IMPLEMENTATION GUIDE
Guide to Implementation of
GASB Statements 43 and 45 on
Other Postemployment Benefits
Questions and Answers
Governmental Accounting Standards Board
of the Financial Accounting Foundation
GASB IMPLEMENTATION GUIDES
Comprehensive Implementation Guide—2004: Questions and Answers (GSIG04)
Guide to Implementation of GASB Statement 3 on Deposits with Financial Institutions, Investments (including
Repurchase Agreements), and Reverse Repurchase Agreements: Questions and Answers (GQA03)
Guide to Implementation of GASB Statement 9 on Reporting Cash Flows of Proprietary and Nonexpendable Trust
Funds and Governmental Entities That Use Proprietary Fund Accounting: Questions and Answers (GQA09)
Guide to Implementation of GASB Statement 10 on Accounting and Financial Reporting for Risk Financing and Related
Insurance Issues: Questions and Answers (GQA10)
Guide to Implementation of GASB Statement 14 on the Financial Reporting Entity: Questions and Answers (GQA14)
Guide to Implementation of GASB Statements 25, 26, and 27 on Pension Reporting and Disclosure by State and Local
Government Plans and Employers: Questions and Answers (GQA25–27)
Guide to Implementation of GASB Statement 31 on Accounting and Financial Reporting for Certain Investments and for
External Investment Pools: Questions and Answers (GQA31)
Guide to Implementation of GASB Statement 34 on Basic Financial Statements—and Management’s Discussion and
Analysis—for State and Local Governments: Questions and Answers (GQA34)
Guide to Implementation of GASB Statement 34 and Related Pronouncements: Questions and Answers (GQA34B)
Guide to Implementation of GASB Statement 40 on Deposit and Investment Risk Disclosures: Questions and Answers
(GQA40)
Guide to Implementation of GASB Statements 43 and 45 on Other Postemployment Benefits: Questions and Answers
(GQA43/45)
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IMPLEMENTATION GUIDE
Guide to Implementation of
GASB Statements 43 and 45 on
Other Postemployment Benefits
Questions and Answers
Governmental Accounting Standards Board
of the Financial Accounting Foundation
401 Merritt 7, PO Box 5116, Norwalk, Connecticut 06856-5116
Copyright © 2005 by Governmental Accounting Standards Board. All rights reserved. No part of this publication
may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior written permission of the Governmental Accounting Standards Board.
FOREWORD
This Implementation Guide was developed to assist financial statement preparers and attestors in the implementation and ongoing application of GASB Statements No. 43, Financial Reporting for Postemployment Benefit Plans
Other Than Pension Plans, and No. 45, Accounting and Financial Reporting by Employers for Postemployment
Benefits Other Than Pensions. Many questions have been posed to GASB staff regarding the application of the
Statements. Because staff responses to individual technical inquiries reach only a small portion of the GASB’s
constituents, the GASB adopted the Implementation Guide concept to broaden the application of staff guidance.
Guidance in an Implementation Guide is limited to clarifying, explaining, or elaborating on an underlying standard
(usually a Statement, Interpretation, or Technical Bulletin). The topics addressed may include issues raised by
constituents in due process or as a result of subsequent application of a standard, as well as issues anticipated by
the GASB staff. An Implementation Guide also may address issues related to the application of a standard to specific
industries. Generally, a GASB Statement, Interpretation, or Technical Bulletin would be more appropriate to address
new issues or to amend existing guidance on issues previously addressed.
The GASB’s Implementation Guides are classified as category (d) in the hierarchy of generally accepted accounting
principles, as set forth in paragraph 12d of AICPA Statement on Auditing Standards No. 69, The Meaning of “Present
Fairly in Accordance with Generally Accepted Accounting Principles” in the Independent Auditor’s Report (SAS 69).
Category (d) includes “practices or pronouncements that are widely recognized as being generally accepted because
they represent prevalent practice in a particular industry, or the knowledgeable application to specific circumstances
of pronouncements that are generally accepted.” SAS 69 specifically states in the “Application to State and Local
Governmental Entities” section that “category (d) includes implementation guides (Qs and As) published by the GASB
staff. . . .” However, the illustrative examples accompanying the text of this Implementation Guide are nonauthoritative guidance.
This guide was prepared and published in accordance with the GASB’s Implementation Guide procedures. These
procedures require public announcement of the project, exposure of the proposed guide to the Board and an advisory
committee, and approval of the final guide by the director of research. Moreover, an Implementation Guide will not be
published if a majority of Board members object to its issuance.
The publication of this guide would not have been possible without the concerted efforts of the GASB staff and the
advisory committee. Assistant project manager Michelle L. Czerkawski and project manager Karl D. Johnson served
as the primary staff authors in the development of this guide.
The application of GASB pronouncements is an ongoing process. A guiding principle in the GASB’s mission
statement addresses the need to review the effects of past decisions and to provide additional guidance when
appropriate. This Implementation Guide represents just one of the many methods that the GASB uses to fulfill this
important responsibility.
Norwalk, Connecticut
June 2005
David R. Bean
Director of Research
iii
PREFACE
This Implementation Guide is intended to serve as a reference and an instructional tool. It is designed to help users
in applying the provisions of recently issued GASB Statements on accounting and reporting for postemployment
benefits other than pensions (commonly referred to as other postemployment benefits, or OPEB). Statement No. 43,
Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, was issued in March 2004, and
Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than
Pensions, followed in June of that year.
The body of this question-and-answer book (Q&A) consists of questions on various aspects of Statements 43
and 45. The questions and answers are based on constituent responses to the Exposure Drafts that led to the
Statements, technical inquiries arising from the issuance of the Statements, Board deliberations, and insight by both
staff and the guide’s advisory committee. The questions and answers serve two purposes: (a) they are ready
references for implementers who may encounter similar questions or situations, and (b) they provide a basis for
resolving issues that an implementer may apply to a question or situation not specifically addressed in this
Implementation Guide. Users of the guide will note that although Statement 43 on OPEB plan reporting was issued
before Statement 45 on employer reporting for OPEB, issues related to Statement 45 are addressed first in this
publication because of that Statement’s generally broader applicability.
The appendixes included in the guide are intended to supplement the questions and answers. The glossary of
terms presented in Appendix 1 is compiled from paragraph 46 of Statement 43 and paragraph 40 of Statement 45.
Similarly, the actuarial terminology in Appendix 2 is reproduced from paragraph 47 of Statement 43 and paragraph 41
of Statement 45. Likewise, the Standards sections from Statements 43 and 45 are reproduced in Appendix 8 and
Appendix 3, respectively. Appendixes 4 through 6 present illustrations from Statement 45, and Appendix 9 contains
illustrations from Statement 43. Appendix 7 is based on the illustrations of the alternative measurement method that
were presented in Statements 43 and 45 and includes expanded illustrations of actuarial cost methods allowed by
those Statements for that purpose. In addition, a topical index, which is intended to help readers locate questions and
answers on specific matters, is included.
In preparing this Implementation Guide, we had the support of an advisory committee whose members represent
diverse interests in the fields of accounting and finance. Their comments and suggestions were very helpful and
significantly improved the finished guide. Members of the advisory committee are:
Name
Affiliation
Joseph K. Beeler
Eric Berman
Roger Dickson
Russell Fleming
Michael Fritz
Stephen J. Gauthier
James J. Jaskot
Betty Ann Kane
Frederick G. Lantz
Mike Mills
J. Virgil Moon
Craig Murray
Kevin O’Connell
Patricia O’Connor
Adam J. Reese
William Reimert
James J. Rizzo
Palmer & Cay
Commonwealth of Massachusetts
School District of Kettle Moraine, Wisconsin
University of Michigan–Ann Arbor
Deloitte & Touche LLP
Government Finance Officers Association
Town of Cheshire, Connecticut
District of Columbia Retirement Board
Sikich Gardner & Co, LLP
Retirement Systems of Alabama
Cobb County, Georgia
State of Michigan
Macias, Gini & Company, LLP
National Association of State Auditors, Comptrollers and Treasurers
The Hay Group
Milliman and Robertson, Inc.
Gabriel, Roeder, Smith & Company
v
The members of the advisory committee do not necessarily approve of or agree with the answers given, and are
not responsible for the information provided in this Implementation Guide.
The authors would like to thank those involved in the editing and production of this guide, including GASB staff Ellen
Falk and Patti Waterbury; the Financial Accounting Foundation’s Production department; and others who provided
research assistance and support.
Michelle L. Czerkawski
Karl D. Johnson
vi
IMPLEMENTATION GUIDE
Guide to Implementation of GASB Statements 43 and 45 on Other Postemployment Benefits
Questions and Answers
CONTENTS
Page
Numbers
Foreword ..........................................................................................................................................................
iii
Preface.............................................................................................................................................................
v
Question
Numbers
Questions and Answers
Statement 45................................................................................................................................................
1–212
Introduction...............................................................................................................................................
1–
Scope and Applicability of This Statement ..............................................................................................
4– 27
Previous Statements Amended or Superseded ..................................................................................
4–
3
5
Applicability Not Conditioned on Method of Financing .......................................................................
6
Classifying Benefits Administered by a Defined Benefit Pension Plan for Accounting Purposes.....
7– 12
Distinguishing between OPEB and Pension Benefits—Additional Circumstances............................
13– 18
Distinguishing between Defined Benefit and Defined Contribution OPEB ........................................
19
Distinguishing between OPEB and Termination Benefits ...................................................................
20– 21
Accounting for Unused Sick Leave to Healthcare Conversions.........................................................
22– 24
Accounting for Disability Benefit Programs .........................................................................................
25– 26
Accounting for Workers’ Compensation Benefits................................................................................
27
Employers with Defined Benefit OPEB Plans.........................................................................................
28–150
Sole and Agent Employers...................................................................................................................
28–126
Measurement of Annual OPEB Cost and Net OPEB Obligation ....................................................
29–114
Calculation of the ARC (the Parameters)....................................................................................
34–107
Timing and Frequency of Actuarial Valuations .......................................................................
36–44
Actuarial Methods and Assumptions for Accounting and Funding Purposes .......................
45–48
Benefits to Be Included ...........................................................................................................
49–76
The Substantive Plan and Historical Pattern of Sharing Benefit Costs between the
Employer and Plan Members ...........................................................................................
56–57
Projected Healthcare Benefits for Retirees Based on Claims Costs or Age-Adjusted
Premiums for Retirees ......................................................................................................
58–65
Exception for Certain Employers That Participate in Community-Rated Plans ...............
66–70
vii
Question
Numbers
Benefit Caps ........................................................................................................................
71–73
Benefits to Be Provided through Allocated Insurance Contracts.......................................
74–76
Actuarial Assumptions .............................................................................................................
77–78
Economic Assumptions (Discount Rate).................................................................................
79–83
Actuarial Cost Method .............................................................................................................
84–86
Actuarial Value of Assets .........................................................................................................
87–88
Annual Required Contributions of the Employer (the ARC) ..................................................
89–99
Equivalent Single Amortization Period ...............................................................................
93–94
Minimum Amortization Period.............................................................................................
95–96
Amortization Method...........................................................................................................
97–99
Employer Contributions in Relation to the ARC .....................................................................
100–107
Criteria for Determining When an Employer Has Made a Contribution in Relation to
the ARC .............................................................................................................................
100–101
Means of Financing That Should Not Be Accounted for as Contributions in Relation to
the ARC .............................................................................................................................
102–104
Amortization of a Contribution Deficiency or Excess Contribution ...................................
105–107
Calculation of Interest on the Net OPEB Obligation and the Adjustment to the ARC ..............
108–114
Recognition of OPEB Expense/Expenditures, Liabilities, and Assets ............................................
115–126
Recognition in Modified Accrual Basis Financial Statements.....................................................
119
Recognition in Accrual Basis Financial Statements....................................................................
120–126
Cost-Sharing Employers ......................................................................................................................
127–134
Notes to the Financial Statements.......................................................................................................
135–141
Required Supplementary Information ..................................................................................................
142–146
Insured Benefits....................................................................................................................................
147–150
Employers with Defined Contribution Plans............................................................................................
151–153
Special Funding Situations ......................................................................................................................
154–158
Alternative Measurement Method for Employers in Plans with Fewer Than One Hundred
Plan Members ........................................................................................................................................
159–198
Simplification of Assumptions ..............................................................................................................
170–185
Expected Point in Time at Which Benefits Will Begin to Be Provided ...........................................
170–172
Marital and Dependency Status .......................................................................................................
173–174
Mortality.............................................................................................................................................
175
Turnover ............................................................................................................................................
176–178
Healthcare Cost Trend Rate.............................................................................................................
179–181
Use of Health Insurance Premiums .................................................................................................
182–183
Plans with Coverage Options...........................................................................................................
184
Use of Grouping................................................................................................................................
185
Use of Default Assumptions.................................................................................................................
186–195
viii
Question
Numbers
Probability of Remaining Employed and Expected Future Working Lifetime of Plan Members ...
186–191
Paragraph 35a..............................................................................................................................
186–187
Paragraphs 35b and 35c .............................................................................................................
188–191
Age-Adjusted Premiums ...................................................................................................................
192–195
Actuarial Cost Method and Amortization.............................................................................................
196–197
Note Disclosures...................................................................................................................................
198
Effective Date and Transition...................................................................................................................
199–212
OPEB Liabilities (Assets) at Transition (Defined Benefit OPEB Plans) .............................................
205–212
Sole and Agent Employers...............................................................................................................
205–209
Cost-Sharing Employers...................................................................................................................
210–211
Disclosures........................................................................................................................................
212
Statement 43................................................................................................................................................
213–258
Introduction...............................................................................................................................................
213–216
Scope and Applicability of This Statement ..............................................................................................
217–225
Public Employee Retirement Systems ................................................................................................
221–225
OPEB Plans That Are Administered as Trusts (or Equivalent Arrangements).......................................
226–252
Statement of Plan Net Assets ..............................................................................................................
227–230
Assets................................................................................................................................................
227–228
Receivables ..................................................................................................................................
227–229
Investments ..................................................................................................................................
229
Liabilities............................................................................................................................................
230
Statement of Changes in Plan Net Assets ..........................................................................................
231–233
Notes to the Financial Statements.......................................................................................................
234–240
The Parameters....................................................................................................................................
241–246
Required Supplementary Information ..................................................................................................
247–252
Schedule of Funding Progress.........................................................................................................
248–249
Schedule of Employer Contributions ...............................................................................................
250–251
Notes to the Required Schedules ....................................................................................................
252
Alternative Measurement Method for Plans with Fewer Than One Hundred Plan Members...........
page 74
OPEB Plans That Are Not Administered as Trusts (or Equivalent Arrangements)................................
253–255
Defined Contribution Plans ......................................................................................................................
256
Effective Date and Transition...................................................................................................................
257–258
ix
Page
Numbers
Appendix 1: Glossary of Terms (from Statements 43 and 45) ......................................................................
77
Appendix 2: Actuarial Terminology (from Statements 43 and 45) .................................................................
85
Appendix 3: Introduction and Standards Sections (from Statement 45) .......................................................
91
Appendix 4: Accounting Procedures for Annual OPEB Cost When an Employer Has a Net OPEB
Obligation (from Statement 45) ...................................................................................................................
115
Appendix 5: Illustrations of Disclosures (from Statement 45)........................................................................
123
Appendix 6: Illustrations of Equivalent Single Amortization Period Calculations (from Statements 43
and 45) .........................................................................................................................................................
139
Appendix 7: Illustrations of Calculations Using the Alternative Measurement Method ................................
143
Appendix 8: Introduction and Standards Sections (from Statement 43) .......................................................
197
Appendix 9: Illustrations of Financial Statements and Disclosures (from Statement 43) .............................
219
Topical Index ....................................................................................................................................................
231
x
The Governmental Accounting Standards Board has authorized its staff to prepare Implementation Guides that
provide timely guidance on issues encountered during the implementation and application of GASB pronouncements. The GASB has reviewed this Implementation Guide and does not object to its issuance.
The information in this Implementation Guide need not be applied to immaterial items.
QUESTIONS AND ANSWERS
Statement 45
Introduction
1.
Q—How are the requirements of Statement No. 45, Accounting and Financial Reporting by Employers for
Postemployment Benefits Other Than Pensions, similar to and different from the requirements of Statement
No. 27, Accounting for Pensions by State and Local Governmental Employers?
A—The requirements of Statement 45 reflect the same overall approach to measurement, recognition, and
financial reporting adopted in Statement 27 for pensions. In addition, to the extent appropriate, specific
requirements of Statement 45 are similar to the corresponding requirements of Statement 27; however, specific
requirements of the two Statements differ in some respects to accommodate differences between pension
benefits and other postemployment benefits (OPEB). For example, Statement 45:
a. Provides more extensive guidance on issues specific to OPEB with regard to the determination of benefits
to be provided for actuarial valuation purposes—including determination of the substantive plan, separate
accounting for postemployment benefits such as healthcare when provided through the same group with
active-employee benefits, and consideration of an effective legal or contractual cap on the employer’s share
of benefits when projecting benefits
b. Carries forward the Statement 27 provision that the discount rate assumption should be based on the
long-term expected rate of return on investments but broadens its application to accommodate unfunded
and partially funded OPEB plans as well as funded plans
c. Provides criteria for determining when an employer has made a contribution to an OPEB plan (as distinct
from earmarking employer assets with the present intention of making future contributions to an OPEB plan)
d. Provides criteria for determining whether a multiple-employer OPEB plan to which an employer contributes
qualifies as a cost-sharing plan for purposes of the Statement, and provides accounting and financial
reporting requirements for employers in nonqualifying plans
e. Requires that a sole or agent employer disclose the funded status of the plan in the notes to the financial
statements (not required by Statement 27), in addition to presenting a multi-year required supplementary
schedule of funding progress
f. Requires that an employer that uses the aggregate actuarial cost method to determine the annual required
contribution of the employer (the ARC) also present funded status and funding progress information using
as a surrogate the entry age actuarial cost method (not required by Statement 27)
g. Requires that cost-sharing employers present the required supplementary schedules of funding progress
and employer contributions that the plan would otherwise present, if the plan does not issue a publicly
available stand-alone financial report prepared in conformity with Statement No. 43, Financial Reporting for
Postemployment Benefit Plans Other Than Pension Plans, and the plan is not included in the financial report
of a public employee retirement system (PERS) or another entity
1
h. Provides a measurement method that may be applied, as an alternative to an actuarial valuation in
accordance with the parameters, by sole and agent employers that meet the criteria set forth in paragraph
11 of Statement 45.
2.
Q—To what does the term OPEB “plan” refer in Statement 45?
A—The term plan is not defined in the glossary of Statement 45. However, as used in that Statement, the term
usually refers to an employer’s substantive commitment or agreement to provide OPEB—including, for example,
provisions or understandings regarding the plan membership, eligibility for benefits, the types of benefits to be
provided, the points at which the payment or provision of benefits will begin and end, and the method by which
the benefits will be financed. It should be noted, however, that the term may be used in a different sense in some
contexts—that is, as referring to a trust or agency fund used to administer the financing and payment of benefits.
The context generally should demonstrate in which sense the term is being used. (Also see the discussion in
question 213 regarding the use of the term plan in Statement 43.)
3.
Q—What is the relationship of Statement 45 to Statement 43, and how does a government determine which
Statement or Statements apply?
A—Statement 45 applies to any employer that provides OPEB (that is, the employer pays all or part of the cost
of the benefits, including implicit rate subsidies). It establishes the requirements for measurement and recognition of the employer’s expense or expenditures and liabilities and for related disclosures and required
supplementary information related to the employer’s OPEB commitment.
Statement 43 applies to a trustee or administrator of an OPEB plan, referring in that context to a trust or agency
fund used to administer the financing and payment of benefits, or to an employer or sponsor that includes an
OPEB plan as a trust or agency fund in its own financial report. It establishes the requirements for reporting the
responsible entity’s stewardship of the assets that will be used to finance the payment of benefits as they come
due.
An employer that provides OPEB is subject to the requirements of Statement 45. Whether Statement 43 also
applies generally will depend on whether the employer includes an OPEB plan as a trust or agency fund in its
own financial report. If so, then the employer should follow the applicable requirements of both Statement 45
(related to the employer’s OPEB expense and liabilities) and Statement 43 (related to the trust or agency fund).
However, for many employers (for example, sole employers that have not established an OPEB trust or
equivalent arrangement and employers that participate in but are not the sponsors of multiple-employer plans),
only Statement 45 may apply.
Scope and Applicability of This Statement
Previous Statements Amended or Superseded
4.
Q—An employer provides healthcare benefits to both active employees and retirees through the same plan.
May the employer continue to account for the retiree healthcare benefits along with the active-employee
benefits under the requirements of Statement No. 10, Accounting and Financial Reporting for Risk Financing
and Related Insurance Issues, rather than applying the requirements of Statement 45, if the retiree benefits are
accounted for based on claims events that already have occurred?
A—No. Statement 45 amends paragraph 2 of Statement 10 to exclude entirely from the scope of Statement 10
accounting for transactions resulting when an entity provides healthcare benefits to its retirees. The employer
should account separately for the healthcare benefits for active employees and for retirees in the group and
should account for the retiree healthcare benefits in accordance with the requirements of Statement 45.
2
5.
Q—An employer that finances postemployment healthcare benefits (OPEB) on a pay-as-you-go basis has for
many years disclosed descriptive information about the benefits provided, the approximate amount of total
healthcare expenditures/expense that was for retirees, and the number of participants currently eligible to
receive benefits. Should the employer continue to provide those disclosures along with the disclosures required
by Statement 45?
A—No. The disclosures described were requirements of Statement No. 12, Disclosure of Information on
Postemployment Benefits Other Than Pension Benefits by State and Local Governmental Employers. Statement 12 requirements are superseded by the disclosure requirements of Statement 45.
Applicability Not Conditioned on Method of Financing
6.
Q—If no OPEB plan (in the sense of a trust, or equivalent arrangement), has been established, and the
employer does not contribute more than the pay-as-you-go requirement each year (that is, no plan net assets
are being accumulated), is the employer required to apply the measurement and recognition requirements of
Statement 45 if it is providing defined benefit postemployment healthcare benefits?
