7.1. SR 02-19-2008 - Laserfiche WebLink

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Section V GASB 45 Requirements GASB 45 requirements are summarized below using excerpts from GASB's Plan-Language Summary "...other postemployment benefits (OPEB) are postemployment benefits other Phan pensions. OPEB generally takes the form of health insurance and dental, vision, prescription, or other healthcare benefits provided to eligible retirees, including in some cases their beneficiaries. It may also include some types of life insurance, legal services, and other benefits.... HOW SHOULD GOVERNMENTS PARTICIPATING IN DEFINED BENEFIT PLANS ACCOUNT FOR OPEB? In general, governments should account for and report the annual cost of OPEB and the outstanding obligations and commitments related to OPEB in the same manner as they currently do for pensions. These amounts should be produced by actuarial valuations performed in accordance with parameters established by the GASB. The valuations should be conducted at least every two years for plans that administer OPEB for 200 or more plan members (both active employees and retirees) or at least every three years for plans with fewer than 200. Actuarial valuations generally should follow accepted actuarial practices as set forth by the Actuarial Standards Board. How Should Governments Determine the Cost of OPEB? The process of determining how much should be set aside now in order to provide for future benefits in a defined benefit plan utilizes actuarial methods and assumptions. An actuary's estimate or "valuation" is the product of many o Assumptions, based on historical experience, regarding the factors that determine the level of resources that will be needed in the future to finance benefits. These factors may include, but are not limited to: How many employees a government is expected to have that will receive benefits o How long employees are expected to work for the government o How long employees are expected to live after retiring (and, hence, how many years they will receive benefits) o How much healthcare costs are expected to increase o How large a return a government is expected to receive on its investments. The actuary calculates how much should be contributed now to ensure that an adequate level of resources is available in the future. The future cash outlays for OPEB should be projected based on economic and demographic assumptions such as those mentioned above. These cash outflows would then be discounted to their actuarial present value-their estimated value if paid today-using a discount rate equal to an assumed long-term rate of return on investments. The actuarial present value generally would be spread over a period that approximates the anticipated years of an average worker's employment with the government, utilizing anyone of six acceptable actuarial cost methods. The portion of the actuarial present value allocated to a particular year is called the normal cost. The portions allocated to the remaining years of employment are future normal costs....... The OPEB Liability. The actuarial calculations are required to take into account not only benefits expected to be earned by employees in the future (future normal costs), but also those benefits the employees have already earned...... The portion of the actuarial present value allocated to prior years of employment-and thus not provided for by future normal costs-is Ciry of Elk River, MN Page 6