Transcript Change to DC Plan - Onondaga County, New York

County of Onondaga
GASB Valuation Presentation
Other Post Employment Benefits (OPEBs)
December 5 , 2007
Discussion Agenda
 What are Other Post Employment Benefits (OPEBs)?
 New Governmental Accounting Standards Board
Statements on Accounting for OPEBs
 Valuation results
 Key Assumptions overview
 Redesign and cost savings discussion
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Other Post Employment Benefits
 What are Other Post Employment Benefits (OPEBs)?
– Healthcare Benefits
•
•
•
•
Medical
Dental
Rx
Vision
– Other Benefits – if not part of pension plan
•
•
•
•
Life Insurance
Disability
Group Legal
Long-Term Care
 Post Employment relates to any time period when an
individual is not actively employed, and usually means retired.
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Other Post Employment Benefits
 What are not Other Post Employment Benefits
(OPEBs)?
– Vacation
– Sick Leave
• Sabbaticals
• Accrued Sick Days (Statement 16)
– COBRA
– Special termination benefits
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Onondaga OPEB Plans
• Onondaga Retiree Healthcare
– Healthcare Plans required to be valued under GASB
accounting rules due to subsidization by the County:
• Medical for retirees
• Prescription Drug for retirees
• Survivor Benefits
– Other benefits when paid in full by retirees do not
generate GASB liability
• No implicit subsidy of these benefits
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Overview of Accounting Rules
• Why is GASB implementing a new accounting
standard?
– Current accounting standards fail to recognize the cost
of OPEB when employee services are rendered
– Current accounting standards do not identify the value
of OPEB already “earned” or accrued as a result of
employees’ past service
• Current accounting rules recognize only “pay as you
go” cost
• New Standard creates no obligation to fund the
benefits according to the expense measure
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Overview of Accounting Rules
 Recognize the cost of benefits in periods when the
related services (i.e. active employment) are received
by the employer
 Provide information about the actuarial accrued
liabilities associated with past service
 Whether and to what extent these benefits have been
funded
 Provide information useful in assessing potential
demands on the employer’s future cash flows
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Overview of Accounting Rules
• OPEB standards are structured like GASB’s Pension accounting
& reporting standards
– GASB 25 – Plan’s accounting
– GASB 27 – Employer’s accounting
• Key financial statement components
–
–
–
–
Annual OPEB Cost (annual expense) (AOC)
Annual Required Contribution (ARC)
Net OPEB Obligation (balance sheet liability) (NOO)
Actuarial Liability and Funded Status (disclosure notes) (UAAL)
• Advance funding is not required, but if the ARC is fully funded
– The Net OPEB Obligation will be close to zero
– A potentially more favorable discount rate, depending on
investment strategy, can be used to value the plan
– A more favorable discount rate results in a lower ARC
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GASB Valuation for Onondaga
• GASB 45 – for the Employer, for FYE 2006
• Valuation results were compiled for GASB 45
– Valuation is one year ahead of mandatory adoption
• GASB 45 Effective Dates (follow GASB 34)
Annual Revenue
Phase I >$100m
Phase II >$10m & <$100m
Phase III <$10m
Effective for PY >
12/15/2006
12/15/2007
12/15/2008
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GASB Results
($ in millions)
Total County Responsibilities
Present Value of Benefits Earned to Date
(Actuarial Accrued Liability) for Actives
$388.7
Present Value of Benefits Earned to Date
(Actuarial Accrued Liability) for Retirees
$277.5
Total Present Value of Benefits Earned to
Date (Actuarial Accrued Liability)
$666.2
FYE 2006 Annual OPEB Cost (AOC) * +
$51.6
FYE 2006 Benefit Premiums +
$15.0
* The AOC reflects a 30-year, increasing amortization of the Unfunded Actuarial Accrued Liability.
+ No reduction in costs or liabilities for Retiree Drug Subsidy under Medicare Part D .