A—Yes. The requirements of Statement 45 apply “regardless of how or when OPEB provided by the plan is
financed.” (Also see the discussion in question 2 regarding the usage of the term plan in Statement 45.)
Classifying Benefits Administered by a Defined Benefit Pension Plan for Accounting Purposes
7.
Q—Do the requirements of Statement 45 apply to an employer’s expense and liabilities related to postemployment healthcare benefits if those benefits are administered through a defined benefit pension plan?
A—Yes. As discussed in paragraph 7 of Statement 45, postemployment healthcare benefits (such as medical,
dental, vision, hearing, or other health-related benefits) are classified as OPEB for accounting and financial
reporting purposes, whether the postemployment healthcare benefits are provided separately or are administered by a defined benefit pension plan. In the latter case, the employer should account for its expenses and
liabilities related to two benefit plans—a pension plan (in conformity with Statement 27) and an OPEB plan (in
conformity with Statement 45). Similarly, from the plan administrator’s perspective, the two plans should be
reported separately—the pension plan in conformity with Statement 25, and the postemployment healthcare
(OPEB) plan in conformity with Statement 43.
8.
Q—In addition to retirement income and postemployment healthcare, the defined benefit pension plan in which
an employer participates also provides life insurance and long-term care benefits. Does Statement 45 require
that these benefits, when offered through a defined benefit pension plan, be accounted for separately as OPEB?
A—No. Except for postemployment healthcare benefits (always OPEB), when other nonpension benefits are
provided through a defined benefit pension plan, those benefits should be accounted for as pension benefits in
conformity with Statements 27 (employer) and 25 (plan).
9.
Q—Would the answer to question 8 be different if the circumstances were modified so that life insurance or
long-term care benefits were provided separately, rather than through a defined benefit pension plan?
A—Yes. In that case, the life insurance or long-term care benefit (or any form of postemployment benefit other
than retirement income) should be accounted for as OPEB in conformity with Statement 45 (employer) and, if
applicable, Statement 43 (plan).
3
10.
Q—An employer makes a single contribution, designated as a pension contribution, to a defined benefit pension
plan (single-employer, agent multiple-employer, or cost-sharing multiple-employer) each year. However, the
pension plan provides to retirees not only pension benefits but also postemployment healthcare benefits
(classified by the GASB as OPEB) under the provisions of Internal Revenue Code Section 401h. Do Statements 27 and 45 require accounting for the pension benefits and postemployment healthcare benefits as
separate plans and require allocation of plan assets and the employer’s contribution to the plan between
pension and OPEB contributions?
A—Yes. The employer (in cooperation with the plan administrator, if applicable) should account separately for
its expenses and liabilities for pension benefits (in conformity with Statement 27) and for postemployment
healthcare benefits (in conformity with Statement 45). This would require, in part, allocation between pensions
and OPEB of both the employer’s total contribution and the total plan net assets, and separate actuarial
valuations and calculations related to the two plans. The Statements do not specify the manner in which the
allocations necessary to accomplish separate accounting should be made, because that will depend on the
specific circumstances, including the benefit structure and terms and the method(s) of financing the pension and
postemployment healthcare benefits.
11.
Q—How might the employer and the plan in question 10 allocate employer contributions and plan net assets
between pension benefits and OPEB if the PERS transfers into the Section 401h healthcare account established
within the pension trust fund each year the amount needed to finance postemployment healthcare benefits on
a pay-as-you-go basis?
A—In the circumstances described, the amount transferred into the Section 401h healthcare account is equal
to the amount needed to pay healthcare benefits to retirees for the year, leaving no net assets in that account
after those benefits have been paid. The employer’s total contribution into the pension trust fund and the total
plan net assets might appropriately be allocated between pension benefits and OPEB as follows:
• Of the employer’s total contribution, the employer and the PERS might appropriately allocate to OPEB an
amount equal to the amount transferred into the 401h account to finance healthcare benefits for the year.
• All plan net assets might appropriately be allocated to the pension plan, because the OPEB plan is unfunded
as a result of the pay-as-you-go financing policy.
12.
Q—How would the answer to question 11 in regard to the allocations of employer contributions and plan net
assets be affected if the PERS transfers into the Section 401h healthcare account each year an amount greater
than required to finance healthcare benefits on a pay-as-you-go basis, but within the limitations imposed by
Section 401h?
A—In the revised circumstances, the employer and the plan might appropriately allocate to OPEB a portion of
the employer’s total contribution equal to the amount transferred to the Section 401h healthcare account for the
year. The plan also might appropriately allocate to OPEB plan net assets the portion of the total pension trust
fund net assets represented by the balance of the 401h account.
4
Distinguishing between OPEB and Pension Benefits—Additional Circumstances
13.
Q—A city’s defined benefit pension plan for firefighters provides a health insurance subsidy in the form of an
additional monthly cash payment to each pension recipient. Should the city and the plan administrator account
for the health insurance subsidy (a) as OPEB, because it is described as assisting pension recipients pay for
health insurance, or (b) as an additional pension benefit, because it is in effect additional fungible retirement
income that recipients could use either for healthcare or for other purposes?
A—The use of the health insurance subsidy provided as an additional monthly cash payment to retirees and
beneficiaries is effectively not restricted to payment of health insurance and, therefore, the subsidy should be
considered retirement income. It should be accounted for as part of the pension benefits provided by the defined
benefit pension plan. (Also see questions 15–18.)
14.
Q—In addition to a monthly retirement benefit from a defined benefit pension plan, an employer provides a
modest amount of life insurance for retirees. The life insurance benefits are administered by the PERS that also
administers the defined benefit pension plan. If the assets for the life insurance benefits are commingled for
investment purposes with the assets of the pension plan but are accounted for separately, and if the financing
for the life insurance benefits (usually a one-year term insurance basis) is separate from the financing for the
monthly pension benefit, should the life insurance benefit be considered a pension benefit or an OPEB for
accounting and financial reporting purposes?
A—In the circumstances described, the life insurance benefit is administered separately from the defined benefit
pension plan. Although assets related to both benefits are combined for investment purposes, separate
accounting is maintained. Therefore, as discussed in question 9, the life insurance plan is considered OPEB for
accounting purposes, and Statement 45 applies.
15.
Q—The employment contract between a government and certain of its employees includes a provision that, in
addition to other compensation, retirees will receive one or more cash payments defined in terms of a dollar
amount or a formula. (For example, the payments may be defined as a percentage of final salary.) For
accounting purposes, what type of benefit is this (for example, is it OPEB, a pension benefit, or a termination
benefit), and what is the criterion or process for classification?
A—The first determination that should be made is for what purpose the benefit is given. That is, are the cash
payments compensation for an employee’s services, or are they offered as an early termination incentive? If the
benefit is part of the employment contract and is not conditioned on early termination of employment, these
factors would strongly indicate that the benefit is part of an employee’s total compensation for services; thus,
it is a postemployment benefit. The second determination that should be made is whether the cash payments
are a pension benefit or an OPEB (postemployment benefit other than a pension benefit) for accounting
purposes. Based on the definitions of pension benefits and other postemployment benefits in the glossaries of
Statements 25, 27, 43, and 45, the cash payments, however labeled, are “retirement income” and, therefore, a
pension benefit that should be accounted for in accordance with the requirements of Statement 27. The cash
payments do not fit the definition of OPEB because they are not (a) a postemployment healthcare benefit or,
more pertinently, (b) a postemployment benefit that is “provided through a plan that does not provide retirement
income . . . ” (emphasis added).
5
16.
Q—Would the answer to question 15 change if the contract calculates a benefit amount, and the employee has
a one-time option (a) to take the benefit in the form of a direct cash payment(s) or (b) to participate in the
employer’s healthcare insurance group with active employees and to have the employer apply the calculated
benefit amount to offset the cost of health insurance premiums to a third-party insurer until the benefit amount
is exhausted?
A—No. The benefit in the modified scenario described would be considered a pension benefit because it retains
the character of unrestricted retirement income. That is, there is the option to use the benefit in any way the
retiree sees fit, and whether the retiree chooses to use the benefit to purchase health insurance through the
employer’s plan or for some other purpose does not affect the classification of the benefit for accounting
purposes. However, in this scenario, because retirees may obtain health insurance by participating in a group
with active employees, the employer also may have a postemployment healthcare benefit to report under
Statement 45 if any portion of the retirees’ healthcare costs, including implicit rate subsidies, is paid for by the
employer. (See questions 58–65.)
17.
Q—Would the answer to question 16 change if the retiree may use the amount of the benefit only to offset
the cost of premium payments for participation in the employer’s healthcare insurance group with active
employees?
A—Yes. Because the benefit is limited to the provision of healthcare coverage, it would be considered OPEB,
and the requirements of Statement 45 would apply.
18.
Q—Would the answer to question 17 change if the plan provides that any remaining benefit amount is forfeited
by the retiree in the event of the retiree’s death or exit from the plan?
A—No. Potential forfeiture of benefits likely will be considered by the actuary in the projection of future benefits;
however, the benefit would be considered OPEB for accounting purposes.
Distinguishing between Defined Benefit and Defined Contribution OPEB
19.
Q—Rather than providing defined healthcare services (for example, medical office visits, prescription drugs,
and hospitalization), an employer pays a specified dollar amount ($300 per month) during retirement toward the
cost of each retiree’s healthcare costs. Are those contributions considered to be payments to a defined
contribution plan?
A—No. The terms of this plan specify a $300 per month benefit to be provided to plan members after they
terminate employment. This fits the characteristics of a defined benefit OPEB plan discussed in paragraph 5 of
Statement 45, as follows:
. . . Defined benefit OPEB plans are plans having terms that specify the benefits to be provided
after separation from employment. The benefits may be specified in dollars (for example, a flat dollar
payment or an amount based on one or more factors such as age, years of service, and compensation), or as a type or level of coverage (for example, prescription drugs or a percentage of
healthcare insurance premiums). . . . (Emphasis modified.)
In contrast, paragraph 5 of Statement 45 specifies that a defined contribution plan is one in which the following
characteristics are present:
a. The terms of the plan provide an individual account for each plan member.
b. Member and employer contributions to a member’s account are made while a member is in active service.
6
c. The terms of the plan specify how those contributions are to be determined, rather than the level of benefits
a plan member will receive at or after separation from employment, and the benefits that a member will
receive depend solely on the amounts contributed and the earnings achieved on investment of the amounts
contributed. (Some defined contribution plans also may provide for allocation of forfeitures of contributions
made for other members to remaining members’ accounts.)
The plan in question has none of the preceding characteristics of a defined contribution plan. Rather, individual
accounts are not maintained, contributions are not made to individual accounts while a member is in active
service, and the terms of the plan do not make the benefits that a member will receive dependent solely on the
amounts contributed prior to the member’s termination of employment and the earnings experienced on
investment of the member’s account.
Distinguishing between OPEB and Termination Benefits
20.
Q—A government decides to offer an early retirement incentive in the form of healthcare benefits for five years
to any employee with at least twenty years of service. The government does not provide postemployment
healthcare benefits to employees that terminate at the full retirement age of sixty-five or thereafter. Should this
benefit be accounted for as OPEB?
A—The benefit described is in the form of healthcare benefits to be given after employment, which seems to
suggest that it might be OPEB. However, in determining how to classify and account for benefits given in the
form of healthcare, it also is necessary to consider the purpose for which they are given. The application of
professional judgment is required to distinguish whether postemployment healthcare benefits are given by an
employer (a) as compensation for employee services—in which case they should be accounted for as OPEB
in conformity with Statement 45—or (b) as an inducement to employees to hasten the termination of their
services—in which case they should be accounted for as a termination benefit. In the situation described, the
fact that the healthcare benefits are conditioned on an employee’s acceptance of the employer’s early
termination offer and are provided as an incentive for the employee to do so indicates that the nature of the
benefit is a termination benefit, rather than compensation for senior employees’ twenty years or more of service.
If so, the benefits should not be accounted for as OPEB. Rather, if the benefits are termination benefits, as the
term is used in Statement No. 47, Accounting for Termination Benefits, they should be accounted for in
accordance with the applicable requirements of that Statement.
21.
Q—Would the accounting in question 20 be affected if there were preexisting postemployment healthcare
benefits provided to eligible retirees sixty-five or older, and acceptance of the employer’s early termination offer
would extend the duration of those benefits to include ages fifty-five through sixty-four, as well?
A—Yes. Although the benefit in this scenario is a termination benefit, Statements 45 and 47 require that in the
case of a termination benefit that is given in the form of an enhancement of the terms of an existing
postemployment healthcare benefit (for example, by extending the period of time for which benefits are
provided, as in the situation described), the effects of that incentive on the existing postemployment healthcare
benefit should be accounted under the requirements of Statement 45.
7
Accounting for Unused Sick Leave to Healthcare Conversions
22.
Q—When an employer converts terminated employees’ unused sick leave balances to individual healthcare
accounts to be applied to postemployment healthcare premiums or claims costs, does any of the following
activities constitute OPEB: the establishment of the accounts, the payment of cash equal to the account
balances to a third-party administrator, or cash payments from the accounts for premiums or benefits if the
employer retains administration? If not, how should the employer account for such sick leave to healthcare
account conversions?
A—None of the activities mentioned constitutes OPEB. Conversion of unused sick leave to an individual defined contribution healthcare account is an example of a “termination payment” of sick leave, as discussed in
footnote 6 of Statement No. 16, Accounting for Compensated Absences. To the extent that sick leave is expected
to be settled by a cash payment to a terminating employee or by the establishment of an individual healthcare
account to be applied on the individual’s behalf after termination of employment, the employer’s expense and
a liability should be accrued in accordance with the requirements of Statement 16 by an employee’s termination
date. If the employer remits cash in the amount of an individual’s account balance to a third-party administrator,
the employer should account for the disbursement by reducing cash and compensated absence liabilities; there
is no new expense to be recognized. If, instead, the employer administers the account, the employer might, at
most, reclassify the liability from general compensated absence liabilities to a specific account in the terminated
employee’s name. Subsequent disbursements from an individual’s account for the individual’s share of healthcare premiums or benefits should be accounted for by reducing cash and the individual’s account (liability). The
payments should be regarded as member contributions, not employer contributions.
23.
Q—Would there potentially be OPEB if the individual accounts discussed in question 22 are used to pay
terminated employees’ assigned share of the cost of healthcare coverage through a group that also includes the
employer’s active employees?
A—Yes. Depending on the way that premiums are assigned to active employees and to retirees or terminated
employees in the group, the employer may be contributing part of the total cost of coverage for retirees or
terminated employees. This would generally be the case, for example, if blended premium rates are assigned
to all members of the group, and the employer pays all or part of the blended premium rates for active
employees. The employer’s contribution for postemployment healthcare should be measured as the difference
between the claims costs, or age-adjusted premiums approximating claims costs, for retirees or terminated
employees in the group and those members’ contributions (counting as member contributions the amounts paid
on behalf of terminated employees by the employer or a third-party administrator from the individual sick leave
conversion accounts). (See also questions 58–65.)
24.
Q—Instead of converting an employee’s unused sick leave hours to an individual retiree healthcare account at
a rate based on the employee’s salary rate at the time of termination of employment, an employer has an
ongoing arrangement to provide, as part of the total compensation of employees, postemployment healthcare
benefits, the amount of which is determined based on the employee’s unused sick leave balance in hours at the
time of termination of employment. Unused sick leave is converted to postemployment healthcare benefits at
the rate of one month of healthcare premiums, up to a stipulated maximum monthly amount, for each eight hours
of unused leave. The employer does not otherwise provide postemployment healthcare benefits and does not
8
otherwise compensate employees for unused sick leave. How should the employer account for the benefits
provided under these terms?
A—Paragraph 9 of Statement 45 specifies that
. . . when a terminating employee’s unused sick leave credits are converted to provide or enhance
a defined benefit OPEB (for example, postemployment healthcare benefits), the resulting benefit or
increase in benefit should be accounted for in accordance with the requirements of [Statement 45]
and Statement 43.
The benefits to which unused sick leave is converted in this case—employer-paid healthcare benefits for the
specified number of months for which each terminating employee is eligible—are defined benefits. In these
circumstances, the portion of sick leave expected to be converted to healthcare benefits, rather than taken as
absences, should be accounted for as OPEB in accordance with the requirements of Statement 45.
Accounting for Disability Benefit Programs
25.
Q—Are disability benefits provided to temporarily disabled employees pending their expected return to active
status considered OPEB for accounting purposes?
A—If the primary function of a disability benefit program is to provide short-term benefits to temporarily disabled
employees pending their expected return to active work capacity, and the benefits are provided separately from
a defined benefit pension plan, the benefits should be accounted for as a risk financing activity in conformity with
the requirements of Statement 10. Any disability benefits provided through a defined benefit pension plan should
be accounted for as pension benefits in conformity with Statement 27.
26.
Q—An employer provides long-term disability benefits as a source of income until a recipient becomes eligible
for pension benefits. A disabled employee is required to terminate his or her employment to become eligible for
the benefits. Should the disability benefits be accounted for as OPEB?
A—With the exception of a disability benefit program that functions primarily to provide short-term income to
temporarily disabled employees pending their expected return to active work capacity (see question 25),
disability benefits should be accounted for as postemployment benefits (pension benefits or OPEB, depending
on the manner in which the benefits are administered). The disability benefit program described provides
postemployment benefits (that is, benefits provided after employment as part of an employee’s total compensation for services), as indicated by the facts that eligibility for the benefits requires terminating employment and
that the benefits are long term. If these long-term disability benefits are provided through a defined benefit
pension plan, they should be accounted for as pension benefits under the requirements of Statement 27. If these
disability benefits are provided separately from a defined benefit pension plan, they should be accounted for as
OPEB in accordance with the requirements of Statement 45.
Accounting for Workers’ Compensation Benefits
27.
Q—Are workers’ compensation benefits considered OPEB for accounting purposes?
A—No. As discussed in paragraph 1e of Statement 10, insurance-related activities associated with risks of loss
from “job-related illnesses or injuries to employees” should be accounted for in conformity with the requirements
of that Statement.
9
Employers with Defined Benefit OPEB Plans
Sole and Agent Employers
28.
Q—What are the principal steps in the measurement process required by Statement 45 to account for OPEB
expense and liabilities for sole and agent employers on an accrual basis, and how do the parameters relate to
that process?
A—The measurement process required by Statement 45 that serves as the foundation for accrual basis
accounting for a sole or agent employer’s OPEB expense and liabilities involves the following three principal
steps:
a. Projecting an employer’s future cash outflows for benefits
b. Discounting projected benefits to determine the present value of benefits
c. Allocating the present value of benefits to past and future periods.
Accounting measures required by Statement 45 are derived from information produced by the application of the
preceding steps. For example, actuarial accrued liabilities are derived from portions of the present value of
benefits allocated to past periods (periods through the actuarial valuation date), normal cost (sometimes
referred to as service cost) is derived from the allocation of a portion of the present value of benefits to an
employer’s current financial reporting period, and annual OPEB cost is derived from normal cost and a provision
for amortizing unfunded actuarial accrued liabilities.
The parameters of Statement 45 identify acceptable actuarial methods and assumptions to ensure that the
measurement process is performed in a manner that is appropriate for accrual accounting and financial
reporting purposes.
Measurement of annual OPEB cost and net OPEB obligation
29.
Q—What is annual OPEB cost, and how is it derived and used in financial reporting?
A—Like annual pension cost in Statement 27, annual OPEB cost is an accrual basis measure of the periodic
cost to a sole or agent employer of participating in a defined benefit plan. It is derived from another important
measure, the annual required contribution of the employer (the ARC), measured in accordance with the
parameters (or alternative measurement method) of Statement 45. For an employer with no net OPEB
obligation (liability) or net OPEB asset at the beginning of a reporting period, annual OPEB cost is equal to the
ARC. For an employer with a beginning net OPEB obligation or asset, annual OPEB cost is equal to the ARC
with two required adjustments that, together, are designed to keep accounting and actuarial valuations in sync
going forward when an employer has contributed less or more than the ARC in past years. (See question 108
for discussion of the net OPEB obligation [or asset] and questions 109–112 for additional discussion of
adjustments to the ARC.)
Annual OPEB cost is used in financial reporting in two ways:
a. It is the amount that should be recognized as expense in relation to the ARC in accrual basis financial
statements.
b. It should be disclosed in the notes to the financial statements as a benchmark against which the amount
actually contributed by the employer is compared.
10
30.
Q—What is a net OPEB obligation (or asset), and how is it related to other liabilities or obligations that an
employer might have in relation to OPEB?
A—An employer’s net OPEB obligation (or asset) is a liability (or asset) recognized in an employer’s
government-wide statement of net assets, and in the financial statements of proprietary or fiduciary funds, that
arises as a function of the requirement to recognize expense in an amount equal to annual OPEB cost,
regardless of the amount contributed by the employer in a reporting period. The net OPEB obligation is
essentially the cumulative difference between annual OPEB cost determined in accordance with the requirements of Statement 45 and the amounts actually contributed in relation to the ARC. (For an employer that
chooses to implement Statement 45 retroactively, the net OPEB obligation also would include differences for
years prior to the date of implementation that were included in the calculation of the OPEB liability at transition.)
Other liabilities that a sole or agent employer might have in its financial statements related to OPEB, but that are
separate or distinct from the net OPEB obligation, are a short-term difference for contributions due, which is
included in the measurement of an employer’s contributions in relation to the ARC for the period and therefore
is not a part of the net OPEB obligation, and an OPEB-related debt, which relates to contributions due that have
been excluded from computations of the ARC altogether and are being accounted for as a separate liability to
the plan.
31.
Q—What is OPEB-related debt, and is it included in the ARC?
A—As discussed in footnote 3 of Statement 45, OPEB-related debt is any long-term liability of an individual
employer to an OPEB plan that is not included in the ARC. A portion of the total unfunded actuarial liabilities of
the plan may be converted to an OPEB-related debt by the operation of the plan terms or by agreement between
an employer and the plan administrator. Examples of liabilities converted to OPEB-related debt include amounts
assessed to an employer for the employer’s past service costs upon joining a multiple-employer plan or
contractually deferred employer contributions to a plan. Generally, OPEB-related debt payments are made in
accordance with installment contracts, and they usually include interest on the unpaid balance of the debt.
