost.
      • Positive tertiary aid districts – may receive additional equalization aid
      • Negative tertiary aid districts – may fall more heavily into negative aid
contribution amounts and applicable state aid10
Contribution Amounts and Applicable State Aid
  • Federal and State Grants
    • If the grant allows, a school district may include all costs of funding eligible staff postemployment benefits, up to a maximum of the annual required contribution (ARC), in the calculation of costs subject to federal and state grants.
contribution amounts and applicable state aid11
Contribution Amounts and Applicable State Aid
  • State Categorical Aid ( i.e. special education categorical aid)
    • A school district may include all costs of funding eligible staff postemployment benefits, up to a maximum of the annual required contribution (ARC), in the calculation of costs subject to categorical aid.
financial accounting
Financial Accounting
  • Concept:
    • District decides to set up a trust
    • District decides on current fiscal year contribution amount
    • Physically makes a contribution to the trust
    • Pay all future retiree benefits from the trust
  • http://www.dpi.wi.gov/sfs/doc/ben_acct.doc
financial accounting13

Allocate contribution

amount to

proper account

codes

Financial Accounting

Steps to funding the trust

financial accounting14
Financial Accounting
  • Make contribution and allocate to proper account codes
    • Determine which postemployment benefits to include in the funding and the employee groups that are eligible for those benefits
    • Equitable distribution of the contribution
      • DPI sample methods
financial accounting15
Financial Accounting
  • Make contribution and allocate to proper account codes
    • Method A
      • Determine amount of eligible payroll for the employees included
      • Divide the value of the postemployment benefits for the group by the eligible payroll for the group to get a contribution rate
      • Apply the contribution rate to each employee
financial accounting16
Financial Accounting
  • Example facts:
    • Contribution to trust $275,820
    • # of total employees in group funded 150
    • Total payroll of employees in

group funded $4,500,000

financial accounting17
Financial Accounting
  • Allocation under Method A:
    • Divide $275,820 by $4.5 million for a contribution rate of 6.13%
    • Apply the contribution to each employee
      • Susie has a wage of $35,000 times 6.13% equals $2,145.50 annually
      • Susie has a bi-monthly wage of $1,458 times 6.13% equals $89 each pay period
financial accounting18
Financial Accounting
  • Make contribution and allocate to proper account codes
    • Method B
      • Divide the contribution dollar amount for the group by the eligible employees in the group to get a contribution dollar amount
      • Apply the dollar amount to each employee
financial accounting19
Financial Accounting
  • Example facts:
    • Contribution to trust $275,820
    • # of total employees in group funded 150
financial accounting20
Financial Accounting
  • Allocation under Method B:
    • Divide $275,820 by 150 employees for a contribution amount of $1,838.80 annually
    • Apply the contribution to each employee
      • Susie has $1,838.80 benefit annually
      • Susie has a bi-monthly benefit of $77 each pay period
financial accounting21

Record financial

transactions for

contribution made

Financial Accounting

Steps to funding the trust

Allocate contribution

amount to

proper account

codes

financial accounting22
Financial Accounting
  • When contribution is made may affect the timing of the journal entries and transactions recorded:
    • Contribution accounted for during the year through the payroll system
    • Contribution accounted for when lump sum amount is paid to trust
financial accounting23
Financial Accounting
  • Entries to account for contribution during the year through the payroll system :
    • 1) 10E XXXXXX 218 $ 77 27E XXXXXX 218 77

10B 811600 $77

27B 811600 77

financial accounting24
Financial Accounting
  • Example facts:
    • Contribution to trust $275,820
    • # of total employees in group funded 150
    • # of special education employees

included in group funded 10

financial accounting25
Financial Accounting
  • Entries to account for contribution during the year through the payroll system :
    • 1) 10E XXXXXX 218 $257,432 27E XXXXXX 218 18,388

10B 811600 $257,432

27B 811600 18,388

financial accounting26
Financial Accounting
  • Entries to account for contribution made to trust :
    • 2) 10B 811600 $257,432 27B 811600 18,388

10B 711000 $257,432

27B 711000 18,388

financial accounting27
Financial Accounting
  • Entries to account for contribution at year end when lump sum amount is paid to trust:
    • 3) 10E XXXXXX 218 $257,432 27E XXXXXX 218 18,388

10B 811600 $257,432

27B 811600 18,388

    • 4) 10B 811600 $257,432

27B 811600 18,388

10B 711000 $257,432

27B 711000 18,388

financial accounting28
Financial Accounting
  • Contribution in excess of ARC
    • When the contribution to the trust exceeds the ARC amount, the difference between ARC and contribution would not be allocated to employee functions but rather would be reported in fund 10, function 291000, object 218.
financial accounting29
Financial Accounting
  • Example:
    • Contribution $275,820
    • ARC $200,000
    • Allocated to proper employee function $200,000
    • Reported to function 291000, object 218 $75,820
financial accounting30
Financial Accounting
  • Accounting for the contribution in fund 73:
    • 1) 73B 711000 $275,820

