When do we have to comply with the GASB 45 rules?
Big employers (over $100 million revenue) had to comply in 2007, midsize ($10 million to $100 million revenue) in 2008, everyone else for fiscal years starting in 2009.
What liability shows on our financial statements?
It starts at zero in the first year you comply with GASB 45. Each year it increases by the Annual OPEB Cost, offset by cash contributions and benefit payouts.
Do we have to start pre-funding these benefits?
No. One component of the Annual OPEB Cost is the Annual Required Contribution (ARC). It’s a very misleading term; no cash contribution is actually required. That being said, some employers have decided it makes sense to pre-fund OPEB’s as most have done for pensions.
How often do we need an OPEB valuation?
Every two years if you have 200 or more people, every three years if not.
What happens in the “off” years between valuations?
You may use figures from the latest valuation. Van Iwaarden reports always include estimates of the off-year amounts.
We require our retirees to pay the full cost of their coverage.
Do we have an OPEB?
It depends. If they really pay the full cost of their own coverage, there’s no liability. In most cases, however, retirees pay the same premiums as active employees. Surprisingly, this generates an OPEB liability.
The reason is known as an “implicit rate subsidy”. Suppose the average monthly cost for health coverage is $400, and that’s the amount Jane will pay when she retires. So there’s no employer liability – because Jane will pay the entire cost, right?
Wrong. The true cost for an early retiree’s health coverage is almost always higher than the average. If the true cost is $700 per month and Jane pays $400, there’s an “implicit subsidy” of $300 per month. That’s an OPEB the employer must account for. The expense is recognized over Jane’s career, because it’s part of her overall compensation.
Are there any exceptions for GASB 45 reporting?
Yes. Some common exceptions are:
- Your accounting is on a cash basis, rather than the accrual basis,
- Retirees are not allowed in your health plan,
- Everyone in your plan pays age-related premiums for health insurance,
- You participate in a “community rated” medical plan where premiums are unrelated to age (i.e. your per-member premiums are the same as all other employers in the plan), or
- Your early retirees pay on a different basis than active employees (not permitted in Florida, Iowa, Indiana, Minnesota and some other states)
Do we have to hire an actuary?
Maybe not. GASB has an “Alternative Measurement Method” (AMM) for employers with 100 or fewer plan members. There are even some do-it-yourself (DIY) tools out there. We’d encourage you to check them out. Some vendors charge more to let you use a DIY tool than we do to prepare a signed, certified AMM report.
What’s the advantage of an AMM report signed by a credentialed actuary?
It’s your best assurance that the valuation is done correctly. You can leverage our experience with hundreds of OPEB valuations. And it’s your lowest-cost alternative, especially when you factor in your own time. It will minimize your audit fees: your auditors can rely on our certified report. They can’t rely on a DIY tool, no matter how thoroughly it’s been checked – because there are many assumptions (investment return, turnover, participation, health cost aging, etc.) that factor into an AMM valuation. An online tool’s built-in assumptions may or may not be appropriate for your health plans.
May we see a sample report?
Yes, of course. Just call us toll free at 888.596.5960 or email us at firstname.lastname@example.org, and we’ll be happy to send you a sample – either AMM or a full actuarial valuation report.
How much should it cost for a GASB 45 actuarial valuation?
It varies based on whether you need the AMM or a full actuarial valuation, number of people in your plans, the complexity of your retiree benefit arrangements, cost breakdowns you need, and the quality of the data you provide.
It may cost less than you think, especially if you’re a Phase 1 or Phase 2 employer. We’ve seen some jaw-dropping fee awards, especially in California. The fees have sometimes been two to three times what ours would be for a similar project.
Send us a description of your retiree health benefits, tell us how many people are in your health plans, and we’ll send you a quote. Call toll free at 888.596.5960, email us at email@example.com or fax your info to 612.596.5999.
© 2011 Northern Consulting Actuaries Inc. dba Van Iwaarden Associates