OPEB-related debt is excluded from calculation of the ARC (and is not included in annual OPEB cost) because
the amount converted to OPEB-related debt is recognized by the plan as a plan asset (receivable from the
employer) and an addition to plan net assets in the year in which the debt is established. The total unfunded
actuarial liabilities to be amortized through future ARCs accordingly are reduced. Moreover, subsequent
payments of OPEB-related debt by the employer are not considered contributions in relation to the ARC.
However, the employer is required to recognize the amount converted to OPEB-related debt as an expense (in
addition to the expense recognized in the amount of annual OPEB cost), in the year in which the employer incurs
the debt—and is required to recognize the unpaid balance of the debt as a liability in addition to the net OPEB
obligation.
32.
Q—Does the notion of OPEB-related debt apply if a multiple-employer plan in which an employer participates
is not administered as a qualifying trust, or equivalent arrangement?
A—No. The concept of OPEB-related debt generally does not apply to multiple-employer OPEB plans that are
not administered as a trust, or equivalent. The creation of OPEB-related debt elsewhere results in the
recognition of expense and a liability to the plan by the employer and in the recognition of a plan asset and an
addition to plan net assets from employer contributions by the plan. However, if the plan is not administered as
a trust, or equivalent, any assets that an employer transferred to the plan in excess of pay-as-you-go
requirements should not be accounted for as a contribution to the plan. Moreover, Statement 43 requires that
such a plan should be reported as an agency fund, in which assets equal liabilities, and there can be no plan
net assets or additions to plan net assets. Any assets held by the plan in excess of liabilities for benefits and
refunds due or for plan expenses should be offset by liabilities to the participating employers. Thus, OPEBrelated debt, a receivable from an employer, also would create an equal liability to the employer.
11
33.
Q—Are OPEB obligation bonds considered OPEB-related debt?
A—No. The term OPEB obligation bonds refers to potential bonded debt that may be issued by an employer to
finance a contribution to an OPEB plan, generally for the purpose of funding all or a substantial part of the total
unfunded actuarial accrued liability. From the standpoint of Statement 45, OPEB obligation bonds, if issued,
would be part of the bonded debt of the employer, and therefore part of a separate employer financing decision;
however, an ARC-related contribution to the plan from the proceeds would be accounted for in accordance with
the requirements of Statement 45.
Calculation of the ARC (the parameters)
34.
Q—In what ways do the parameters for calculation of the ARC for OPEB differ from the parameters of
Statement 27 for calculation of the ARC for pension benefits?
A—Although the parameters for OPEB generally are similar to those for pension benefits, the two sets of
parameters differ in some respects as necessary to address differences in the nature or environment of the two
types of benefits. Notable areas in which the parameters of Statement 45 include additions or differences in
comparison to the parameters of Statement 27 include the following (not necessarily exhaustive; paragraph
references are to Statement 45):
1. Timing and frequency of actuarial valuations (paragraph 12)
2. Benefits to be included—substantive plan, separate accounting for retiree benefits when retirees are
included in the same group with active employees, measurement of employer’s contribution for the retiree
benefits, measurement for certain employers that participate in community-rated plans, consideration of a
legal or contractual cap on benefits (paragraph 13a)
3. Actuarial assumptions—specific reference to the healthcare cost trend rate in valuations of postemployment
healthcare plans (paragraph 13b) (In addition, there may be a need to use actuarial assumptions for OPEB
that are different from those used in Statement 27. See Actuarial Standard of Practice [ASOP] 6, Measuring
Retiree Group Benefit Obligations.)
4. Economic assumptions—determination of the discount rate assumption for partially funded and unfunded
OPEB plans, as well as funded plans (paragraph 13c)
5. Maximum amortization period—no extended initial maximum period, as was provided for pensions
(paragraph 13f(1))
6. Contribution deficiencies or excess contributions—criteria for determining whether or not an employer’s
OPEB financing activities should be treated as constituting contributions in relation to the ARC for actuarial
valuation purposes (paragraph 13g).
35.
Q—Statement 45 permits actuarial determination of the ARC to be based on the covered payroll for the period
to which the ARC applies. In this context, does the term covered payroll refer to actual covered payroll?
A—No. As discussed in footnote 3 of Statement 45, the covered payroll measure that is used for actuarial
determination of the ARC may be the projected payroll, the budgeted payroll, or the actual payroll for the year.
Any of those measures of covered payroll is acceptable, if it is consistently applied from year to year and if
comparisons of the ARC and contributions made use the same measure of payroll on an internally consistent
basis.
12
Timing and Frequency of Actuarial Valuations
36.
Q—Are actuarial valuations required for sole and agent employers to be in compliance with Statement 45?
A—Yes. Actuarial valuations of OPEB in accordance with the parameters are required, unless a sole or agent
employer meets the size qualifications set forth in paragraph 11 of Statement 45 and elects to apply the
alternative measurement method modifications set forth in paragraphs 33 through 35 of Statement 45.
37.
Q—A postemployment healthcare benefit plan includes 125 active employees, 10 terminated employees who
are eligible to receive benefits but have not yet begun receiving them, 49 retirees or beneficiaries of deceased
retirees currently receiving benefits, and 30 spouses and other dependents of retirees who also receive benefits.
How frequently are actuarial valuations required?
A—Paragraph 12 of Statement 45 requires that actuarial valuations be performed at least biennially for plans
with a total membership of 200 or more, or at least triennially for plans with a total membership of fewer than 200.
A plan’s total membership for this purpose includes employees in active service, terminated employees who are
eligible to receive benefits but are not yet receiving them, and retired employees and beneficiaries currently
receiving benefits. A retired employee (or beneficiary) and a covered spouse or other dependent should be
counted as a single plan member for this purpose. Accordingly, the employer should calculate the total plan
membership by adding the 125 active members, the 10 terminated/eligible members, and the 49 retirees or
beneficiaries currently receiving benefits, for a total of 184. The thirty additional spouses and other dependents
currently receiving benefits under retiree-and-spouse or retiree-and-family coverage should not be included for
this purpose. Because the total plan membership for the illustrative plan is fewer than 200, actuarial valuations
are required at least triennially, rather than biennially as would be the case if the total had been 200 or more.
38.
Q—Under what circumstances may a sole or agent employer qualify to use the alternative measurement
method set forth in paragraphs 33 through 35 of Statement 45, as an alternative to actuarial valuations?
A—As set forth in paragraph 11, a sole employer may use the alternative measurement method if the plan
(single-employer plan) has fewer than one hundred total plan members. In addition, an agent employer with
fewer than one hundred total plan members in the employer’s individual plan may use the alternative method
if either of the following circumstances also exists:
a. The agent multiple-employer plan in which the employer participates is not required to obtain an actuarial
valuation for plan reporting in conformity with Statement 43. (For example, the entire multiple-employer
plan has fewer than one hundred total members, or the plan reports in accordance with the requirements
of paragraph 41 of Statement 43 for OPEB plans that are not administered as trusts, or equivalent
arrangements.)
b. The agent multiple-employer plan does not issue a financial report prepared in conformity with the
requirements of Statement 43. (For example, the entity that administers the plan is not a state or local
governmental entity for which Statement 43 is applicable, or Statement 43 is applicable but the plan simply
does not issue a financial report prepared in conformity with its requirement.)
Conversely, if an agent employer has fewer than one hundred total plan members, but the agent multipleemployer plan does issue a financial report in conformity with the requirements of Statement 43, for which it is
required to present information derived from an actuarial valuation, actuarial valuations are required for all
individual-employer plans that make up the agent multiple-employer plan.
13
39.
Q—If an employer’s OPEB plan is below the one hundred total plan member threshold for use of the alternative
measurement method at the beginning of the year, but the total plan membership reaches a level in excess of
one hundred by the end of the year, is the employer allowed to use the alternative measurement method for that
year?
A—Paragraph 12 of Statement 45 establishes the minimum frequency of actuarial valuations or of valuations,
or measurements, using the alternative measurement method but states that “a new valuation should be
performed if, since the previous valuation, significant changes have occurred that affect the results of the
valuation, including significant changes in benefit provisions, the size or composition of the population covered
by the plan, or other factors that impact long-term assumptions.” If the increase in the size of the population
represents a significant change in terms of its effects on the results of the valuation, or if other significant
changes have occurred since the previous valuation, then a new actuarial valuation should be made. Otherwise,
the employer should obtain an actuarial valuation not later than the next scheduled valuation date if the plan is
not eligible to use the alternative measurement method at that time. The application of professional judgment
is required to determine whether an increase in the size of the covered population is a significant change in the
sense discussed in paragraph 12 of Statement 45.
As used in Statement 45 and in this guide, the term actuarial valuation date (or valuation date) refers to the date
as of which a valuation is made. For example, if during August 20X5 an actuarial valuation (or a valuation using
the alternative measurement method) is made of an OPEB plan as of June 30, 20X5, the actuarial valuation date
(or valuation date) is June 30, 20X5. (Also see question 49 for a discussion of the related term time of the
valuation.)
40.
Q—Would a significant increase or decrease in an OPEB plan’s investment earnings from one year to the next,
or a significant variance between assumed and actual experience (for example, with respect to the number of
new retirees) for the most recently completed year require a new valuation to be performed earlier than originally
planned?
A—Paragraph 12 of Statement 45 requires a new valuation if, since the previous valuation, significant changes
have occurred that affect the results of the valuation. These include significant changes in benefit provisions, the
covered population, or other factors that impact long-term assumptions. Short-term investment fluctuations or
actuarial gains or losses resulting from differences between assumed and actual experience in a given year
would not require a change in the actuarial valuation schedule unless the fluctuation or gain or loss indicates a
need for a change in a long-term assumption.
41.
Q—A sole employer provides postemployment healthcare benefits, for which there is no OPEB trust fund or
separate plan administrator. The employer’s financial report date is June 30. The employer would like to
schedule actuarial valuations as of January 1 every other year. (The plan has more than two hundred total plan
members.) Is it acceptable under the parameters for the actuarial valuation date to be different from the
employer’s report date?
A—Yes. The actuarial valuation date need not be the same as the date of the employer’s statement of net
assets but generally should be the same date of each year in which a valuation is performed.
14
42.
Q—To use the information from an actuarial valuation in an employer’s financial report, how recent should the
actuarial valuation date be in relation to the employer’s financial reporting period or financial report date?
A—Depending on the frequency with which an employer obtains actuarial valuations, a given valuation provides
the ARC for one, two, or three employer reporting periods. The ARC reported for an employer’s current fiscal
year should be derived from an actuarial valuation as of a date not more than twenty-four months before:
a. The beginning of the current fiscal year, if valuations are annual
b. The beginning of the first of two years for which the valuation provides the ARC, if valuations are biennial
c. The beginning of the first of three years for which the valuation provides the ARC, if valuations are triennial.
43.
Q—To what employer fiscal year(s) does the ARC that is calculated as part of an actuarial valuation performed
as of a particular actuarial valuation date pertain, and how is that linkage determined?
A—As discussed in question 42, an actuarial valuation as of a particular valuation date may provide the ARC
for one, two, or three years, depending on the frequency at which valuations are performed. A key consideration
is to provide the employer sufficient lead time between the calculation of the ARC and the period(s) to which it
will apply so that if the employer’s policy is to contribute the ARC, the employer will be able to incorporate that
amount into the annual budget(s) for the period(s). The linkage between a particular valuation date and
particular employer reporting periods should be established by an accounting policy decision of the employer
in cooperation with the plan administrator.
To illustrate how that linkage might work, consider a sole employer that has a June 30 report date and obtains
biennial valuations as of January 1 (used, in this case, solely for employer reporting purposes, because there
is no OPEB trust fund or separate plan administrator). The ARC derived from the January 1, 20X1, actuarial
valuation could, for example, be designated as the ARC for the employer’s financial reporting periods beginning
July 1, 20X1 and 20X2, if valuations could be completed in sufficient time to incorporate the newly determined
ARC into the employer’s budget for the year beginning July 1, 20X1 (assuming that this employer’s OPEB
financing policy is to fund the ARC). If the employer adopts this linkage as its policy, it generally should maintain
the same linkage for all scheduled valuations on an ongoing basis.
44.
Q—If an actuarial valuation as of December 31, 20X2, determines the ARC for the employer’s financial
reporting periods ending June 30, 20X4 and 20X5, should that valuation be used to report the funded status
information in notes to the financial statements and in required supplementary information (RSI) for the financial
reporting period ended June 30, 20X3, or should information from the previous actuarial valuation (as of
December 31, 20X0), which determined the ARC for the employer’s fiscal years ended June 30, 20X2, and
20X3, be used?
A—The funded status of the plan should be reported at each financial reporting date using information from the
most current actuarial valuation. In the scenario presented, funded status information should be reported based
on the December 31, 20X2, actuarial valuation. However, as discussed in question 43, the ARC reported for the
fiscal year ended June 30, 20X3, would be the ARC determined for that period by the actuarial valuation as of
December 31, 20X0.
Actuarial Methods and Assumptions for Accounting and Funding Purposes
45.
Q—If an OPEB plan in which a sole or agent employer participates calculates the ARC(s) for funding purposes
using actuarial methods and assumptions that conform to GASB parameters, should the employer use the
same methods and assumptions for accounting and financial reporting purposes?
A—Yes. If the actuarial methods and assumptions used for funding purposes conform with the parameters, the
employer should use the same methods and assumptions for accounting and financial reporting purposes.
15
46.
Q—If the actuarial methods and assumptions used by a sole or agent employer for funding purposes do not
conform to GASB parameters, but the employer is legally required to contribute the amount calculated on the
funding basis, may the employer use the same methods and assumptions for accounting and financial reporting
purposes?
A—No. For financial reporting purposes, actuarial methods and assumptions should conform to GASB
parameters, even if the methods and assumptions used for funding purposes do not. Therefore, in this
circumstance, a sole or agent employer would report actuarially determined information, annual OPEB cost, and
the net OPEB obligation, each calculated in conformity with the parameters, and would report contributions in
relation to the ARC equal to amounts actually contributed to the plan in accordance with the funding policy. In
addition, as required by paragraphs 24b(2) and (3), the employer should disclose in the notes to the financial
statements the required contribution rate(s) of plan members and of the employer in accordance with the
funding policy. If a sole or agent employer’s contribution rate according to the funding policy differs significantly
from the ARC, the employer also should disclose how the rate is determined (for example, by statute or by
contract) or that the plan is financed on a pay-as-you-go basis.
47.
Q—May an OPEB plan and the participating sole or agent employers choose to use different actuarial methods
and assumptions for financial reporting purposes, provided that the methods and assumptions chosen in each
case are within the range of options permitted by the parameters (for example, the range of acceptable actuarial
cost methods)?
A—No. Paragraph 34 of Statement 43 and paragraph 13 of Statement 45 require that a plan and its participating
employers should use the same actuarial methods and assumptions in determining similar or related information in plan and employer financial reports.
48.
Q—Once an employer has adopted a set of actuarial methods and assumptions for accounting purposes, is the
employer required to use those methods and assumptions indefinitely, or may the employer change a method
or assumption?
A—Consistent application of actuarial methods and assumptions over time generally is conducive to the
interpretation of trends. However, an employer is not precluded from changing an actuarial method or
assumption. If an employer does change a method or assumption and the change significantly affects the
interpretation of trends in the required schedule of funding progress, the employer should disclose the change
in the notes to the required schedule. (Also see question 143.) In addition, if an employer changes from one
acceptable actuarial cost method to another or changes the method used to determine the actuarial value of
assets and the change results in a significant decrease in the total unfunded actuarial liability, the decrease
should be amortized over a minimum ten-year period. (Also see question 95.)
Benefits to Be Included
49.
Q—What benefits should be included in determining the actuarial present value of total projected benefits for
accounting and financial reporting purposes?
A—Generally, the projection of benefits should include all benefits to be provided to retirees and beneficiaries
in accordance with the current substantive plan—a term that refers to the plan terms as understood by the
parties (the employer and plan members) at the time of each valuation. Any plan changes that have been made
(that is, formally adopted by the person(s) or body with the authority to amend benefit provisions, as referred to
in paragraph 24a(2) of Statement 45) and communicated to plan members by the time of the valuation should
be included as part of the current substantive plan. As used in Statement 45 and this guide, the term the time
of the valuation (or variants) refers to the time when the actuary is performing a valuation. For example, if during
August 20X5 an actuary performs a valuation of an OPEB plan as of June 30, 20X5, the actuarial valuation date
16
is June 30, 20X5 (see question 39), and the time of the valuation is August 20X5. An actuary generally should
include in the projection of benefits any changes in plan terms that have been made and communicated to plan
members through the time when the actuary models the plan as part of the actuarial valuation process (in the
example in the preceding sentence, August 20X5).
50.
Q—The ARC for a government’s financial reporting period ended June 30, 20X8, was calculated based on the
most recent actuarial valuation as of July 1, 20X6. The next scheduled actuarial valuation is performed as of
July 1, 20X8. If the valuation is completed before the auditor’s report is dated, should any of the information in
the July 1, 20X8, actuarial valuation be reflected in the government’s June 30, 20X8, financial report?
A—Yes. Significant changes presented in the July 1, 20X8, actuarial report should be disclosed as a subsequent
event in the government’s June 30, 20X8, financial statements. Amounts displayed in the financial statements,
otherwise disclosed in notes to the financial statements (for example, the disclosure of funded status information), or presented in required supplementary information should not be changed for the results of the July 1,
20X8, valuation.
51.
Q—An employer announces significant changes to the plan terms after the December 31, 20X9, year-end but
before the auditor’s report is dated. Should the changes to the plan be reflected in the government’s December
31, 20X9, financial report?
A—The changes in the plan terms should be disclosed as a subsequent event in the government’s December 31, 20X9, financial report.
52.
Q—Should benefits (for example, postemployment healthcare) be excluded from the determination of the
actuarial present value of total projected benefits, or from the requirements of Statement 45 generally, for any
of the following reasons: (a) the benefits are not vested, (b) the plan documents include a provision that the
employer reserves the right to amend or discontinue the benefits, or (c) the employer finances the benefits on
a pay-as-you-go basis?
A—No. As discussed in question 49, the projection of benefits should include all benefits provided for under the
current substantive plan, including changes that already have been made and announced to the plan members.
The projection should include both vested and nonvested plan members, with appropriate demographic
assumptions with regard to all plan members, and the requirements of Statement 45 apply without regard for the
timing or method of an employer’s financing of the benefits.
53.
Q—When projecting future benefits, should the actuary consider all benefit costs, or only the employer’s
portion?
A—Without specifying the techniques that an actuary may employ, the desired end result for accounting
purposes is to determine the annual required contribution of the employer and the employer’s annual OPEB
cost and obligations related to the employer’s portion of the total cost of benefits.
54.
Q—In determining the actuarial present value of total projected benefits, may an employer project the effects of
contemplated future changes in the types or level of benefits (for example, dental benefits or prescription drug
coverage) that the employer will provide?
A—No. The projection of benefits should include all types and levels of benefits provided under the current
substantive plan, including any changes that have been made and communicated to the plan members by the
time of each valuation. (See question 49.) Any such changes made and announced by the time of the valuation
17
that have a future effective date should be considered as part of the substantive plan and given effect in the
projection of benefits from their effective dates. However, plan changes that an employer contemplates making
in the future should not be incorporated into the projection of benefits until they have been made and announced
to plan members.
55.
Q—How should a change in plan provisions that significantly decreases the total actuarial accrued liability (for
example, an agreed-upon change in the sharing of costs between the employer and plan members that
effectively reduces the actuarial accrued liability by half) be accounted for?
A—A significant decrease in the actuarial accrued liability resulting from a change in plan terms may be
amortized as part of the total unfunded actuarial accrued liability from the time that the change is made and
announced to plan members. As an alternative, the change in the actuarial accrued liability created by the
change in plan terms may be amortized separately, provided that the equivalent single amortization period does
not exceed thirty years. There is no minimum amortization period applicable to a gain arising from a change in
plan terms. (The minimum amortization period applies only to significant gains arising from two types of actuarial
methodology changes—a change in the actuarial cost method or a change in the method by which the actuarial
value of plan assets is determined.)
The Substantive Plan and Historical Pattern of Sharing of Benefit Costs between the Employer and Plan Members
56.
Q—How does the substantive plan relate to the written plan, and how should an employer establish what is the
current substantive plan for accounting purposes?
A—If a comprehensive plan document exists, that document may provide the best evidence of what the
substantive plan is. However, in some cases there may not be a comprehensive plan document that fully and
accurately reflects the understanding of the parties. For example, a plan document may state generally that the
employer will provide postemployment healthcare benefits but not specify the kinds or levels of benefits, nor the
eligibility requirements or the periods over which the benefits will be provided—or the employer may have a
long-established practice of providing benefits in addition to what is stated in an original plan document.
Accordingly, other information also should be considered when determining the benefits to be provided. This
includes other communications between the employer and the plan members and the historical pattern of
practice with regard to the sharing of benefit costs between the employer and plan members.
57.
Q—Postemployment healthcare benefits are limited by the amount of funding approved by the legislature on an
annual basis. How does this affect the projection of benefits?
A—The necessity of annual authorization of funding as part of the legislative budget process should not limit the
projection of benefits, as such. However, the funding decisions made by the legislature or other employer
governing body over time do enter into the projection of benefits, because those decisions play a major role in
establishing and continually modifying the pattern of sharing of benefit costs between the employer and plan
members. (Also see questions 71–73.)
18
Projected Healthcare Benefits for Retirees Based on Claims Costs or Age-Adjusted Premiums for Retirees
58.
Q—In an experience-rated healthcare plan that includes both active employees and retirees, the contributions
to be made by the employer, active employees, and retirees are stated in terms of the blended premium rates
for all plan members. Is an employer’s share of the cost of retiree healthcare coverage for the current year the
difference, if any, between the blended premium rates and the amounts required to be contributed by the
retirees?