73R 951 $275,820

financial accounting31

Pay health

provider/retiree

for benefit

Withdraw retiree

benefits from trust

Financial Accounting

Steps to funding the trust

Allocate contribution

amount to

proper account

codes

Record financial

transactions for

contribution made

financial accounting32
Financial Accounting
  • All future retiree benefits paid from trust
    • Amount withdrawn will include cost of benefit to be paid provider plus implicit rate subsidy
    • The implicit rate subsidy will be allocated in the same manner as the original contribution but will reduce the employees health benefit, object 240 rather than the 218.
financial accounting33
Financial Accounting
  • Example facts:
    • Contribution to trust $275,820
    • # of total employees in group funded 150
    • # of special education employees

included in group funded 10

    • Insurance premium paid $479
    • Value of retiree premium $699
    • Implicit rate subsidy $220
    • # of retirees on plan 15
financial accounting34
Financial Accounting
  • Retiree benefits paid:
    • 15 retirees at a premium value of $699/month each equals $125,820 that needs to be withdrawn from the trust.
    • Trust either pays health provider directly or reimburses district who paid health provider for retirees on one invoice including active employees.
financial accounting35
Financial Accounting
  • Trust pays directly to health provider:
    • 73E 420000 991 $125,820

73B 711000 $125,820

  • Trust reimburses district:
    • 73E 420000 991 $125,820

73B 711000 $125,820

financial accounting36
Financial Accounting
  • Example facts:
    • Contribution to trust $275,820
    • # of total employees in group funded 150
    • # of special education employees

included in group funded 10

    • Insurance premium paid $479
    • Value of retiree premium $699
    • Implicit rate subsidy $220
    • # of retirees on plan 15
    • Cost of insurance premium $86,220
    • Implicit rate subsidy withdrawn $39,600
financial accounting37
Financial Accounting
  • Withdrawal of $125,820
    • Retirees insurance in fund 10 $ 86,220
    • Implicit Rate Subsidy
      • Fund 10 (140 employees) $ 36,960
      • Fund 27 (10 employees) $ 2,640 $125,820
financial accounting38
Financial Accounting
  • District originally reported the payment to the health provider as an expenditure
    • Original entry was a debit to fund 10, function 290000, object 210 for the $86,200 and a credit to cash for payment to health provider
  • District originally reported the payment to the health provider as a liability
    • Original entry was a debit to fund 10, balance sheet account 811600 and credit to cash for payment to health provider
financial accounting39
Financial Accounting
  • District originally reported the payment as an expenditure
    • 10B 711000 $123,180

27B 711000 2,640

10E 290000 210 $ 86,220

10E XXXXX 240 36,960

27E XXXXX 240 2,640

  • District originally reported the payment as a liability
    • 10B 711000 $123,180

27B 711000 2,640

10B 811600 $ 86,220

10E XXXXX 240 36,960

27E XXXXX 240 2,640

contribution same dollar amount as pay as you go
Contribution same dollar amount as “pay as you go”
  • What if your district elects to contribute only enough to the trust to pay the current year retiree costs?
  • Often referred to as contributing the same dollar amount as the district would expend on the “pay as you go” method
  • No effect on shared cost
contribution same dollar amount as pay as you go41
Contribution same dollar amount as “pay as you go”
  • For you to draw out the insurance premium plus the implicit rate subsidy you need to make a contribution larger than the “pay as you go” or the actual cost to the insurance provider.
  • The implicit rate subsidy when withdrawn from the trust will reduce the total expenditures of the district so that the net between the two will equal the “pay as you go”
contribution same dollar amount as pay as you go42
Contribution same dollar amount as “pay as you go”
  • Example:
    • Contribution $125,820 Expenditure
    • Payment to Ins. Co. $ 86,220 Liability
    • Reimbursement from trust $125,820
      • Implicit rate subsidy $ (39,600) Expenditure
      • Pay as you go amount $ (86,220) Liability
retiree makes a contribution towards health benefit
Retiree makes a contribution towards health benefit
  • If the retiree makes a contribution towards the insurance premium that should be accounted for in fund 73 as a revenue
retiree makes a contribution towards health benefit44
Retiree makes a contribution towards health benefit
  • Example:
    • Sally is a retiree who contributes $30 towards her insurance premium. She pays the district the $30.
    • 73B 711000 $30

73R 952 $30

annual reporting requirements
Annual Reporting Requirements
  • Wisconsin Act 99 , new legislation in regards to trusts, relates to the investment by school districts of funds held in trust to provide postemployment benefits.
  • Act 99 also requires additional annual reporting. (even if the district chooses not to invest under this new authority)
annual reporting requirements46
Annual Reporting Requirements
  • Reporting required for ALL Districts who have established a trust accounted for in fund 73
    • Annual Meeting – Common or Union High School Districts
    • Public Budget Hearing – Unified School Districts
annual reporting requirements47
Annual Reporting Requirements
  • Information to be reported:
    • Amount in the trust
    • Investment return earned since the last annual meeting
    • Total of disbursements made since the last annual meeting
    • Name of the investment manager if investment authority has been delegated.
questions
Questions?
  • Click on the “Ask” button above the speaker box, type in your question, and press “send”
  • If you’re asking a question after the live presentation, please insert your email address so a response can be sent directly to you.
  • Because your input is so important, please take our poll – also located above the speaker box – Thanks!