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GASB Results
Annual OPEB Cost:
(Amortization increases at 3.83% per year)
($ in millions)
County Responsibility
Service Cost (for active employees)
$28.0
Unfunded Actuarial Accrued
Liability Amortization (of past
service)
$23.5
Annual OPEB Cost
$51.6
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GASB Results
Projected Unfunded Year End Net OPEB Obligation:
($ in millions)
Beginning Net OPEB Obligation (NOO)
Annual OPEB Cost (AOC)
County
Responsibility
$0.0
$51.6
Expected Sponsor Contributions
$16.4
Expected December 31, 2006 Net OPEB
Obligation (NOO)
$35.2
* Expected Sponsor Contributions are benefit payments and RDS payments
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Demographic Information
– The valuation is based on a census as of January 1, 2006
that was provided by the County.
– The following tables summarize active and retiree
demographic information.
Participants
Spouses
Dependents
Total
Actives
4,195
N/A
N/A
4,195
Retirees
2,108
841
151
3,100
N/A
247
N/A
247
6,303
1,088
151
7,542
Survivors
Total
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Assumptions - Eligibility
• In general, eligibility conforms to the eligibility to
receive a retirement benefit from the
corresponding pension plan for the participant
– Need not commence pension immediately to
receive retiree medical from County
– Attainment of age 55 and 5 years of service
– 25 years of service and no minimum age with
retirement plan code 89k
– 20 years of service and no minimum age with
retirement plan code 89B or 552
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Assumptions – Economic
• Discount Rate
– Discount rate based on returns on assets used to
pay benefits
– Unfunded plans generate greater liabilities than
identical funded plans
– Unfunded discount rate must be consistent with
short term returns – 4.25% assumed
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Summary of OPEB remarks
• OPEB standards are structured like GASB’s Pension
accounting & reporting standards
– GASB 25 – Plan’s accounting
– GASB 27 – Employer’s accounting
• Advance funding is not required, pay as you go
methods can be maintained
• Adoption by the County is necessary for FYE 2007
– Annual OPEB Cost (annual expense)
– Net OPEB Obligation (balance sheet liability)
– Actuarial Liability and Funded Status (disclosure notes)
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Retiree Medical Redesign Parameters
• Eligibility – who gets the benefit
• Financial Commitment – how much is the cost to the
plan sponsor
• Benefit Delivery – what benefit levels are covered by
the subsidy
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Eligibility Changes
• Turning the financial commitment “off” for some
groups of individuals
– Usually new hires are an easy target
– Younger groups (e.g. younger than 40)
• Requiring more service, or an older age to commence
benefits
– For example, 60 versus 55
– Can require different retirement definition than the
corresponding pension plan
• Hybrid approach – linking financial commitment to
service, usually by a formula
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Typical Company Financial Approaches
• Defined Benefit variations
– Frozen/Grandfathered Plan
– Points System/Age & Service based premium sharing
– Various Coordination Strategies
• Financial Design Alternatives
• “No Plan” Alternatives
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–
–
–
–
Access Only Plan
HSAs while active
HRAs while active
401(k) increase
Other Pension trading
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Retiree Medical Financial Models
More
Defined Benefit
Defined Dollar Benefit
Aggregate Account
Employer Risk
and
Responsibility
True Defined Contribution
Risk
+
Responsibility
OPEB Vals
Stops Here
Access Only /
No Plan
More
Retiree Risk and
Responsibility
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Retiree Benefits Delivery Alternatives
• Employer-sponsored plan (current arrangement)
– Plan designed by employer
– Plan often mirrors active benefits
– Administered by employer and TPA/insurer
• Reducing level of benefits a common occurrence in
private sector
– Virtually every year, small changes
– Infrequently, significant changes
– Medicare Advantage is being investigated by many
public sector employers as a cost savings mechanism
with little cost shift
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Retiree Benefits Delivery Alternatives
• Group Medicare Advantage
– Plan replaces both Medicare Parts A + B and current
retiree plan
– Employer negotiates with insurance carriers to offer
coverage
– Plan can be customized; e.g., to mirror active plan
– Rates based on group’s characteristics
• Private Fee For Service garnering significant attention
– Not a network-style plan
– May reproduce existing plan design at lower cost
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