A—No. The employer’s share of the cost of retiree healthcare coverage for the current year should be measured
as the difference between (a) the claims costs, or age-adjusted premiums approximating claims costs, for the
retirees in the group (which, because of the effect of age on claims costs, generally will be higher than the
blended premium rates for all group members) and (b) the amounts required to be contributed by the retirees.
To illustrate, a single-employer healthcare plan has 500 total plan members with an average age of forty-seven,
of which 400 are active employees and 100 are retirees with a midpoint age of sixty. As required by state law,
the employer, a local government, permits retirees to continue to participate in the combined group and to
receive healthcare benefits to age sixty-five at the blended premium rate for the group. The normal retirement
age is fifty-five. The total insurance premiums for the group are $1,440,000 (500 plan members at a blended, or
average, premium rate of $2,880 per plan member). The employer pays the blended premium rate for each
active employee and, as required by state law, each retiree pays the blended premium rate for his or her
coverage. The nominal contributions of the employer, active employees, and retirees for this group, based on
the use of blended premium rates, are as follows:
Total blended premiums at $2,880 per plan member
Less: member contributions
Employer contributions
Active
Employees
Retirees
Total
$1,152,000
0
$1,152,000
$288,000
288,000
$
0
$1,440,000
288,000
$1,152,000
Statement 45 requires separate accounting for the retiree healthcare benefits based on the claims costs, or
age-adjusted claims costs approximating claims costs. In this example, an actuary determines that the
age-adjusted premium rate approximating claims costs for a retiree is $4,810, and the age-adjusted premium
rate approximating claims costs for active employees in the group is $2,397.50.
The total contributions of the employer, active employees, and retirees, based on age-adjusted premiums
approximating claims costs for retirees and for active employees, are then calculated as follows:
Age-adjusted premiums approximating claims costs
Less: member contributions
Employer contributions
Active
Employees
Retirees
Total
$959,000
0
$959,000
$481,000
288,000
$193,000
$1,440,000
288,000
$1,152,000
The $193,000 employer contribution for retiree healthcare shown in the preceding table is an actual cash
contribution. Nominally, it is part of the employer’s contribution for active-employee healthcare benefits;
however, the employer’s nominal contribution for active-employee benefits ($1,152,000) exceeds the net cost
of providing coverage to active employees ($959,000) by $193,000. The $193,000 therefore does not pay for
active-employee benefits; rather, it is the amount that the employer pays for healthcare coverage for the current
year for retired plan members or their beneficiaries.
19
59.
Q—In question 58, is $193,000 the employer’s OPEB expense for the year?
A—No. Reallocating $193,000 of the total employer contributions for healthcare from active-employee healthcare to retiree healthcare is not the end result of the process described in the preceding paragraphs. Rather, the
determination that the employer’s share of the cost of providing retiree healthcare coverage for the current year
is $193,000 establishes a relevant starting point for the actuarial valuation of the OPEB plan—a process that
includes projecting future cash outflows for benefits, discounting to determine the present value of benefits, and
allocating the present value of benefits to periods using an actuarial cost method, as discussed in question 28.
Financial information produced by means of the actuarial valuation process includes the total unfunded actuarial
accrued liabilities of the plan associated with employee services in past periods and the ARC (composed of the
normal cost for the period and a provision for amortizing the total unfunded accrued liabilities). Statement 45
requires that the employer recognize expense in the amount of annual pension cost, an accrual basis measure
derived from the ARC. The difference between the annual OPEB cost (the amount recognized as expense in
relation to the ARC) and the amount paid by the employer in relation to the ARC ($193,000 in the illustration)
should be accounted for as a net OPEB obligation (or asset) or as a change in a previously existing net OPEB
obligation (or asset).
60.
Q—In the illustration in question 58, what amounts should the employer report as its contributions made for
active employees and for retirees, respectively?
A—In the illustration in question 58, the employer should report contributions made in the amounts of $959,000
for active-employee benefits and $193,000 for retiree benefits, based on the use of age-adjusted premiums.
61.
Q—If the plan in question 58 is classified as a risk-retention plan, what amounts should the employer report as
its contributions made for active employees and for retirees, respectively?
A—In a risk-retention plan, the employer’s contributions for active employees and for retirees are the amounts
of claims costs paid for each of those groups, respectively.
62.
Q—What would be the effect on the illustration in question 58 if an additional factor were added—that the
employer’s share of the total cost of active-employee healthcare coverage is capped at $1,800, an amount less
than either the blended premium rate or the age-adjusted premium rate for active employees? Would the
employer in that case make a contribution for retiree healthcare benefits, or would the active employees
subsidize the retiree benefits?
A—In this revised illustration, the employer’s contribution toward the cost of retiree healthcare still is $193,000,
as explained below.
In determining the contributions made by the employer, by active employees, and by retirees for (a) activeemployee healthcare benefits and (b) retiree healthcare benefits (OPEB), it is important to apply the relevant
pieces of information in the proper sequence. The first step is to determine the claims costs (or age-adjusted
premiums approximating claims costs) for retirees and for active employees, respectively. In the illustration, the
employer has determined that the age-adjusted premium rates are $4,810 for retirees and $2,397.50 for active
employees. The second step is to subtract the members’ contributions from their associated age-adjusted
premiums to determine the employer’s contribution.
In this revised illustration, the contribution of each plan member, active or retired, is calculated based on the
blended premium rate of $2,880. Each retiree is required to contribute the full $2,880, and each active employee
is required to contribute $2,880, less the $1,800 nominally contributed by the employer in relation to the blended
rate, or $1,080.
20
Applying these individual contribution rates to the full group in the order discussed in the first paragraph, the
contributions of the employer, active employees, and retirees in relation to the age-adjusted premiums
approximating claims costs for active employees and retirees, respectively, are:
Age-adjusted premiums approximating claims costs
Less: member contributions
Employer contributions
Active
Employees
Retirees
Total
$959,000
432,000
$527,000
$481,000
288,000
$193,000
$1,440,000
720,000
$ 720,000
Comparing the answers given for question 58 and this question, it should be noted that the same calculation
methodology was applied in both cases. That is, member contributions were subtracted from age-adjusted
premiums to determine the employer’s contributions for active-employee and retiree benefits, rather than taking
employer contribution rates based on blended premium rates as given and backing into member contributions.
Also, it should be noted that the age-adjusted premiums, retiree contributions, and employer contributions for
retiree healthcare benefits are the same with or without the cap on the employer’s share of contributions for
active-employee healthcare benefits. The effect of the cap, rather, is to substantially lower the employer’s
contributions and expense for active-employee healthcare benefits.
63.
Q—In the illustration in question 62, could an employer conclude that the active members, rather than the
employer, are contributing part of the cost of healthcare coverage for the retirees in the group?
A—No. As illustrated above, retirees’ contributions should be compared with the age-adjusted premiums
approximating their claims costs to determine the employer’s contribution. Generally, further analysis will show
the difference between age-adjusted premiums for retirees and retiree contributions to be supplied by employer
contributions. As shown in the table in the answer to question 62, for the illustrative group, it is the employer
rather than the active empoyees that provides the resources for the difference, as demonstated by the fact that
the total amounts required to be contributed by the active employees are less than the age-adjusted premiums
for their own coverage. As long as that is the case, the active employees should not be viewed as subsidizing
retiree benefits; rather, they themselves are in the position of receiving a subsidized benefit because what they
are required to pay for healthcare coverage is less than what it costs. Only if the amounts contributed by active
employees were to exceed the age-adjusted premiums for their coverage should the employer conclude that the
active employees are subsidizing healthcare coverage for retirees in the group.
64.
Q—For purposes of Statement 45, is there any distinction between implicit employer contributions (sometimes
referred to as an “implicit rate subsidy”) and explicit employer contributions for OPEB?
A—No. For accounting purposes, there is no distinction between so-called explicit and implicit employer
contributions. The difference between claims costs (or age-adjusted premiums approximating claims costs) for
retirees and the retirees’ contributions is the employer’s OPEB contribution.
65.
Q—If healthcare benefits are provided to retirees as a group separate from active employees, the retiree group
is experience-rated so that the premiums for retirees reflect their projected claims costs, and retirees pay the
entire premiums, does the employer have OPEB to be measured and reported under the requirements of
Statement 45?
A—No. The employer’s portion of the cost of providing coverage is the difference between claims costs, or
age-adjusted premiums, and the amount contributed by plan members. In the circumstances described, the
employer’s contribution would be zero and, therefore, there would be no OPEB to report.
21
Exception for Certain Employers That Participate in Community-Rated Plans
66.
Q—What is meant by a “community-rated plan” in Statement 45, and under what conditions would it be
appropriate for an employer that provides postemployment healthcare benefits through participation in such a
plan to use unadjusted premiums as the basis for projection of retiree benefits?
A—As discussed and illustrated in question 58, paragraph 13a(2) of Statement 45 generally requires that:
When an employer provides healthcare benefits to both active employees and retirees through the
same plan, the benefits to retirees should be segregated for measurement purposes, and the
projection of future retiree benefits should be based on claims costs, or age-adjusted premiums
approximating claims costs, for retirees, in accordance with actuarial standards issued by the
Actuarial Standards Board.8 . . . [Emphasis added.]
8See Actuarial Standard of Practice No. 6 (ASOP 6), Measuring Retiree Group Benefit Obligations, revised edition (Washington,
DC: Actuarial Standards Board, December 2001), or its successor documents.
However, as a conditional exception to the preceding measurement standard, paragraph 13a(2) allows for the
use of unadjusted premiums as the basis for the projection of OPEB in certain conceivable circumstances
involving an employer’s participation in a community-rated plan. Paragraph 13a(2) describes a community-rated
plan as one:
in which premium rates reflect the projected health claims experience of all participating employers
rather than that of any single participating employer, and the insurer or provider organization charges
the same unadjusted premiums for both active employees and retirees. . . .
An employer participating in such a plan may appropriately use unadjusted premiums (rather than claims costs
or age-adjusted premiums) as the basis for projection of benefits to the extent permitted by actuarial standards.
That is, the use of unadjusted premiums is appropriate only on the condition that the actuary has determined,
essentially, that the circumstances of the particular community-rated plan effectively insulate the employer from
the effects of age on the cost of providing healthcare benefits for retirees that otherwise would be presumed to
exist. Footnote 9 to paragraph 13a(2) quotes the relevant language from paragraph 3.4.5 of ASOP 6, as follows:
Use of Premium Rates—Although an analysis of the plan sponsor’s actual claims experience is
preferable, the actuary may use premium rates as the basis for initial per capita health care rates,
with appropriate analysis and adjustment for the premium rate basis. The actuary who uses premium
rates for this purpose should adjust them for changes in benefit levels, covered population, or
program administration. The actuary should consider that the actual cost of health insurance varies
by age . . . , but the premium rates paid by the plan may not. For example, the actuary may use a
single unadjusted premium rate applicable to both active employees and non-Medicare-eligible
retirees if the actuary has determined that the insurer would offer the same premium rate if only
non-Medicare-eligible retirees were covered. [Emphasis added.]
67.
Q—If an employer provides retiree healthcare coverage by participating in a plan offered by a managed
healthcare provider in accordance with state law that governs community-rated plans, would it be appropriate
for that employer to use the blended (unadjusted) premium rate charged by the plan as the basis for projecting
postemployment healthcare benefits?
A—An employer’s participation in a community-rated plan does not in itself qualify that employer to use the
unadjusted premium rate as a surrogate for claims costs in the projection of retiree benefits. Paragraph 13a(2)
of Statement 45 requires as an additional condition that the actuary has evaluated whether the community-rated
22
plan would offer the same unadjusted premium rate even if all of that employer’s plan members were
non-Medicare-eligible retirees—that is, has determined that the unadjusted premium rate would be unaffected
by such a change. Otherwise, the use of claims costs, or age-adjusted premiums approximating claims costs,
is required.
68.
Q—Five local governments agree to form an agent multiple-employer plan to provide retiree healthcare benefits
to active employees and retirees. Under the terms of the agreement, the individual employer plans would be
community rated. That is, the individual employer plans would be rated collectively, rather than individually, and
the same blended premium rate would be charged to all active employees and non-Medicare-eligible retirees
covered by the agent multiple-employer plan. Preliminary estimates are that the five individual employer plans
would account for 50 percent, 25 percent, 16 percent, 8 percent, and 1 percent, respectively, of the combined
claims costs. Would the use of the blended premium rate in projecting retiree benefits be appropriate for any of
the participating employers in such a plan?
A—Whether the use of the blended premium rate by an individual participating employer in the illustrative plan
would be permissible for projecting retiree healthcare benefits would be subject to the determination by the
actuary discussed in question 67. Factors affecting that determination might include the relative magnitude of
the individual employer’s plan and the agent multiple-employer plan as a whole, as well as other factors. Thus,
for example, the actuary for the individual employer plans that account for 50, 25, 16, and 8 percent of the total
claims costs, respectively, might conclude that because of the relative magnitude of each of those plans or other
factors, the unadjusted premium rate would be affected if all of an individual plan’s members were non-Medicareeligible retirees. If so, those employers would be required to use claims costs, or age-adjusted premiums
approximating claims costs, for purposes of projecting benefits. However, if, for example, the actuary determined that the unadjusted premium rates would be unaffected by any change in the age profile of the individual
employer’s plan that accounts for 1 percent of total claims costs, that employer would be permitted to use the
unadjusted premiums for purposes of projecting benefits.
69.
Q—Would the community-rated exception (the permitted use of unadjusted premiums for projecting benefits)
apply if a group of governments provides benefits through a cost-sharing plan that meets the criteria established
in paragraph 4 of Statement 43 (that is, the plan is administered as a qualifying trust) and that charges blended
premium rates for active employees and retirees that are the same for all participating employer groups?
A—No. The exception provided in paragraph 13a(2) of Statement 45 applies only to individual sole or agent
employers that provide postemployment healthcare benefits by means of participation in a community-rated
plan, subject to the determination discussed in question 67. Sole and agent employers otherwise are required
to project benefits based on claims costs, or age-adjusted premiums approximating claims costs. The exception
is not applicable to cost-sharing employers, because for those employers the measurement of OPEB expense
is based on their contractually required contributions to the plan, however determined. The option to use
unadjusted premium rates for the projection of benefits also is inapplicable to the illustrative cost-sharing plan
for plan reporting purposes in accordance with the requirements of Statement 43, because the plan as a whole
is experience rated. Accordingly, the plan should account separately for the active-employee healthcare benefits
and the retiree healthcare benefits (OPEB) administered and should project benefits based on claims costs, or
age-adjusted premiums approximating claims costs, for retirees.
23
70.
Q—A healthcare plan covering both active employees and retirees that is offered by a provider in one region
of a state cites a blended premium rate for all plan members, across employer and age or retirement-status lines.
However, for each participating employer’s individual plan, an adjustment factor is applied to the blended base
rate to arrive at a premium rate that reflects the age profile of that group. Is this plan a community-rated plan?
A—No. Although a blended premium rate is cited by the provider as a starting point for the determination of
premium rates applicable to participating employers, the application of an age-related premium adjustment for
each employer’s individual plan approximates the effect of experience-rating each employer’s individual plan.
Accordingly, the plan does not have the characteristics of a community-rated plan, and all employers in the plan
should project benefits based on claims costs, or age-adjusted premiums approximating claims costs.
Benefit Caps
71.
Q—What is the difference between a cap on benefits and a cap on employer contributions?
A—A cap on the employer’s share of benefits explicitly imposes an upper limit on the amount of the employer’s
share of the total cost of providing defined benefit OPEB in the current period. For example, the contractual
agreement between an employer and the employees’ union that established a retiree healthcare plan stipulates
that the employer’s share of the total premiums should not exceed $4,000 per year per retiree. Such a benefit
cap is part of the definition of the “benefits to be provided to plan members or beneficiaries in accordance with
the current substantive plan” (paragraph 13a(1) of Statement 45) and, thus, potentially should be included in the
computation of the actuarial present value of total projected benefits. (Also see question 72.)
To illustrate the effect of including a benefit cap in the projection of benefits for purposes of Statement 45,
assume that the employer in the example currently contributes $3,000 per retiree per year as its share of the
cost of healthcare insurance coverage, and that its historical pattern of sharing the cost of coverage with retirees
has been to increase its contribution each year in an amount sufficient to pay for 80 percent of the total
age-adjusted retiree premiums for the year. In the absence of a benefit cap, that pattern of sharing costs would
be assumed to continue, until the employer’s projected share of benefits would increase to $4,100 per year per
retiree in year eight and to higher amounts thereafter as total age-adjusted premiums for retirees were assumed
to continue to increase. However, inclusion of the benefit cap would result in capping the employer’s projected
share of benefits at $4,000 per retiree per year in any year in which a higher amount would otherwise have been
projected.
In contrast, a cap on employer contributions imposes an upper limit on the amount that the employer will
contribute, or pay in, to a plan from which defined benefit OPEB is provided. For example, a state statute limits
an employer’s rate of contributions to a defined benefit retiree healthcare plan to not more than 6 percent of the
covered payroll of active plan members. Unlike a cap on the employer’s share of benefits, such a cap on
contributions is not part of the definition of benefits to be provided to retirees in accordance with the current
substantive plan—nor is it a part of the established pattern of practice with regard to the sharing of costs with
plan members (although it potentially will affect that pattern at some point in the future). Accordingly, a cap on
employee contributions should not be considered in the projection of benefits until such a cap is enforced and
thereby begins to alter the established pattern of sharing of costs that should be considered as part of the
substantive plan in subsequent valuations.
24
72.
Q—Under what conditions should a legal or contractual cap on the employer’s share of the cost of benefits to
be provided in the current year be taken into consideration in projecting the benefits to be provided by the
employer in future periods? What is the assumed effect for purposes of the projection of benefits, at the point
that the employer’s share of benefits reaches an effective benefit cap?
A—A legal or contractual cap that is established to limit an employer’s costs related to OPEB should be factored
into the projection of benefits, if both of the following conditions apply:
a. The cap sets an upper limit on the employer’s share of benefits to be provided to retirees and beneficiaries
each period, as distinguished from a cap on the employer’s contributions to a defined benefit OPEB plan.
(Also see question 71.)
b. The cap is assumed to be effective, taking into consideration all relevant facts and circumstances, including
the employer’s record of enforcing the cap in the past. (For example, has the employer ever previously
increased the benefit cap when the original capped amount was reached?)
If a cap meets these two conditions, the employer’s contribution toward the total cost of providing retiree
healthcare coverage each period should be projected to increase based on continuation of the historical pattern
of sharing of benefit costs up to the point that the employer’s contribution reaches the capped amount. From that
point forward, any excess of the total cost of coverage over the capped employer contribution should be
assumed to be contributed by the retirees or beneficiaries receiving the benefits.
73.
Q—Should a cap on employer contributions to a defined benefit OPEB plan that has not yet been reached be
taken into consideration in projecting the benefits to be provided by the employer in future periods?
A—No. The projection of benefits for a defined benefit OPEB plan should be based on the benefits provided
under the current substantive plan at the time of each valuation (see question 49), including the historical
pattern of sharing of benefit costs between the employer and plan members. (Also see question 71.)
Benefits to Be Provided through Allocated Insurance Contracts
74.
Q—What is an allocated insurance contract?
A—Statement 45 defines an allocated insurance contract as “a contract with an insurance company under which
related payments to the insurance company are currently used to purchase an immediate or deferred benefit for
individual members.” For example, a paid-up life insurance contract that is used to fulfill the employer’s promise
of death benefits for plan members would be considered an allocated insurance contract.
75.
Q—How should benefits to be provided through allocated insurance contracts be treated in an actuarial
valuation for accounting purposes?
A—As discussed in paragraph 13a(4) of Statement 45, if payments to the insurer have been made and the
responsibility for providing the benefits has been transferred irrevocably to the insurer, benefits that are to be
provided by means of an allocated insurance contract should be excluded from the calculation of the actuarial
present value of total projected benefits, and the allocated insurance contracts should be excluded from plan
assets.
76.
Q—Is the arrangement discussed in question 75 considered to be an insured OPEB benefit?
A—If the payments associated with the allocated contract are completed while employees are in active service,
the benefit is considered an insured benefit for purposes of financial reporting under Statement 45, and the
25
employer should report those benefits in accordance with paragraph 28 of that Statement. (See question 148.)
If, however, the payments associated with the allocated insurance contract are not completed until after the
member leaves active service, the allocated insurance contract is not considered an insured benefit under
Statement 45, and the reporting requirements of paragraph 28 would not apply.
Actuarial Assumptions
77.
Q—What are the general requirements of Statement 45 with respect to the selection of actuarial assumptions
used in valuations performed for accounting purposes?
A—Statement 45 requires that the selection of actuarial assumptions should be guided by standards of the
actuarial profession. Assumptions should be based on experience of the covered group to the extent credible
experience data are available. Emphasis should be placed on expected long-term future trends. (That is, recent
past experience should not be given undue weight.) Each assumption should be reasonable individually, on its
own merits, and also should be reasonable when considered in conjunction with other assumptions.
78.
Q—What is the “healthcare cost trend rate” assumption referred to in paragraph 13b of Statement 45 in regard
to actuarial valuations of postemployment healthcare plans, and how is it generally expressed?
A—The healthcare cost trend rate is defined in the glossaries of Statements 45 and 43 as:
The rate of change in per capita health claims costs over time as a result of factors such as medical
inflation, utilization of healthcare services, plan design, and technological developments.
The healthcare cost trend rate assumption does not include the effects of aging and generally is expressed in
terms of select and ultimate assumptions (actuarial assumptions that assume different rates for successive
years, rather than a single rate for all years), as discussed in paragraph 157 of Statement 45 (Basis for
Conclusions):
The Board’s decision to require disclosure of the initial as well as the ultimate assumption, when
select and ultimate assumptions are used, was based on consideration of the importance of the
healthcare cost trend rate assumption in actuarial valuations of postemployment healthcare plans.
The healthcare cost trend rate assumption generally involves the use of select and ultimate
assumptions, and the ultimate assumption generally approaches the assumed long-term rate of
inflation. However, the initial assumptions and the assumptions for subsequent years in the short
term tend to be volatile and may be considerably higher or lower than the ultimate assumption. The
Board concluded that disclosure of only the ultimate assumption would not convey sufficient
information and that additional disclosure of the initial assumption would better convey the range of
assumptions when select and ultimate assumptions are used.
Economic Assumptions (Discount Rate)
79.
Q—What is the required basis for selection of the discount rate to be used to calculate the actuarial present
value of total projected benefits?
A—Paragraph 13c of Statement 45 requires that, in addition to complying with the general requirements for
selection of actuarial assumptions (see question 77), the discount rate used for determining the actuarial
present value of total projected benefits should be the estimated long-term yield on “the investments that are
expected to be used to finance the payment of benefits” (investment return assumption). Depending on the
26
method by which a plan is being financed, the relevant investments for that purpose could be investments of plan
assets, of employer assets, or of a combination of plan and employer assets. (See questions 80–82.) The
investment return assumption should reflect the nature and the mix of both current and expected investments
and the basis used to determine the actuarial value of assets.
80.
Q—Does Statement 45 further clarify how the discount rate should be determined, and specifically what
investments are “expected to be used to finance the payment of benefits,” for OPEB plans with various methods
of financing?
A—Yes. Paragraph 13c specifies that, for purposes of determining the discount rate, the following investments
are expected to be used to finance the payment of benefits depending on the method of financing:
Investments Expected to Be Used
to Finance the Payment of Benefits
Method or Status of Financing
81.
The employer is expected to consistently contribute
an amount equal to or greater than the ARC,
according to the funding policy.
Investments of plan assets
The plan has no plan assets.
Investments of employer assets
The plan is being partially funded. (Some plan assets
have been accumulated, but the employer is expected
to generally contribute less than the ARC, according
to the funding policy.)
A combination of investments of plan and employer
assets; the discount rate should be a blended rate
that reflects the proportionate amounts of plan and
employer assets expected to be used
Q—For an employer in a plan that has accumulated some plan assets but for which the employer is consistently
contributing less than the ARC, does Statement 45 specify a particular method for calculating a blended
discount rate that reflects the proportionate amounts of plan and employer assets expected to be used to pay
benefits as they come due?
A—Paragraph 123 of Statement 45 (Basis for Conclusions) discusses potential reasonable methods of
developing a blended discount rate when a plan is being partially funded. These include an approach that would
base the proportionate amounts of plan and employer assets used in the calculation on the extent to which a
plan is funded (the funded ratio) and an approach that would base the proportionate amounts used on the
percentage of the ARC actually being contributed to the plan. No single approach may fit all situations. For
example, if an employer has an established funding policy that has been consistently applied (and is expected
to be in the future), it might be appropriate to base the discount rate assumption on the percentage of the ARC
contributed to the plan. However, an approach based on the ARC generally would not be appropriate if the
employer does not have a consistent policy for advance-funding OPEB benefits—for example, if the plan
generally is funded on a pay-as-you-go basis with additional contributions made in periods in which excess
resources are available. Therefore, the Statement does not specify a particular approach for determining a
blended rate for partially funded plans but requires (in paragraph 25d(5)(c)) that an employer disclose the
approach used.
82.
Q—How should a government set the discount rate for an OPEB plan when the government intends to use
future tax revenues to fund the benefit payments as they come due?
A—In an OPEB plan that is financed on a pay-as-you-go basis, where the employer makes contributions at
about the same times and in about the same amounts as benefit payments and plan expenses become due,
there is no accumulation, or negligible accumulation, of plan assets. The employer should use as its discount
27
rate for purposes of determining the actuarial present value of total projected benefits the long-term expected
return on investments of employer assets. The employer investments used generally should be investments that
are not restricted for other purposes (that is, investments that could be used to finance payments of the
benefits).
83.
Q—Could the discount rate potentially be lower for an employer in an unfunded plan than in a funded plan?
A—Yes. The discount rate for an employer in an unfunded plan potentially could be lower, for the reason
discussed in paragraph 121 of Statement 45 (Basis for Conclusions):
The Board recognizes that permissible investment options and yield opportunities for an employer’s general investments may be more limited than those for a pension or employee benefit trust fund.
As a result, discount rates for unfunded plans generally may be lower. The Board concluded that in
either case the discount rate should reflect the expected yield on the assets expected to be used to
finance the payment of benefits, and that pay-as-you-go employers generally could in fact expect to
receive less help from asset earnings in financing the total cost of benefits.
Actuarial Cost Method
84.
Q—What actuarial cost methods are acceptable for accounting purposes?
A—Paragraph 13d specifies six actuarial cost methods that are acceptable under the parameters of Statement 45. Those methods are entry age, frozen entry age, attained age, frozen attained age, projected unit credit,
and aggregate. (The unprojected unit credit method also is appropriate when benefits already accumulated for
years of service are not affected by future salary levels.) The preceding methods are further described in
Appendix 2 of this guide.
85.
Q—Are there any constraints on which of the acceptable methods an employer may choose for accounting
purposes?
A—Yes. Paragraph 13 of Statement 45 requires that the actuarial methods and assumptions, including selection
of an actuarial cost method, should be the same methods and assumptions used in determining the plan’s
funding requirements, if the funding requirements are calculated in conformity with the parameters. That
paragraph also requires that “a plan and its participating employer(s) should apply the same actuarial methods
and assumptions in determining similar or related information included in their financial reports.”
86.
Q—The aggregate actuarial cost method does not separately measure the actuarial accrued liability related to
past service. Are there any special reporting requirements related to disclosures of funded status and funding
progress that apply if an employer uses the aggregate actuarial cost method for accounting purposes?
A—Yes. Sole and agent employers that use the aggregate actuarial cost method should prepare information
about the funded status of the plan using the entry age actuarial cost method for purposes of presenting funded
status information in the notes to the financial statements (as required by paragraph 25c of Statement 45) and
a schedule of funding progress in required supplementary information (as required by paragraph 26). Employers
that use the aggregate method also are required to disclose that the information in the schedule of funding
progress is prepared on the entry age actuarial cost method and is intended to approximate the funding progress
of the plan.
28
Actuarial Value of Assets
87.
Q—In an actuarial valuation to calculate the actuarial accrued liability and the ARC for accounting purposes,
does the requirement of Statement 45 that the actuarial value of plan assets generally be market related mean
that plan assets generally should be reported at their fair value?
A—The term market-related value of plan assets is defined in the glossary of Statement 45 as:
A term used with reference to the actuarial value of assets. A market-related value may be fair
value, market value (or estimated market value), or a calculated value that recognizes changes in fair
value over a period of, for example, three to five years.
Paragraph 13e of Statement 45 requires the use of a market-related valuation of plan assets for the purpose of
determining the ARC and assessing the funded status and funding progress of the plan. The method used for
those purposes should take into consideration changes in market value but does not necessarily have to be
market value. As discussed in paragraph 126 of Statement 45 (Basis for Conclusions), market-related valuation
methods also include techniques that moderate the short-term volatility in market values by allocating the
appreciation or depreciation in market values over several years (for example, three to five years). Such
methods are intended to achieve a balance between recognizing the effects of changes in market values and
stabilizing the recognition of short-term fluctuations consistent with a long-term valuation perspective. The use
of current market values also is included in the definition of market-related value; however, current market
values should not be used for actuarial valuation purposes if their use would cause the ARCs for successive
years to fluctuate in a way that would not be meaningful from a long-term perspective.
88.
Q—Is there a prescribed limitation on the number of years over which market value changes may be taken into
consideration in actuarial valuations?
A—Statement 45 does not specify the number of years over which market value changes may be factored in
as part of the actuarial value of plan assets for purposes of determining the ARC and the funded status of the
plan. However, paragraph 126 of Statement 45 (Basis for Conclusions) cites three to five years as examples of
periods that would be consistent with achieving the balance discussed in question 87 between recognizing the
effects of changes in market values and stabilizing the effects of short-term volatility consistent with a long-term
perspective.
Annual Required Contributions of the Employer (the ARC)
89.
Q—For what purpose is the ARC used in Statement 45?
A—The ARC is the amount that an employer would contribute to a defined benefit OPEB plan, if the employer’s
method of financing the benefits is to systematically fund the plan using an actuarial methodology that conforms
with the parameters of Statement 45. It represents the level of employer contribution effort that would be
required on a sustained, ongoing basis to (a) fund the normal cost (cost associated with new services received)
each year and (b) amortize the total unfunded actuarial liabilities (or funding excess) attributed to past services
over a period of years that complies with the parameters, including the maximum amortization period of thirty
years. However, in Statement 45, the ARC is used not for funding purposes but for accrual accounting
purposes—that is, as a basis for the allocation of the employer’s projected cost of providing OPEB over periods
that approximate the periods in which the employer receives services from the covered employees. Accordingly,
the ARC is used as the foundation on which the measurement of the employer’s annual OPEB cost (the amount
recognized as expense in relation to the ARC) is based.
29
90.
Q—Does Statement 45 require that an employer change its method of financing OPEB (if different) to begin
paying the ARC or otherwise accumulate plan net assets in order to fund the actuarially accrued benefits in some
manner?
A—No. Statement 45 establishes standards for an employer’s accounting and financial reporting of OPEB. An
employer’s method of financing the benefits is outside the scope of the Statement. The ARC is used in the
measurement of a sole or agent employer’s OPEB expense, as discussed in question 89, without regard to the
timing and amounts of actual contributions to the plan by the employer pursuant to the employer’s financing
policy.
91.
Q—Does an employer have an ARC for a period if the plan is fully funded or overfunded at the beginning of the
period?
A—Yes. Regardless of the current funded status of the plan, the employer has an ARC that comprises two
components: normal cost, which will apply as long as there are covered active employees providing new
services to the employer, plus (or minus) a component for amortization of the total unfunded actuarial accrued
liabilities (or funding excess). If a plan is fully funded (the funded ratio is 100 percent) at the beginning of a
period, the ARC will be equal to the normal cost; the amortization component will be zero. If a plan is overfunded
(the funded ratio is greater than 100 percent) at the beginning of a period, the ARC will be equal to the normal
cost minus amortization of the funding excess.
92.
Q—What is the minimum amount that the ARC could be?
A—Zero. The ARC would be zero if the component for amortizing the plan’s funding excess fully offsets, or more
than offsets, the normal cost for a period. The ARC cannot be a negative amount because that would imply a
required contribution of the plan to the employer—a condition that generally cannot occur with public plans that
are administered as trusts, or equivalent arrangements, legally separate from the employer and dedicated solely
to the provision of postemployment benefits. (It is mathematically possible, however, under rare circumstances,
for the annual OPEB cost for a period to be negative, producing a relatively small amount of OPEB revenue,
rather than expense, for the period.)
Equivalent Single Amortization Period
93.
Q—What is an equivalent single amortization period (ESAP)?
A—An ESAP is a weighted average of the amortization periods of all components of the total unfunded actuarial
liability. The requirements for calculating an ESAP are discussed in paragraph 13f(2) of Statement 45. For
purposes of financial reporting in conformity with Statement 45, the ESAP associated with the total unfunded
actuarial liability should not exceed the maximum amortization period of thirty years.
94.
Q—What action should an employer take if the ESAP exceeds the maximum amortization period of thirty
years?
A—If the ESAP calculated by the employer in conformity with paragraph 13f(2) of Statement 45 exceeds the
maximum amortization period of thirty years, one or more of the amortization periods selected for the individual
components of the total unfunded actuarial liability should be changed to result in an ESAP of thirty years or less.
(Appendix 6 of this guide provides illustrations of ESAP calculations, including an illustration of a situation in
which the ESAP exceeds the maximum and an illustration of how the amortization period(s) for one or more
components of the total unfunded actuarial accrued liability could be adjusted to bring the ESAP within the
maximum.)
30
Minimum Amortization Period
95.
Q—What is the minimum amortization period, and to what does it apply?
A—The minimum amortization period applies to significant decreases in the total unfunded actuarial liability
resulting from a change from one acceptable actuarial cost method to another (for example, a change from entry
age to projected unit credit), or from a change in the method(s) used to determine the actuarial value of plan
assets (for example, a change from a market-related method that allocates changes in the fair value of assets
over five years to fair value). Such decreases should be amortized over a minimum period of ten years, unless
the plan is closed to new entrants and all or almost all of the plan members have retired.
96.
Q—Apart from the specific changes discussed in the answer to question 95, is there any minimum limitation on
the amortization period that may be used for amortizing the total unfunded actuarial liability or a particular
component of it?
A—No. For purposes of Statements 43 and 45, the minimum amortization period applies only to decreases in
the unfunded actuarial liability resulting from the specific changes identified in question 95. There is no minimum
amortization period for actuarial gains resulting from other factors or to actuarial losses.
Amortization Method
97.
Q—Is the total unfunded actuarial liability required to be amortized in level dollar amounts?
A—No. Paragraph 13f(4) of Statement 45 provides that the total unfunded actuarial liability may be amortized
in level dollar amounts or as a level percentage of the projected payroll of active plan members.
98.
Q—What are the relative effects of level dollar and level percentage of payroll amortization methods, in terms
of the pattern of allocation of the actuarial present value of total projected benefits to periods?
A—In level dollar amortization, the total amount to be amortized is divided into equal dollar amounts (including
principal and interest on the declining balance) to be paid or charged over a given number of years. The amounts
amortized each year generally can be expected to decrease over time (a) as a percentage of covered payroll
(if the covered payroll can generally be assumed to increase over time as a result of inflation) and (b) in
inflation-adjusted dollars.
In level percentage of payroll amortization, amortization payments or charges are calculated so that they
represent a constant percentage of the projected covered payroll over a given number of years. As a result, the
dollar amount of amortization payments or charges generally will increase over time in proportion to the effect
of inflation on the covered payroll. However, the method is designed to keep the amortization payments or
charges level in inflation-adjusted dollars over time.
99.
Q—If the level percentage of payroll amortization method is used, may future payrolls be assumed to increase
as a result of (a) the effect of inflation on general salary levels, (b) individual salary increases as a result of
promotions, merit increases, or longevity increases, or (c) projected increases in the number of active plan
members?
A—For purposes of applying level percentage of payroll amortization, covered payrolls may be assumed to
increase over time as a result of the effect of inflation on general salary levels only.
31
Employer Contributions in Relation to the ARC
Criteria for Determining When an Employer Has Made a Contribution in Relation to the ARC
100. Q—What criteria should be met in order to count that a sole or agent employer has made an OPEB contribution
in relation to the ARC?
A—Paragraph 13g of Statement 45 provides specific criteria that are required to be met in order for OPEB
financing activities of the employer to be treated as contributions to the plan for the purpose of determining
whether and to what extent there has been a contribution deficiency or excess contribution in relation to the ARC
for the year. For that purpose, an employer has made a contribution in relation to the ARC if the employer has
met one of the following criteria:
a. The employer has made benefit payments directly to or on behalf of a retiree or beneficiary.
b. The employer has made premium payments to an insurer (for example, for retiree healthcare coverage).
c. The employer has made contributions to an OPEB plan to fund payments of benefits as they come due in
the future, and all of the following apply:
(1) The employer has made an irrevocable transfer of assets to the plan. (The employer no longer has
ownership or control of the assets, except for any reversionary right once all benefits have been paid.)
(2) The plan has been established as a trust, or equivalent arrangement. (The plan is effectively a legally
separate entity under the stewardship of a board of trustees, or the equivalent.)
(3) The plan assets are dedicated to providing benefits to retirees and their beneficiaries in accordance with
the terms of plan (that is, the understanding embodying the employer’s commitment to provide the
benefits).
(4) The plan assets are legally protected from creditors of the employer(s) or of the plan administrator.
101. Q—Does the phrase or equivalent arrangement, which generally follows the word trust in Statement 45, refer
to a particular arrangement that is equivalent to setting OPEB plan assets aside in a legal trust, in terms of
meeting the criteria for counting financial resources that the employer(s) pay into such a trust or arrangement
as OPEB contributions in relation to the ARC?
A—For purposes of Statement 45, assets that an employer has set aside to fund benefits as they come due in
future periods should be considered contributions to an OPEB plan only if the vehicle established is one that is
capable of building plan assets that are separate from, and independent of the control or creditors of, the
employer(s) and that are dedicated to the sole purpose of providing benefits. Those conditions generally would
require the establishment of a legal trust. However, Statement 45 uses the phrase trust, or equivalent
arrangement, to focus on the need for a vehicle that has the force and effect of a trust and that meets the criteria
discussed in paragraph 13g, rather than on a particular name or form. The words or equivalent arrangement do
not refer to any other particular arrangement or form that potentially would meet those criteria.
Means of Financing That Should Not Be Accounted for as Contributions in Relation to the ARC
102. Q—How should a sole or agent employer that finances OPEB on a pay-as-you-go basis but further earmarks
a portion of the fund balance of one of its governmental funds for OPEB purposes account for its OPEB
financing activities?
A—The employer should account for the payments made for benefits or premiums on a pay-as-you-go basis as
OPEB contributions in relation to the ARC and should account for the portion of the governmental fund balance
earmarked for OPEB as designated for future OPEB contributions.
32
103. Q—How should a sole or agent employer that finances OPEB on a pay-as-you-go basis but establishes a
separate internal service fund, described as its OPEB fund, and charges other funds for their share of annual
OPEB cost on an accrual basis account for its OPEB financing activities?
A—The employer should account for the payments made for benefits or premiums on a pay-as-you-go basis as
OPEB contributions in relation to the ARC. Regardless of the manner in which the transactions between other
funds and the OPEB internal service fund are reported in fund financial statements, moneys transferred into the
internal service fund should not be accounted for as OPEB contributions in government-wide financial statements. In addition, assets accumulated in the internal service fund should be accounted for as employer assets
for the purposes of Statements 45 and 43.
104. Q—How should a sole or agent employer account for amounts contributed to the plan if the plan is not
administered as a qualifying trust (or equivalent arrangement) and the amounts contributed exceed pay-asyou-go requirements to finance benefits and plan expenses?
A—A sole or agent employer should account for the amounts paid to a plan that is administered by a separate
entity, but not as a qualifying trust (or equivalent arrangement), as OPEB contributions in relation to the ARC to
the extent of the pay-as-you-go requirements for benefits or plan expenses. Amounts paid to the plan in excess
of pay-as-you-go requirements are not considered contributions in relation to the ARC, and assets held by the
plan in excess of liabilities for benefits or plan expenses due for payment should be reported as employer assets.
Amortization of a Contribution Deficiency or Excess Contribution
105. Q—When should an actuary begin to amortize a contribution deficiency or excess contribution?
A—Paragraph 13g of Statement 45 requires that an actuary begin amortizing a contribution deficiency or excess
contribution at the next actuarial valuation, unless settlement of the difference is expected not more than one
year after the contribution deficiency or the excess contribution occurred. However, if after one year the
deficiency or excess remains unsettled, the actuary should begin amortizing it at the following actuarial
valuation.
If an employer converts a contribution deficiency (or a portion of the total unfunded actuarial liability determined
in some other way) to an OPEB-related debt, a plan that is administered as a qualifying trust, or equivalent
arrangement, would recognize a plan asset (receivable from the employer) and an addition to plan net assets
in the amount of the debt in the year in which it is incurred by the employer. The unfunded actuarial accrued
liabilities of the plan and future ARCs would be reduced accordingly. (Also see questions 31, 32, and 107 on
OPEB-related debt.)
106. Q—How does the actuary’s treatment of a contribution deficiency or excess contribution that is expected to be
settled as a short-term difference coordinate with the required accounting treatment by the employer and by the
plan?
A—The actuary generally should begin amortizing a contribution deficiency or excess contribution at the next
actuarial valuation, unless the employer is expected to settle the difference within one year of occurrence. In the
latter case, if the next actuarial valuation is made within one year after the occurrence of the contribution
deficiency or excess contribution, the actuary should not begin amortizing the difference at that time. (Amortization of the difference should, however, begin at the following valuation if settlement was not made within the
one-year period.) Consistent with the required treatment by the actuary, the employer should report a short-term
difference (one that the employer intends to settle by the next actuarial valuation or, as discussed above, in not
33
more than one year if the next actuarial valuation is scheduled within one year) as a liability and a part of
employer contributions in relation to the ARC in the year in which the difference occurred, and the plan should
account for the difference as a receivable and a part of additions to plan net assets from employer contributions
in the year that the difference occurred.
107. Q—How does the actuary’s treatment of an OPEB-related debt coordinate with the required accounting
treatment by the employer and by the plan?
A—Consistent with the required treatment by the actuary, the employer should recognize an OPEB-related debt
as a liability and an employer contribution to the plan distinct from and in addition to contributions in relation to
the ARC in the period in which the debt is incurred. Similarly, the plan should recognize an OPEB-related debt
as a receivable and an addition to plan net assets from employer contributions in the period in which the debt
is incurred by the employer. The OPEB-related debt would, therefore, reduce the unfunded actuarial liability and
the amortization component of the ARC.
Calculation of interest on the net OPEB obligation and the adjustment to the ARC
108. Q—What is the employer’s net OPEB obligation (or asset)?
A—The net OPEB obligation (or asset) is the cumulative difference, from the implementation date of Statement 45, between the amounts reported as expense in relation to the ARC (annual OPEB cost) and amounts
actually contributed to the OPEB plan in relation to the ARC. (It also includes the beginning net OPEB obligation
[or asset] at transition, if an employer calculates and recognizes a beginning balance as permitted but not
required by paragraph 37 of Statement 45.) The net OPEB obligation (or asset) is reported on the accrual basis
financial statements of the employer as a liability (or asset).
109. Q—If an employer has a net OPEB obligation (or asset) at the beginning of a period, what adjustments should
be made to the ARC when determining the employer’s annual OPEB cost for that period?
A—To determine annual OPEB cost, the ARC should be adjusted (a) for interest on the beginning net OPEB
obligation (or asset) and (b) for an approximation of the amount included in the ARC for amortization of past
contribution deficiencies or overcontributions (the ARC adjustment). (See questions 110–113 for more information about these components of annual OPEB cost.) The calculation should be made as follows:
If the employer has a beginning
net OPEB obligation:
If the employer has a beginning
net OPEB asset:
ARC
+ Interest on the beginning net OPEB obligation
– ARC adjustment
Annual OPEB cost
ARC
− Interest on the beginning net OPEB asset
+ ARC adjustment
Annual OPEB cost
110. Q—At what rate should interest on the beginning OPEB obligation be calculated?
A—Interest is calculated on the beginning net OPEB obligation at the assumed investment return rate (discount
rate) applicable to the year for which the adjustment is made. The investment return assumption used for
purposes of determining interest on the net OPEB obligation should be the same assumption used by the
actuary to calculate the ARC for the period. The interest amount equals the balance of the net OPEB obligation
at the beginning of the year times the investment rate of return.
34
111. Q—How should the ARC adjustment be determined, and how may the employer obtain the necessary
information for the calculation?
A—The ARC adjustment is calculated by dividing the balance of the net OPEB obligation at the beginning of the
year by the amortization factor used to determine the ARC attributable to the year for which the adjustment is
made. The amortization factor is based on the actuarial assumptions and the amortization method and period
incorporated into the actuarial calculations, and the amortization factor used for purposes of calculating the ARC
adjustment should be the same amortization factor used by the actuary. (Accounting procedures for calculating
interest, adjusting the ARC, and computing annual OPEB cost are discussed and illustrated in Appendix 4 of this
guide. The same adjustment procedures also are discussed in the context of pensions in questions 5.117 and
5.118 in the Comprehensive Implementation Guide—2004.)
112. Q—What is the effect of these two adjustments?
A—If an employer contributes less (or more) than the ARC, the next and subsequent ARCs include an amount
for amortization of the deficiency (or excess) as part of the normal actuarial valuation process. If adjustments
were not made, annual OPEB cost and the net OPEB obligation (or asset) would be overstated (or understated)
by the portion of the amortization amount previously recognized (or unrecognized) in annual OPEB cost. The
interest adjustment and ARC adjustments are intended to approximate the effect of the contribution deficiency
(or excess), remove it from the ARC, and add back or subtract interest on the net OPEB obligation. The effect
of these adjustments is to prevent double accrual of expense for contribution deficiencies (or failing to accrue an
expense when there was a past excess contribution), to maintain consistency between actuarial and accounting
measures, and to amortize the net OPEB obligation.
113. Q—A sole employer with no beginning net OPEB obligation now has a large net OPEB asset as result of issuing
OPEB obligation bonds during the current period and contributing the proceeds to the plan in order to reduce
the unfunded actuarial accrued liability to zero. How should the employer amortize the net OPEB asset?
A—If the employer resumes contributing the ARC, the net OPEB asset will be amortized as a function of the
interest and ARC adjustments applied in measuring annual OPEB cost. (See questions 109–112.)
114. Q—If an employer has recognized a net OPEB obligation for past contribution shortfalls and in subsequent
years enacts benefit changes that eliminate a significant portion of the total actuarial accrued liability on which
calculation of the net OPEB obligation was based, how should the employer account for the effect of that change
on the net OPEB obligation?
A—The effect of the change in benefit terms should be accounted for prospectively through the calculation of
subsequent ARCs. That is, the change in the total actuarial accrued liability resulting from the benefit change
should be amortized as an actuarial gain over a period not to exceed thirty years in accordance with
paragraph 13f of Statement 45. (No minimum amortization period would apply.) If the employer contributes the
ARC in future years, the net OPEB obligation also will be amortized over the same period, through the operation
of the requirements for measurement of annual OPEB cost. (See Appendix 4, Example 1.)
35
Recognition of OPEB expense/expenditures, liabilities, and assets
115. Q—Can OPEB expense have more than one component?
A—Yes. In financial statements prepared on the accrual basis of accounting (government-wide statements and
proprietary or fiduciary fund statements), an employer that issues OPEB-related debt should recognize OPEB
expense in the amount of that debt in the year in which it is issued, in addition to its OPEB expense in relation
to the ARC (annual OPEB cost). (Interest on an OPEB-related debt should be accounted for as a financing
expense.)
116. Q—Statement 45 requires accrual basis measurement of annual OPEB cost. Is accrual basis recognition of
OPEB expense in relation to the ARC also required for sole and agent employers in all financial statements,
including governmental fund financial statements?
A—No. The amount recognized by a sole or agent employer in relation to annual OPEB cost depends on the
measurement focus and basis of accounting applicable to the financial statements presented. In financial
statements prepared on the accrual basis of accounting (government-wide financial statements and proprietary
and fiduciary fund financial statements), OPEB expense should be recognized in the amount of annual OPEB
cost (accrual basis measure). In financial statements prepared on the modified accrual basis of accounting
(governmental fund financial statements), OPEB expenditures should be recognized in the amount contributed
to the plan or expected to be liquidated with expendable available financial resources.
117. Q—To pay OPEB to police officers, maintenance staff, and clerical employees, an employer accumulates funds
with a plan administrator. Amounts contributed to the plan administrator for members of the police force may be
used only to pay retiree benefits for those members. Other contributions may be used to pay benefits for all other
retirees. The plan administrator pools the funds for investment purposes. How should the recognition requirements of Statement 45 be applied in this circumstance?
A—An employer is considered to have contributed to more than one plan if any part of the total assets
contributed to a plan administrator(s) is accumulated solely to pay benefits to certain classes of employees and
is legally restricted from being used to pay benefits to other classes of employees. In the circumstance
described, the employer is contributing to two plans based on the legal restriction on the use of amounts
contributed on behalf of police officers and should apply the recognition requirements of Statement 45 separately
to its contributions to the plan that provides benefits to police officers and to the plan covering other retirees.
Whether the plan administrator pools assets for investment purposes does not influence the determination of
the number of plans to which the employer is contributing.
118. Q—An employer makes ARC-related contributions from two separate enterprise funds to its OPEB plan for
employees paid from those funds. How should the employer account for its annual OPEB cost and net OPEB
obligation associated with the plan?
A—If an employer makes ARC-related contributions from more than one enterprise fund, the employer should
allocate all components of annual OPEB cost (the ARC and the interest and ARC adjustments) and the net
OPEB obligation, as applicable, among the funds for purposes of Statement 45. If an employer has a beginning
net OPEB obligation (or asset), allocation of the interest and ARC adjustment components of annual OPEB cost
should be made based on each enterprise fund’s proportionate share of the beginning net OPEB obligation (or
asset). Similarly, if an employer has a net OPEB obligation (or asset) that is allocated between governmental
and business-type activities in the government-wide financial statements, the interest and ARC adjustment
components of annual OPEB cost should be allocated between those activities based on the beginning net
OPEB obligation (or asset).
36
Recognition in modified accrual basis financial statements
119. Q—What is meant by “the amount contributed to the plan” and the amount “expected to be liquidated with
expendable available financial resources” in the answer to question 116, regarding modified accrual recognition
of OPEB expenditures by a sole or agent employer?
A—The “amount contributed to the plan” in relation to the ARC refers to payments by a sole or agent employer
during the period. It includes benefit payments made directly to or on behalf of a retiree or beneficiary, premium
payments made to an insurer, and assets irrevocably transferred to a trust, or equivalent arrangement, in which
plan assets are dedicated to providing benefits to retirees and their beneficiaries in accordance with the terms
of the plan and are legally protected from creditors of the employer or plan administrator. The “amount expected
to be liquidated with expendable available financial resources” generally refers to an OPEB payment due and
payable as of the end of the period. (For discussion of modified accrual basis recognition by a cost-sharing
employer, see questions 130–132.)
Recognition in accrual basis financial statements
120. Q—What types of OPEB liabilities should an employer recognize in financial statements presented on the
accrual basis of accounting?
A—If applicable, an employer should recognize separate OPEB liabilities for its net OPEB obligation, short-term
differences, and OPEB-related debt. (For additional discussion of accrual basis recognition of OPEB liabilities
by a cost-sharing employer, see questions 133 and 134.)
121. Q—How should OPEB expense in relation to the ARC of proprietary or fiduciary funds (and of governmental or
business-type activities) from which contributions are made be recognized in financial statements presented on
the accrual basis of accounting?
A—In financial statements prepared on the accrual basis of accounting, OPEB expense in relation to the ARC
should be recognized in an amount equal to annual OPEB cost, regardless of the amount actually contributed
to the plan.
122. Q—If an employer contributes less (or more) than the annual OPEB cost for the period, what is reported in
accrual basis financial statements?
A—If an employer contributes an amount that differs from annual OPEB cost, the difference between annual
OPEB cost for the period and the amount actually contributed creates a net OPEB obligation (or asset) or adds
to (subtracts from) an existing net OPEB obligation. For example, if an employer has a beginning net OPEB
obligation of $500,000 and an annual OPEB cost for the period of $150,000, and the employer contributes
$125,000 during the period, the ending net OPEB obligation would be increased by $25,000 (the difference
between annual OPEB cost of $150,000 and the employer contributions of $125,000). In the accrual basis
financial statements for the period, the employer would report OPEB expense in relation to the ARC of $150,000
and a net OPEB obligation of $525,000.
123. Q—Should a short-term difference be taken into consideration as a contribution in relation to the ARC for
purposes of computing the net OPEB obligation or a change in an existing net OPEB obligation?
A—Yes. Short-term differences should be considered contributions in relation to the ARC for purposes of
computing the (change in the) net OPEB obligation. Year-end balances of short-term differences should be
recognized as OPEB liabilities separate from the net OPEB obligation.
37
124. Q—How should an employer’s annual OPEB cost and net OPEB obligation (or asset) be calculated in years
between valuation dates?
A—The process of calculating an employer’s annual OPEB cost is the same for periods between actuarial
valuations as it is for periods when a valuation is performed. That is, annual OPEB cost is calculated as the ARC
for the period, plus (minus) interest on the beginning net OPEB obligation (or asset) and minus (plus) the ARC
adjustment. Unless actuarial valuations are performed annually, the ARC (defined in dollars or as a percentage
of payroll) that results from an actuarial valuation in accordance with the parameters is applicable to more than
one financial reporting period of the employer. For example, if an employer obtains biennial actuarial valuations,
the ARC resulting from the valuation performed as of June 30, 20X6, might (within the timing and frequency
requirements of paragraph 12 of Statement 45) apply to the employer’s financial reporting periods ending
June 30, 20X8 and 20X9. If the ARC is expressed as a percentage of payroll instead of as a level dollar amount,
the ARC rate should be applied to the same payroll base (budgeted payroll, actual payroll, and so forth) for each
of those periods. For example, if the ARC for the periods ending June 30, 20X8 and 20X9, is 7 percent and is
calculated based on actual payroll, the ARC for the period ending June 30, 20X8, should be calculated as
7 percent times the actual payroll for the period ending June 30, 20X8, and the ARC for the period ending
June 30, 20X9, should be calculated as 7 percent times the actual payroll for the period ending June 30, 20X9.
In each period, the employer should calculate annual OPEB cost, with the interest and ARC adjustments based
on the beginning net OPEB obligation (or asset) for the period. In the example above, for the period ending June
30, 20X8, the interest and ARC adjustments should be calculated using the employer’s net OPEB obligation as
of July 1, 20X7, and for the period ending June 30, 20X9, the interest and ARC adjustments should be based
on the employer’s net OPEB obligation (or asset) as of July 1, 20X8.
125. Q—If an employer converts a portion of its actuarial accrued liability to OPEB-related debt, how should the
OPEB-related debt be recognized in accrual basis financial statements?
A—In financial statements prepared on the accrual basis of accounting, the employer should recognize OPEB
expense associated with OPEB-related debt in full in the year the debt is incurred, and the year-end balance of
OPEB-related debt should be recognized as a liability separate from the net OPEB obligation.
126. Q—May an employer (sole, agent, or cost-sharing) offset OPEB liabilities and assets to different plans in the
proprietary or fiduciary fund financial statements or in the government-wide financial statements?
A—No. OPEB liabilities to different plans should not be offset in the financial statements.
Cost-Sharing Employers
127. Q—A governmental employer makes contributions to a multiple-employer OPEB plan in which benefit risks and
liabilities are pooled (shared), and plan net assets received from any participating employer may legally be used
to pay benefits to the former employees of any participating employer. The plan is administered as a trust. Should
the employer account for its assessed contributions to the plan as contractually required contributions to a
cost-sharing OPEB plan?
A—Yes, if the trust meets certain conditions. For accounting purposes, a multiple-employer plan is a costsharing plan, and the employer should follow the requirements of paragraph 23 of Statement 45 applicable to
a cost-sharing employer, if both of the following apply:
a. The plan meets, in intent, the definition of a cost-sharing multiple-employer plan found in the glossaries of
Statements 45 and 43. That is, in intent, the plan is:
A single plan with pooling (cost-sharing) arrangements for the participating employers. All
risks, rewards, and costs, including benefit costs, are shared and are not attributed individually
38
to the employers. A single actuarial valuation covers all plan members, and the same contribution
rate(s) applies for each employer.
b. The plan is administered using a plan vehicle that is sufficient to make possible the pooling, or sharing, of
plan assets and costs inherent in the preceding definition of a cost-sharing plan. That is, the multipleemployer plan is administered as a legal trust or equivalent arrangement that meets the following requirements of paragraph 22a of Statement 45 and paragraph 4 of Statement 43:
(1) Employer contributions to the plan are irrevocable.
(2) Plan assets are dedicated to the purpose of providing postemployment benefits in accordance with the
terms of the plan.
(3) Plan assets are legally protected from creditors of the employers or the plan administrator.
An employer in a plan in which the preceding conditions are met should recognize expense or expenditures in
fund financial statements for its contractually required contributions to the plan on the accrual or modified accrual
basis of accounting, whichever applies, and should recognize expense in government-wide financial statements
for its contractually required contributions on the accrual basis of accounting.
128. Q—A governmental employer contributes to a multiple-employer postemployment healthcare plan described as
a cost-sharing plan. The participating employer governments make contributions, described as contractually
required contributions, to one of the governments, which acts as the plan administrator. The plan’s policy for
determining the contribution amounts assessed to the participating employers each year results in contributions
in excess of the plan’s pay-as-you-go requirements for health insurance premiums and administrative costs. The
fund used by the administrator government is not a qualifying trust, or equivalent arrangement. Thus, the assets
accumulated in the fund are not legally or effectively secured for the sole purpose of paying benefits to plan
members as they come due in the future. Should an employer participating in this plan account for the amounts
it contributes to the plan as contractually required contributions?
A—No. If a multiple-employer plan is not administered as a qualifying trust, or equivalent arrangement, in which
the conditions discussed in question 127 are met, paragraph 22b of Statement 45 requires participating
employers to follow the requirements of Statement 45 applicable to an agent employer. Accordingly, an employer
in such a plan should measure its OPEB expense related to contributions to the plan in an amount equal to
annual OPEB cost. Moreover, the employer should not account for any contributions made to the plan in excess
of pay-as-you-go requirements for benefits and plan expenses as contributions in relation to the ARC, but should
account for its share of the assets held by the administrator arising from such excess contributions as employer
assets.
129. Q—What is the nature and significance of the term contractually required contributions, in reference to
recognition of OPEB expense/expenditures by cost-sharing employers in plans that meet the conditions of
paragraph 22 of Statement 45 (that is, true cost-sharing plans for accounting purposes)?
A—As discussed in paragraphs 3 and 4 of Technical Bulletin No. 2004-2, Recognition of Pension and Other
Postemployment Benefit Expenditures/Expense and Liabilities by Cost-Sharing Employers, the term contractually required contributions refers to the contributions assessed by a cost-sharing OPEB (or pension) plan to the
participating employers for a period, without regard for the method used to determine the amounts. Unlike a
single-employer or agent multiple-employer plan, in which each employer retains sole responsibility for funding
benefits for its own group, a cost-sharing plan involves a pooling, or sharing, of benefit obligations and assets.
In addition to performing administrative functions, the plan assumes from the individual employers the
responsibility and risk associated with the funding of benefits for the whole group. In exchange for the services
provided and the assumption of risk by the plan, the individual cost-sharing employers incur liabilities to the plan
39
for the contractually required contributions assessed by the plan for specified periods. The use of the term
emphasizes that for cost-sharing employers, the measurement of expense or expenditures is not required to be
based on the ARC but should be based on the amount assessed by the plan, however determined.
130. Q—How should cost-sharing employers recognize OPEB expenditures to the plan “for their contractually
required contributions to the plan” in governmental fund financial statements?
A—In governmental fund financial statements, a cost-sharing employer should recognize OPEB expenditures
related to its contractually required contributions on the modified accrual basis, in accordance with criteria stated
in the second sentence of paragraph 19 of Statement 45. That is, “[t]he amount recognized should be equal to
the amount contributed to the plan or expected to be liquidated with expendable available financial resources.”
(Also see questions 131 and 132.)
131. Q—How should a cost-sharing employer apply the criterion “contributed to the plan” included in the modified
accrual recognition requirements of paragraph 19 of Statement 45, in accounting for expenditures related to its
contractually required contributions to an OPEB plan?
A—Contractually required contributions “contributed to the plan” are those contributions that are (a) assessed
for an employer’s financial reporting period (that is, for pay periods falling within that period) and (b) paid to the
plan during that period. For example, in a cost-sharing employer’s financial reporting period ended June 30,
20X5, the employer pays to the plan the contractually required contributions for the twelve monthly pay periods
from June 20X4 through May 20X5. Of the total contributions paid, the amounts paid for the eleven pay periods
from July 20X4 through May 20X5 are the assessed contributions for pay periods that fall within the current
financial reporting period. The employer in the example should include the contributions paid for those eleven
pay periods as the amounts “contributed to the plan” in the determination of OPEB expenditures for the period.
(Also see paragraphs 5–9 of Technical Bulletin 2004-2.)
132. Q—How should a cost-sharing employer apply the additional criterion “expected to be liquidated with expendable available financial resources,” included in the modified accrual recognition requirements of paragraph 19 of
Statement 45, in accounting for its contractually required contributions to an OPEB plan?
A—Unpaid contractually required contributions assessed by a cost-sharing OPEB (or pension) plan for a pay
period are matured liabilities, because they relate to services provided by the plan to employers for that period,
as discussed in question 131. Accordingly, any unpaid contractually required contributions for pay periods falling
within a cost-sharing employer’s financial reporting period at the end of that period should be considered
“expected to be liquidated with expendable available financial resources,” for modified accrual recognition
purposes, and should be recognized as governmental fund liabilities, regardless of the date on which payment
is required to be made. For example, as of June 30, 20X5, the employer in question 131 has not yet paid to the
plan the contractually required contribution assessed for the pay period June 20X5. (Payment will be made on
a date after June 30.) The employer should account for the unpaid contribution as a liability (expected to be
liquidated with expendable available financial resources) and as a component of OPEB expenditures (in addition
to the amounts contributed to the plan, as discussed in question 131) in governmental fund financial statements
for the year ended June 30, 20X5. Note that the contractually required contribution paid in July 20X5 for the pay
period June 20X4 was not a contribution to the plan for the current financial reporting period, as discussed in
question 131, but was recognized as a liability and an expenditure of the employer’s previous financial reporting
period ended June 30, 20X4. (Also see paragraphs 5–9 of Technical Bulletin 2004-2.)
40
133. Q—How should a cost-sharing employer apply the requirement of paragraph 23 of Statement 45 to recognize
OPEB expense to the plan “for [its] contractually required contributions to the plan . . . on the accrual basis” in
government wide financial statements and in proprietary and fiduciary fund financial statements?
A—In financial statements prepared on the accrual basis of accounting, a cost-sharing employer should
recognize OPEB expense in the amount of the total contractually required contributions assessed for pay
periods within the employer’s financial reporting period and should recognize an OPEB liability (or asset) for any
of those contributions that remain unpaid at the end of the period. For example, the cost-sharing employer in
questions 131 and 132 would recognize, in its government-wide financial statements, OPEB expense in the
amount of the contractually required contributions assessed for the twelve pay periods July 20X4 through June
20X5 and a liability for any unpaid contractually required contributions for the pay periods through June 20X5.
(Also see paragraphs 10 and 11 of Technical Bulletin 2004-2.)
134. Q—If an individual cost-sharing employer has OPEB-related debt to the plan in addition to its shared
responsibility to make contractually required contributions, how should the OPEB-related debt be accounted for
in accrual basis financial statements?
A—In addition to recognition of expense and liabilities (or assets) associated with its contractually required
contributions to the plan, a cost-sharing employer that has an OPEB-related debt to the plan should separately
account for its expense and liability associated with the OPEB-related debt. An individual cost-sharing employer
might, for example, incur an OPEB-related debt to the plan for its past service costs at the time the employer
enters the cost-sharing plan or for contractually required contributions assessed for one or more pay periods that
the employer arranges with the plan to pay on an installment basis with interest. In financial statements prepared
on the accrual basis of accounting, the employer should recognize an expense and a liability in the full amount
of the OPEB-related debt in the year that it incurs the debt. The unpaid debt at the end of each period should
be reported as a liability separate from any OPEB liability or asset resulting from a difference between
contractually required contributions required and contributions made.
Notes to the Financial Statements
135. Q—If an employer participates in more than one defined benefit OPEB plan, is the employer required to make
disclosures for each plan?
A—Yes. The information that paragraphs 24 and 25 of Statement 45 require employers to disclose about
defined benefit OPEB plans in notes to the financial statements should be presented for each plan. However, an
employer that participates in more than one defined benefit OPEB plan should present the information in a
manner that avoids unnecessary duplication.
136. Q—What disclosures are required of all types of employers (sole, agent, or cost-sharing)?
A—All employers should disclose information describing the plan and the funding policy for the plan in
accordance with the requirements of paragraph 24 of Statement 45.
41
137. Q—Are the disclosures required by paragraph 24 of Statement 45 generally similar to the plan description
and funding policy disclosures for employers in defined benefit pension plans required by paragraph 20 of
Statement 27?
A—Yes. The note disclosure requirements of paragraph 24 of Statement 45 and paragraph 20 of Statement 27
are similar. However, paragraph 24 of Statement 45 establishes two additional requirements. Employers that
participate in defined benefit OPEB plans are required to disclose legal or contractual maximum contribution
rates, if applicable. In addition, cost-sharing employers should disclose how the contractually required contribution rate is determined (or that the plan is financed on a pay-as-you-go basis).
138. Q—What additional disclosures are required of sole and agent employers?
A—In addition to the note disclosure requirements for all employers, which are discussed in paragraph 24 of
Statement 45, paragraph 25 requires that sole and agent employers disclose information about the components
of annual OPEB cost and the net OPEB obligation for the three most recent years, the funded status of the plan
as of the most recent actuarial valuation, the actuarial valuation process, and the actuarial methods and
significant assumptions used to determine the ARC for the current year and the funded status of the plan.
139. Q—Are the disclosures required by paragraph 25 of Statement 45 generally similar to the disclosures for
employers in defined benefit pension plans required by paragraph 21 of Statement 27?
A—Yes. The note disclosure requirements of paragraph 25 of Statement 45 and paragraph 21 of Statement 27
are similar. However, paragraph 25 of Statement 45 establishes the following note disclosure requirements in
addition to disclosures similar to those required for employers participating in single and agent-multiple
employer pension plans:
•
•
•
•
•
Information about the funded status of the plan as of the most recent actuarial valuation date
General explanatory disclosures about the actuarial valuation process
The method used to determine a blended discount rate for a partially funded plan, if applicable
Initial rates associated with economic assumptions that contemplate different rates for successive years
An explanation related to the required use of entry age for purposes of preparing information about
funded status and funding progress by an employer that uses the aggregate actuarial cost method for
accounting purposes, if applicable.
140. Q—Paragraph 25d(3) of Statement 45 requires disclosure that actuarial calculations are based on the types of
benefits provided under the terms of the current substantive plan. Is an employer required to disclose or
otherwise present information about how it formed a judgment as to the content of the substantive plan (for
example, what documents or communications were used as a basis for determination)? If not required to do so,
may an employer disclose such information?
A—Statement 45 does not require disclosure of information in the notes to the financial statements about how
the terms of the substantive plan were determined. However, an employer may choose to make this disclosure.
42
141. Q—Does the required disclosure of funded status information (and the required presentation of funding
progress information as RSI) by an agent employer pertain to the employer’s individual plan or to the agent
multiple-employer plan as a whole?
A—Statement 45 requirements for note disclosure and RSI presentation of information about funded status and
funding progress for an agent employer pertain to the employer’s individual plan. Information about the agent
multiple employer plan as a whole is required to be presented by the plan in its financial statements. If an
employer reports the plan as a trust fund in its own financial statements, the employer should present the
required information for its individual plan and also should present, for the trust fund, the information required
by Statement 43 for the plan as a whole.
Required Supplementary Information
142. Q—How does the funding progress information that a sole or agent employer is required to present as RSI
relate to the required funded status disclosure?
A—Sole and agent employers are required to disclose in notes to the financial statements information about the
funded status—including the actuarial accrued liability, the actuarial value of assets, the unfunded actuarial
accrued liability, the funded ratio, the covered payroll, and the unfunded actuarial accrued liability as a
percentage of covered payroll—of the OPEB plans in which they participate as of the most recent actuarial
valuation date. (See question 50.) The elements of information that employers are required to present in the
schedule of funding progress as RSI are the same elements required to be disclosed in regard to the plan’s
funded status in the notes to the financial statements; however, the funding progress information in RSI should
be presented for multiple years. For employers that apply Statement 45 prospectively, in the year of initial
implementation, the information in notes and RSI will be the same—that is, only current information will be
reported. However, as additional actuarial valuations are obtained, the schedule of funding progress in RSI
should present information for multiple periods (ultimately for the three most recent valuations).
143. Q—What additional information related to the required schedule of funding progress should be presented as
notes to the schedule?
A—Employers should present as notes to the schedule of funding progress information about factors that
significantly affect the interpretation of trends in the amounts reported. For example, an employer should
disclose in notes to RSI changes in actuarial assumptions that have a significant effect on the amounts
presented in the schedule of funding progress for one year compared to the information presented for prior
years.
144. Q—In the current year, changes were made to benefit provisions that significantly decreased the actuarial
accrued liability reported by an employer compared to prior years. Should the employer restate the information
presented in the schedule of funding progress for prior years?
A—No. Amounts reported for prior years in the schedule of funding progress should not be restated. Instead,
the employer should disclose the change in benefit provisions in notes to RSI, as discussed in question 143.
43
145. Q—Is a sole or agent employer that uses the aggregate actuarial cost method to determine the ARC required
to present multi-year funding progress information using the entry age actuarial cost method, as is required for
the funded status disclosure in the notes to the financial statements?
A—Yes. If a sole or agent employer uses the aggregate actuarial cost method to determine the ARC, it should
present in RSI funding progress information determined using the entry age actuarial cost method. In addition,
employers should disclose the fact that the entry age method was used for that purpose and that the information
in the schedule of funding progress is intended to approximate the funding progress of the plan.
146. Q—Are there circumstances in which a cost-sharing employer would be required to present funding progress
information for the cost-sharing multiple-employer plan in which it participates?
A—Yes. If an employer participates in a cost-sharing plan that is not reported in accordance with the
requirements of Statement 43, for which a publicly available financial report is not issued as a stand-alone report
or by inclusion of the plan in the report of a PERS or another entity, the employer is required to present a
schedule of employer contributions and a schedule of funding progress for the plan as a whole, and notes to
those schedules. The employer should apply the requirements of Statement 43 to prepare the schedules.
Insured Benefits
147. Q—What is meant by an “insured benefit” for purposes of Statement 45?
A—For purposes of Statement 45, an insured benefit is an OPEB financing arrangement in which premiums are
paid to an insurer while employees are in active service, in exchange for which the insurer unconditionally
assumes an obligation to pay the postemployment benefits in accordance with the terms of the OPEB plan. For
example, an employer that, during an employee’s active service, has paid an insurer a one-time premium to
transfer the obligation for providing a death benefit, as specified by the benefit plan, to that member once he or
she retires has created an insured benefit for that obligation.
148. Q—How should an employer report an OPEB financing arrangement that meets the definition of an insured
benefit?
A—Insured benefits should be excluded from calculation of annual OPEB cost and the net OPEB obligation.
Instead, paragraph 28 of Statement 45 requires that employers that have insured benefits recognize OPEB
expense/expenditures in the amount of the annual contributions or premiums required in accordance with the
agreement with the insurance company. In addition, such employers should disclose in notes to the financial
statements information about the insured benefit, including a description of the benefit and the authority under
which the benefit provisions are established or may be amended, the fact that the obligation for the payment of
benefits effectively has been transferred from the employer to one or more insurance companies, whether the
employer has guaranteed benefits in the event of the insurance company’s insolvency, and the amount of the
current-year expense/expenditures and contributions or premiums paid.
44
149. Q—An employer provides long-term disability coverage as a separately administered benefit by paying
premiums to an insurer. The premiums, for which payments are made before a disability-retired member’s
separation from employment, ensure payment of benefits for covered events that occur during the premium
period. Is such an arrangement considered an insured benefit?
A—Yes. Because premium payments are made during the period of the member’s active service and transfer
to the insurer the risk of providing benefits after employment for disabling events that occur during the period
covered by the payment of premiums, such an arrangement should be treated as an insured plan. Benefits
provided under the arrangement should be accounted for and reported in accordance with paragraph 28 of
Statement 45.
150. Q—An employer provides postemployment healthcare benefits for its retirees by paying premiums to an insurer
for coverage each year. Should such an arrangement be accounted for as an insured benefit?
A—No. In the situation described, the employer’s choice to use a third-party insurer to provide defined benefit
healthcare to its retirees is not an insured plan for purposes of Statement 45. To be an insured benefit, payments
should be made while the members are in active service and the risk associated with providing the promised
benefits should be transferred to the insurer by the time the member retires.
Employers with Defined Contribution Plans
151. Q—What are the recognition requirements applicable to an employer with a defined contribution plan as defined
in paragraph 5 of Statement 45?
A—Annual OPEB expenditures/expense should be recognized by an employer in a defined contribution plan in
an amount equal to its required contributions in accordance with the terms of the plan. (A liability should be
recognized for any contractually required contributions that are due but are not yet paid.) An employer should
recognize amounts in the fund(s) used to report its contributions on the accrual (for proprietary or fiduciary funds)
or modified accrual (for governmental funds) basis of accounting. Expense should be recognized on the accrual
basis of accounting in the employer’s government-wide financial statements.
152. Q—If an OPEB plan has defined contribution characteristics but also provides a defined benefit in some form,
should the employer apply the requirements of Statement 45 applicable to defined contribution plans or those
applicable to defined benefit plans?
A—Regardless of whether defined contribution features are present, if an OPEB plan provides a benefit that is
a function of factors other than the amounts contributed to an active member’s account during employment and
amounts earned on contributed assets, the employer should apply the requirements of Statement 45 applicable
to defined benefit plans.
153. Q—What disclosures should be made by an employer with a defined contribution OPEB plan?
A—Note disclosure requirements for employers with defined contribution plans are addressed in paragraph 31
of Statement 45. That paragraph requires employers to disclose basic information about the plan (including the
name of the plan, identification of the PERS or other entity that administers the plan, and identification of the
plan as a defined contribution plan), a brief description of the plan provisions and the authority under which
provisions are established or may be amended, contribution requirements (including those of the plan members,
employer, and other contributing entities) and the authority under which contribution requirements are established or may be amended, and the amount of contributions actually made by plan members and the employer.
45
Special Funding Situations
154. Q—What is a special funding situation?
A—A special funding situation is a circumstance in which a governmental entity is legally responsible for
contributions to an OPEB plan that covers the employees of another governmental entity or entities.
155. Q—If one employer (for example, a state) in a cost-sharing defined benefit retiree healthcare plan (one that
meets the requirements of paragraph 22a of Statement 45) is legally responsible for all contractually required
contributions, including contributions on behalf of other employers in the plan (for example, school districts), how
should the plan be described in financial reports of the employers and the plan?
A—All participating employers (the state and the school districts) and the plan should identify the plan as a
cost-sharing plan with a special funding situation, as discussed in paragraph 32 of Statement 45.
156. Q—In the preceding situation, in which the state is legally responsible for all contractually required contributions
and, accordingly, is the only employer contributing to the plan, what are the OPEB accounting and disclosure
requirements applicable to the state and to the school districts participating in the plan?
A—As discussed in paragraph 32 of Statement 45, if a plan is a defined benefit plan and the entity with legal
responsibility for the contributions is the only contributing entity, the requirements of Statement 45 for sole
employers apply. Therefore, in the situation described in this question, the state should report as a sole
employer. The school districts participating in the plan should report in accordance with the Statement 45
requirements for cost-sharing employers and should apply the requirements of Statement No. 24, Accounting
and Financial Reporting for Certain Grants and Other Financial Assistance, related to on-behalf payments for
fringe benefits and salaries. Paragraph 8 of Statement 24 requires an employer for which on-behalf payments
are made to recognize revenue equal to the amounts received by a third party and that are receivable at
year-end for the current fiscal year. An employer that is not legally responsible for the payments is required to
recognize expenditures/expense equal to the amount recognized as revenue. Employers should disclose in the
notes to the financial statements the amounts recognized for on-behalf payments for fringe benefits and salaries.
Employers for which on-behalf payments that are contributions to an OPEB plan are made should disclose the
name of the plan that covers its employees and the name of the entity that makes the contributions.
157. Q—If the preceding situation was modified so that the state is legally responsible for and makes substantially
all of the contractually required contributions (for example, 90–99 percent of the total), with the remainder being
made by the various participating cities, which of the requirements of Statement 45 should the state apply—the
requirements for a sole employer or the requirements for a cost-sharing employer?
A—Paragraph 32 of Statement 45 states that the sole-employer requirements of the Statement apply when “the
entity with legal responsibility is the only contributing entity.” Thus, a contributing entity that is legally responsible
for less than 100 percent of the total employer contributions (including on-behalf contributions) is not required
to apply the sole-employer provisions of the Statement. However, when one employer is legally responsible for
almost all contractually required contributions to a cost-sharing plan, and that level of responsibility is ongoing
and is unlikely to change significantly in the foreseeable future, that employer is encouraged to apply the
sole-employer requirements of Statement 45, rather than the cost-sharing requirements, because the plan relies
for its funding almost entirely on contributions from the one employer. It should be noted that a decision to apply
the sole-employer requirements of Statement 45 would not affect financial reporting for the plan or for other
participating employers in the plan, as discussed in question 156.
46
158. Q—A state government pays through its general fund the cost of health insurance for a discretely presented
component unit’s retirees. Is this considered an on-behalf payment for fringe benefits under Statement 24? That
is, should the component unit gross up a revenue and expenditures/expense for those state-paid OPEB? Does
the answer differ if the state payments are made in advance (and thus while the personnel are working and still
are employees) or on a pay-as-you-go basis (and thus made while the personnel are retired and thus no longer
are employees)?
A—Payments by a state government for the cost of health insurance for a component unit’s retirees are
on-behalf payments for fringe benefits, as the term is used in paragraph 7 of Statement 24, and the employer
government and the paying government should account for them in conformity with the requirements of
Statement 24. The types of on-behalf payments listed in the second sentence of paragraph 7, including
“employee health and life insurance payments,” are not necessarily all-inclusive and should not be viewed as
excluding retiree health and life insurance payments. The preceding is not affected by the method of financing
the benefits—that is, by whether payments are made on an actuarial or pay-as-you-go-basis. If the state is
legally responsible for the payments, the component unit would report expense equal to the on-behalf revenue
recognized from the state. If the component unit is legally responsible, the component unit would recognize
expense based on the requirements of Statement 45.
Alternative Measurement Method for Employers in Plans with Fewer Than One Hundred Plan Members
159. Q—What is the alternative measurement method, and how does it differ from an actuarial valuation?
A—The alternative measurement method is a method, characterized by permitting simplification of certain
assumptions, that is provided as an alternative to actuarial valuations for sole and agent employers in plans with
small memberships (see question 160) as a means of measuring actuarial accrued liabilities and the ARC. The
method incorporates the same broad measurement steps as an actuarial valuation—projecting future cash
outlays for benefits, discounting projected benefits to present value, and allocating the present value of benefits
to periods using an actuarial cost method. In addition, the alternative measurement method requires employers
to consider all elements of the substantive plan that would be considered in an actuarial valuation and to make
assumptions related to all relevant factors based generally on actuarial standards of practice, unless a
permissible simplification of an assumption is specifically identified in paragraphs 34 and 35 of Statement 45.
160. Q—Under what circumstances may an employer use the alternative measurement method?
A—The alternative measurement method may be used by a sole employer in an OPEB plan with fewer than one
hundred total plan members (including employees in active service, terminated employees who have accumulated benefits but are not yet receiving them, and retirees and beneficiaries currently receiving benefits). The
method also can be used by an agent employer with fewer than one hundred total plan members if (a) the agent
multiple-employer plan in which the employer participates issues a financial report prepared in conformity with
the requirements of Statement 43 but is not required to obtain an actuarial valuation or (b) the plan does not
issue a financial report in conformity with the requirements of Statement 43.
161. Q—Is a sole or agent employer that meets the eligibility requirements for use of the alternative measurement
method required to use that method?
A—No. The alternative measurement method is an option for an employer that meets the eligibility requirements. The employer may either obtain an actuarial valuation in accordance with the parameters or use the
alternative measurement method.
47
162. Q—How frequently should the alternative measurement method calculations be made?
A—In accordance with the requirements of paragraph 12 of Statement 45, employers that qualify to use the
alternative measurement method should perform new calculations at least triennially. In addition, a new
measurement should be made sooner “if, since the previous valuation, significant changes have occurred that
affect the results of the calculation, including significant changes in benefit provisions, the size or composition
of the population covered by the plan, or other factors that impact long-term assumptions.”
163. Q—At what point during the financial reporting period should measurements using the alternative measurement
method be performed?
A—Measurements made using the alternative measurement method should comply with the timing requirements of paragraph 12 of Statement 45. That paragraph specifies that “the ARC reported for the employer’s
current fiscal year should be based on the results of the most recent actuarial valuation, performed in
accordance with the parameters as of a date not more than twenty-four months before the beginning of the first
year of the two-year or three-year period for which that valuation provides the ARC, if valuations are biennial or
triennial.” For example, if an employer applies the alternative measurement method triennially, the ARC for the
employer’s fiscal years ended June 30, 20X5, 20X6, and 20X7, should be based on an application of that
method as of July 1, 20X2 (twenty-four months before July 1, 20X4—the beginning date of the first year), or later.
Measurements need not be made as of a specific date, but generally should be as of the same date each period
in which a valuation is performed.
164. Q—When using the alternative measurement method to estimate a government’s obligation for OPEB, which
requirements of Statement 45 apply?
A—The alternative measurement method requires application of the parameters in paragraphs 12 and 13 of
Statement 45, including the requirement regarding the minimum frequency of valuations and the requirement
that the selection of actuarial assumptions should be guided by actuarial standards, but allows for simplifications
related to the specific methods and assumptions that are discussed in paragraph 34. Therefore, employers
using the alternative measurement method should consider all factors relevant to the terms of their plan and
should (a) make assumptions about factors including the investment return assumption, inflation, and the
healthcare cost trend rate (if applicable), (b) apply an actuarial cost method, (c) calculate an actuarial value of
plan assets, (d) determine an amortization period and method, (e) calculate an ARC, and (f) determine the
amount of the employer’s contributions in relation to the ARC. In addition, employers using the alternative
measurement method should comply with all recognition and disclosure requirements (including notes to the
financial statements and required supplementary information) of Statement 45.
165. Q—What information is needed to make a projection using the alternative measurement method?
A—To apply the alternative measurement method, an employer should gather information about the terms of
the OPEB plan, demographic data about plan members (and spouses, dependents, and other beneficiaries, if
covered by the terms of the plan), and information to develop the assumptions (including the inflation,
investment return, and healthcare cost trend rate assumptions) relevant to the plan terms.
166. Q—Where can information about the terms of the plan be found?
A—The terms of the OPEB plan often are described in a written plan document. If, however, a comprehensive
plan document does not exist, other information, such as written and oral communications with plan members
and financial information regarding the sharing of benefit costs between the employer and plan members in past
years, should be considered in the process of determining what is the substantive plan. (Also see question 56.)
48
167. Q—What demographic data are required for applying the alternative measurement method?
A—The demographic information needed for applying the alternative measurement method will depend on the
terms of the employer’s plan. Often, required information will include data related to employment status, gender,
birth date, hire date, and date of retirement (if applicable) for each current plan member. In addition, if benefits
are provided to spouses or dependents, information about the marital status and dependency status of the plan
member, as well as information related to the gender and dates of birth of spouses or dependents, likely would
be required. Also, information on which to base assumptions about the point in time at which active members
are expected to begin receiving benefits (for example, the average age at retirement for past retirees) and the
probability of a member’s qualifying for benefits (turnover data by age) generally would be needed.
168. Q—How does an employer using the alternative measurement method calculate annual OPEB cost and a net
OPEB obligation?
A—The alternative measurement method simplifies only the methodology for selecting certain assumptions
required under the parameters of Statement 45. These simplifications are discussed in paragraphs 34 and 35
of the standard. The allocation methods and other components of the calculation remain the same for all
entities. In addition, calculation of annual OPEB cost and the net OPEB obligation are the same for all entities,
regardless of whether an actuarial valuation is made or the alternative measurement method is used.
169. Q—If an employer has used the alternative measurement method in past periods and decides, in the current
period, to obtain an actuarial valuation for purposes of financial reporting, how should this change be reported?
A—The results of the actuarial valuation should be incorporated into financial reports of the employer going
forward as follows:
a. The actuarial accrued liabilities determined as a result of the actuarial valuation should be incorporated into
the required note disclosure of the funded status of the plan and required supplementary schedule of funding
progress beginning with the next financial report issued.
b. The ARC determined as a result of the preceding application of the alternative measurement method should
continue to be used for the employer’s fiscal years to which it applies. The ARC determined as a result of
the actuarial valuation should be applied beginning in the first year thereafter. For example, assume that an
employer that measures triennially last applied the alternative measurement method as of June 30, 20X3,
and that the ARC determined at that time applies to the employer’s fiscal years ended June 30, 20X5, 20X6,
and 20X7. If the employer obtains an actuarial valuation as of June 30, 20X6, which determines the ARC
for the fiscal years ended June 30, 20X8, 20X9, and 20Y0, the employer should use the more current
information determined by that valuation regarding the total actuarial accrued liabilities of the plan beginning
with the next financial report for which incorporation of that information is practicable. Notes to RSI should
disclose the change in method if it results in a change in reported amounts that would significantly affect the
interpretation of trends reported in the schedule of funding progress. However, the employer should
continue to use the previously determined ARC applicable to the years ended June 30, 20X6 and 20X7, for
purposes of determining annual OPEB cost and for related note disclosures and RSI related to the ARC,
annual OPEB cost, the net OPEB obligation, and employer contributions in relation to the ARC, in financial
reports for those years.
49
Simplification of Assumptions
Expected point in time at which benefits will begin to be provided
170. Q—The simplification in paragraph 34b of Statement 45 requires that an assumption be made about the
expected point in time at which benefits will begin to be provided. In a plan that requires members to attain a
certain age in order to qualify for benefits but that does not have a years-of-service requirement, how should this
be determined?
A—The expected point in time at which benefits will begin to be provided should be determined using
information about the employer’s covered group and the terms of the plan. Paragraph 34b indicates that “[t]he
assumption may incorporate a single assumed retirement age for all active employees. . . .” Therefore, in the
case of a plan that has only an age requirement (no length-of-service requirement), the point in time at which
benefits will begin to be provided to plan members may, for example, be set at an age equal to the historical
average retirement age of plan members.
171. Q—Would the answer to question 170 be different if the plan requires members to have a certain number of
years of service, rather than to attain a particular age, in order to qualify for benefits?
A—Yes. The employer still would be required to apply the general requirement of paragraph 34b that the
assumption of the point in time at which benefits will begin to be provided should be based on information
specific to the employer’s covered group. However, in this scenario, rather than setting that assumption based
on age, the employer may set the assumption based, for example, on the average number of years of service
attained by plan members at retirement.
172. Q—If a plan has both age and years-of-service requirements that are required to be met by a member in order
to qualify for benefits, how should the expected point in time at which benefits will begin to be provided be
determined?
A—As is the case for plans with no years-of-service provision, the general requirement of paragraph 34b of
Statement 45 that the expected point in time at which benefits will begin to be provided should be determined
using information about the employer’s covered group and the terms of the plan applies. In addition, that
paragraph indicates that “[t]he assumption may incorporate a single assumed retirement age or an assumption
that all active employees will retire upon attaining a certain number of years of service.” In the case of a plan
with both age and years-of-service requirements, the employer may consider the historical average retirement
age of plan members and may assume that active members will retire when they attain that age. However, the
employer also should consider whether the years-of-service requirement will have been met by the member at
that point in time that the member attains that age. If both requirements are not met, the member should not be
assumed to begin to receive benefits until the point in time at which both requirements of the plan are met. The
plan illustrated in Appendix 7 has both an age and a years-of-service provision.
Marital and dependency status
173. Q—The requirement of paragraph 34c relates to assumptions about the marital and dependency status of plan
members. When is this assumption relevant to calculations using the alternative measurement method?
A—Marital and dependency status information about plan members would be relevant to calculations using the
alternative measurement method when the terms of the substantive plan include providing benefits to spouses
or dependents. If spouses or dependents do not receive benefits under the plan, no data need be collected about
those groups.
50
174. Q—Paragraph 34c allows the employer to base assumptions about marital and dependency status on “the
current status of active and retired plan members or on historical demographic data for retirees in the covered
group.” What does this mean?
A—The simplification in paragraph 34c would allow an employer to assume, for accounting measurement
purposes, that the marital or dependency status of a plan member at the valuation date will remain unchanged
until the assumed death of the spouse or dependent. For example, this approach would allow an employer to
assume that plan members who are married at the valuation date will be married at and throughout retirement,
until the spouse’s projected age exceeds his or her projected life expectancy. Using this approach, demographic
data about the individual plan member’s spouse or dependent would serve as the basis for other assumptions—
for example, life expectancy would be determined for each individual spouse or dependent based on his or her
particular age.
Alternatively, an employer may analyze data related to the historical experience of the retiree group to develop
an expectation of marital or dependency status of future retirees. Using this approach, projected future benefit
costs would be a probability-weighted average of expected costs for each marital or dependent category—for
example, single or married. For example, if an employer that provides benefits to members and their spouses
determines, based on a review of the marital status of current and past plan members at the time of their
retirements, that 65 percent of members have been married at retirement age, the employer would assume that
each plan member has a 65 percent chance of receiving spousal benefits and a 35 percent chance of receiving
benefits for a single member. If it is expected that, in a particular period, the cost of benefits for a single member
will be $300 and the cost of benefits for a married member will be $700, the expected cost of benefits assigned
to each plan member in that period would be $560, calculated as: ($300 × 35%) + ($700 × 65%). When
projecting future benefit costs, the decision to use this approach would affect the manner in which other
assumptions should be made. For example, if this approach is used, an assumption about life expectancy of
each spouse also should be based on historical data for the current and past plan members at the time of their
retirement and should be applied at an aggregate level. One approach would be to determine the historical age
difference between retirees and their spouses and to assume this age differential for all plan members,
regardless of the member’s current marital status and age of his or her spouse, if any.
Mortality
175. Q—Where can a financial statement preparer that uses the alternative measurement method obtain mortality
tables?
A—Statement 45 does not specify a particular source for information about mortality. However, the source that
is used should be publicly available, objective, unbiased (that is, it does not intentionally or systematically
understate or overstate the estimates), current, and based on a population generally consistent with that of the
plan. For example, in the illustration in Appendix 7, mortality tables were obtained from the National Center for
Health Statistics.
Turnover
176. Q—In which step(s) of the measurement process are turnover data used?
A—Turnover data are used, in accordance with the calculation requirements of paragraph 35a, to determine the
probability of remaining employed until the member’s assumed retirement age and to calculate the expected
future working lifetime of plan members. The probability of remaining employed until the member’s assumed
retirement age is required by all actuarial cost methods in the allocation of benefits to periods. In addition, certain
actuarial cost methods (entry age, attained age, frozen entry age, frozen attained age, and aggregate) require
the use of the expected future working lifetime of plan members in the allocation process.
51
177. Q—The turnover assumption in paragraph 34e requires the use of historical age-based turnover data for the
covered group (if available) and a particular calculation method (paragraph 35a). What is meant by “age-based
turnover experience”?
A—Age-based turnover experience, as used in paragraph 34e, refers to the probability that an active plan
member, at any particular age, will terminate his or her employment within the next year—for example, the
probability that an employee who is thirty-two years old will not remain employed until the employee is
thirty-three years old. (See questions 186 and 187 for information about the required calculations.)
178. Q—What if an employer does not compile turnover data in the form that is needed to perform the calculations
required by paragraph 35a?
A—If experience data are not available, paragraph 34e allows the employer to use default assumptions
specified in Table 1 in paragraph 35b (the probability of remaining employed until the assumed retirement age)
and in Table 2 in paragraph 35c (the expected future working lifetime of plan members). (See questions 188–191
for additional discussion of use of the default tables.)
Healthcare cost trend rate
179. Q—Paragraph 34f requires preparers applying the alternative measurement method to use an objective source
as the basis for developing select and ultimate assumptions about healthcare cost trends in future years for
which benefits will be provided. What are select and ultimate assumptions?
A—Select and ultimate assumptions are actuarial assumptions that include different rates for successive years,
rather than a single rate for all years. For example, rather than assuming that healthcare costs will increase
6 percent per year over the next twenty years, select and ultimate assumptions about healthcare costs might
include an 11 percent increase in year 1, 10 percent in year 2, 9 percent in year 3, 8 percent in year 4, 7 percent
in year 5, 6 percent in year 6, and 5 percent in years thereafter. In this case, the assumed increases in years 1
through 6 would be considered select assumptions, and 5 percent would be considered the ultimate assumption.
180. Q—From what source(s) can information about healthcare costs be obtained?
A—Statement 45 does not specify a particular source for information about healthcare cost trends. However,
the source selected should be publicly available, objective, unbiased (that is, it does not intentionally or
systematically understate or overstate the estimates), and generally representative of the demographic characteristics of the employer’s group and the benefits that are provided by the employer’s plan. For example, in
the illustration in Appendix 7, information regarding the healthcare cost trend rate was obtained from the Office
of the Actuary at the Centers for Medicare and Medicaid Services.
181. Q—When developing expectations about future healthcare cost trends, is it necessary to consider the types of
benefits that are provided? For example, if a plan includes prescription coverage, should the source used as a
basis for healthcare cost trend rate assumptions consider expected future trends related to the cost of
prescription drugs?
A—Yes. To the extent possible, expectations about the healthcare cost trend should be based on data
developed for groups that mirror the demographic composition of plan participants and the types of benefits to
be provided under the employer’s plan.
52
Use of health insurance premiums
182. Q—When can health insurance premiums be used as the basis for the projection of benefits using the
alternative measurement method?
A—An employer that provides benefits in the form of premium payments to an insurer or other service provider
may use the plan’s current premium structure as the initial per capita healthcare rates for purposes of projecting
future healthcare benefit payments if (a) the plan is experience-rated and separate premium rates are
established for active employees and retirees or (b) the plan is a community-rated plan and the additional
criterion discussed in paragraph 13a(2) of Statement 45 are met. (Also see questions 66–70.)
183. Q—If retiree healthcare benefits are provided by allowing the retirees to obtain health insurance in an
experience-rated plan that includes active and retired members in a single group and the same premium rates
are given for both active employees and retirees, how should the employer determine the basis for the
projection of future benefit costs?
A—The employer should obtain information about age-adjusted costs from its insurer. However, if that
information is not available, tables 3 through 5 of paragraph 35d of Statement 45 provide default factors that may
be used to calculate age-adjusted premiums for purposes of the alternative measurement method.
Plans with coverage options
184. Q—If a postemployment benefit plan allows retirees to choose among multiple coverage options, how should
the employer develop an expectation about the choices that will be made by future retirees?
A—Assumptions about the selection of coverage options by future retirees should be developed based on
information specific to the employer’s covered group, to the extent possible. Statement 45 does not specify a
particular approach, and there likely are several approaches that potentially would be reasonable depending on
the plan design. For example, an employer might assume that because the same choices are provided to active
employees and retirees, the member’s choice of coverage in retirement will be the same as that during active
employment, whereas another employer might base its expectation on the type of coverage chosen by retirees
in the past.
Use of grouping
185. Q—What is meant by “grouping techniques” in paragraph 34i of Statement 45, and how might they be used in
measurements made using the alternative measurement method?
A—Paragraph 34i allows members to be grouped for purposes of calculations using the alternative measurement method. In other words, projections need not be made individually for each member. For example,
projections may be made for members of a plan by groupings of ages (25–29, 30–34, and so forth) that are
expected to have similar benefit costs, or members of more than one plan may be grouped together for purposes
of calculating the costs associated with each plan if the plans are expected to have similar cost and benefit
structures (for example, two plans that provide similar benefits and that have similar demographic distributions
of members).
53
Use of Default Assumptions
Probability of remaining employed and expected future working lifetime of plan members
Paragraph 35a
186. Q—Which elements of the calculations in paragraph 35a—of the probability that active plan members will
remain employed until retirement age and the expected future working lifetime of plan members—are used in
the measurement of future benefits, and how are they applied?
A—The expected future working lifetime of members and the probabilities of remaining employed until
retirement age, each calculated at various ages, are used in the calculation of the ARC. The calculated expected
future working lifetime is used in the determination of present value factors that are used to allocate OPEB costs
to periods, and the probability of remaining employed from entry or attained age until retirement is used to
calculate a probability-adjusted present value of total benefits to be paid. For illustrations of the application of
these elements to the calculation of the ARC using a variety of acceptable cost methods and amortization
approaches, see Appendix 7.
187. Q—How are the calculations of the probability of remaining employed and the expected future working lifetimes
of plan members in paragraph 35a made?
A—The process in paragraph 35a requires development of a table based on age-based turnover data for
members at various ages.
Paragraphs 35b and 35c
188. Q—In paragraph 35b, Table 1 presents a default method for determining a member’s probability of remaining
employed until his or her assumed retirement age. How can a preparer use this table to determine the
probability?
A—To use the default method described in Table 1 of paragraph 35b, a preparer first should determine the
expected point in time at which benefits will be provided (referred to in the table as the assumed retirement age)
for each plan member. The probability of remaining employed to the assumed retirement age then can be
determined for any age (for example, the member’s attained [current] age) by locating the value at the
intersection point of the appropriate age row and the column associated with the member’s assumed retirement
age. For example, using Table 1, the current-age probability of a thirty-two-year-old member’s remaining
employed until retirement at age fifty-two is 0.650.
189. Q—In paragraph 35c, Table 2 presents a default method for determining the expected future working lifetime of
plan members, by age. How can a preparer use this table to determine the expected future working lifetime?
A—To use the default method described in Table 2 of paragraph 35c, a preparer first should determine the
expected point in time at which benefits will be provided (referred to in the table as the assumed retirement age)
for each plan member. The expected future working lifetime of an employee (which incorporates turnover
probabilities) then can be determined for any age (for example, the member’s attained [current] age) by locating
the value at the intersection point of the appropriate age row and the column associated with the member’s
assumed retirement age. For example, using Table 2, the current-age expected future working lifetime of a
thirty-two-year-old member with an expected retirement age of fifty-two is fifteen years.
54
190. Q—Footnote 27 to Table 1 (paragraph 35b) and footnote 29 to Table 2 (paragraph 35c) indicate that in each
table, the column labeled “Age” could be “the entry age or the attained (current) age of the plan member,
depending upon the calculation being made.” When is it appropriate to use entry age, and when should attained
age be used?
A—As illustrated in Appendix 7, all six of the actuarial cost methods acceptable under the parameters of
Statement 45 use the probability of a member’s remaining employed from his or her attained (current) age until
the assumed retirement age in the calculation of the ARC. However, the columns labeled “Age” in Table 1 and
Table 2 also accommodate the use of a member’s probability of remaining employed from entry age to the
assumed retirement age when the entry age or the frozen entry age actuarial cost method is used to calculate
the ARC.
191. Q—Can a preparer simply subtract a member’s current age (or entry age) from the member’s assumed age at
retirement to determine his or her expected future working lifetime?
A—If a member’s current age (or entry age) is subtracted from the member’s expected retirement age, the result
would not consider the probability of the member’s terminating employment between his or her current age (or
entry age) and the assumed retirement age. Development of a table following the requirements in paragraph 35a
of Statement 45 or use of the default table in paragraph 35c incorporates turnover probabilities into the
calculation of the expected future working lifetime.
Age-adjusted premiums
192. Q—Tables 3 through 5 of paragraph 35d provide default factors for calculating age-adjusted premiums. When
should these tables be used?
A—The default method described in Tables 3 through 5 may be used to calculate age-adjusted premiums
approximating the claims costs for retirees for purposes of the alternative measurement method, in circumstances in which (a) retiree healthcare benefits are provided by allowing the retirees to obtain health insurance
in an experience-rated plan that includes active and retired members in a single group, (b) the same premium
rates (blended premium rates) are given for both active employees and retirees in the group, (c) the plan in
which the employer participates is not a community-rated plan as discussed in paragraph 13a(2) of Statement 45 or the plan is community rated but the required determination cannot be made, and (d) the employer
is unable to obtain information about claims costs or age-adjusted premiums for retirees from the insurer. Table
3 is intended for use in calculating age-adjusted premiums for members younger than sixty-five years old, Table
4 is for use for members age sixty-five or older who are not subject to Medicare coordination, and Table 5 is for
use for members age sixty-five or older for whom Medicare coordination applies.
193. Q—What information is needed to use the default tables in paragraph 35d?
A—To make the calculations required by paragraph 35d, information is needed about the amount of the
common premium, as well as the following for each plan member to which the common premium applies: current
age, expected retirement age, and life expectancy (if the plan provides benefits to retirees age sixty-five or
older).
194. Q—How should the default tables in paragraph 35d be used to age-adjust premiums if all active and retired plan
members are charged a single, common premium and healthcare benefits are provided to retirees both under
age sixty-five and age sixty-five or older?
A—If an employer is unable to obtain age-adjusted cost information from the insurer, the age-adjustment
procedures discussed in paragraph 35d(1) should be applied to develop the basis for projecting future benefit
costs for members until age sixty-five, at which point the basis for the projection of future benefit costs should
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be determined using the age-adjustment procedures in paragraph 35d(2). That is, the employer should
determine two separate rates—one for retirees younger than age sixty-five and one for retirees age sixty-five or
older—using the default tables in paragraph 35d. Once those rates are determined, the age-adjusted premium
appropriate to the retiree’s projected age in each year will be used as the basis for the projection of benefits.
195. Q—How should the default tables in paragraph 35d be used to age-adjust premiums if a single, common
premium is charged for retired plan members younger than age sixty-five and all active plan members, whereas
retirees age sixty-five or older are charged a separate, experience-rated or age-adjusted premium?
A—If an employer is unable to obtain age-adjusted cost information from the insurer, the age-adjustment
procedures discussed in paragraph 35d(1) should be applied to develop the basis for projecting future benefit
costs for members until age sixty-five, at which point the basis for the projection of benefit costs should be the
separately assessed premium rates for retirees age sixty-five or older.
Actuarial Cost Method and Amortization
196. Q—How should a government using the alternative measurement method choose an actuarial cost method and
amortization approach?
A—Statement 45 does not specify how a government should select an actuarial cost method or amortization
approach. Each cost method/amortization approach combination allocates the total actuarial accrued liability in
a different pattern, and each will result in a unique ARC in any one year, depending on a number of factors
including the relative ages and numbers of active and retired plan members. When selecting an actuarial cost
method or amortization approach, an employer should consider the results produced by the cost method or
amortization approach not only in the current year but also from a longer-term perspective. Consideration also
should be given to selecting a method or approach appropriate to the employer’s current or potential future
funding policy.
197. Q—For purposes of the alternative measurement method, simplified application of the entry age cost method
using level percentage of payroll amortization and the unit credit method using level dollar amortization are
illustrated in Appendix F of Statement 45. What are the calculation steps if another actuarial cost method/
amortization approach combination identified in paragraph 13d of Statement 45 is used in applying the
alternative measurement method?
A—Illustrations of various combinations of actuarial cost method and amortization method allowed by Statement 45 are included in Appendix 7 of the guide.
Note Disclosures
198. Q—Are there additional disclosures that should be made when the alternative measurement method is used?
A—Yes. In addition to the note disclosure requirements that apply to employers that do not use the alternative
measurement method, Statement 45 requires that when the alternative measurement method is used to
estimate the amounts reported in the financial statements, an employer should disclose that it has used the
alternative measurement method permitted by Statement 45. In addition, note disclosures should include a
discussion of the source or basis of all significant assumptions or methods selected. (See Appendix 5,
Illustration 7, for an example of note disclosures for an employer that uses the alternative measurement
method.)
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Effective Date and Transition
199. Q—When does Statement 45 become effective?
A—Statement 45 is effective in three phases, based on the revenues of the employer. The phase (1, 2, or 3)
in which an employer should implement Statement 45 is the same as the employer’s phase for the purpose of
implementing Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for
State and Local Governments, which was based on total revenues in the first fiscal year ending after June 15,
1999. For purposes of Statement 45 implementation, no new revenue calculation is required.
If a government was this phase for
purposes of Statement 34 Implementation:
Statement 45 is effective for
periods beginning after:
Phase 1
Phase 2
Phase 3
December 15, 2006
December 15, 2007
December 15, 2008
200. Q—May an employer implement the requirements of Statement 45 prior to the effective date?
A—Yes. Earlier application of the Statement is encouraged.
201. Q—How is the effective date of Statement 45, for an employer, related to the effective date of Statement 43 for
the plan in which an employer participates?
A—Plans are required to implement Statement 43 one year prior to the effective date of Statement 45 for the
largest employer (based on revenues, as discussed in question 199) participating in the plan, according to the
following schedule:
If the largest participating employer in
an OPEB plan is this phase for purposes
of Statement 45 Implementation:
The plan applies Statement 43
for periods beginning after:
Phase 1
Phase 2
Phase 3
December 15, 2005
December 15, 2006
December 15, 2007
For example, a multiple-employer plan in which one phase 2 government and three phase 3 governments
participate would be required to implement Statement 43 for periods beginning after December 15, 2006. The
phase 2 government should implement the requirements of Statement 45 no later than for periods beginning
after December 15, 2007, and the phase 3 governments should implement Statement 45 no later than for
periods beginning after December 15, 2008.
202. Q—Is Statement 43 required to be implemented before Statement 45, or may the two Statements be
implemented in the same year?
A—Statements 43 and 45 may be implemented in the same year.
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203. Q—A city with a single-employer postemployment healthcare plan is planning for implementation of Statement 45 in compliance with the effective date—for this city, its fiscal year ending June 30, 2008. The city wants
to schedule an actuarial valuation for this OPEB plan to provide information needed for timely implementation.
Assuming that plan financial statements will not be issued (for example, because the city has not established a
qualifying OPEB trust or equivalent arrangement), within what range should the city set the actuarial valuation
date in order to comply with the requirements of Statement 45?
A—For an employer implementing Statement 45 for its fiscal year from July 1, 2007, to June 30, 2008, an
actuarial valuation in accordance with the parameters should be made no more than twenty-four months before
the beginning of the period—that is, on or after July 1, 2005—for accounting purposes. The employer also
should consider the need to allow for adequate time to incorporate the ARC into the employer’s budget if the
ARC is used, or might later be used, as the basis for the employer’s financing policy. An employer is not
precluded from obtaining an actuarial valuation earlier for purposes other than financial reporting (for example,
to obtain information for managerial and planning purposes) or to support earlier implementation of the
requirements of Statement 45.
204. Q—If the circumstances in question 203 were modified to include a qualifying OPEB trust or equivalent
arrangement that will issue a plan financial report prepared in conformity with GAAP, within what range should
the city and the plan set the first actuarial valuation date in order that the information provided by the valuation
will support timely implementation of both Statement 45 and Statement 43?
A—Requirements related to the timing of the actuarial valuation for the employer would be the same as
discussed in question 203—that is, the valuation should be scheduled on or after July 1, 2005. For purposes of
implementation of Statement 43 by the plan, all actuarially determined information reported for the current
period should result from a valuation performed not more than two years before the plan’s reporting date (or not
more than three years prior if the plan qualified for triennial valuations). Therefore, if the single-employer plan
in this example has a June 30 fiscal year-end (and, therefore, would be required to implement Statement 43 for
its fiscal year ended June 30, 2007) and has 200 or more members, the actuarial valuation should be made on
or after July 1, 2005. (If the plan has fewer than 200 members, the valuation should be made on or after July 1,
2004.) Therefore, for the valuation to meet the timing requirements for the plan and the employer, the plan’s first
actuarial valuation should be scheduled between July 1, 2005, and the latest date approaching June 30, 2007
(the plan’s financial report date) that is feasible considering the need to issue the plan financial report in a timely
manner and the lead time needed to incorporate the ARC into the employer’s budget, if the employer’s current
or potential future financing policy is to use the ARC for funding as well as accounting purposes. However, an
employer is not precluded from obtaining an actuarial valuation earlier for purposes other than financial
reporting (for example, to obtain information for managerial and planning purposes) or to support earlier
implementation of the requirements of Statement 45.
OPEB Liabilities (Assets) at Transition (Defined Benefit OPEB Plans)
Sole and agent employers
205. Q—In the year in which Statement 45 is first implemented, is a sole or agent employer required to calculate a
beginning net OPEB obligation (or net OPEB asset), as was required when implementing Statement 27?
A—No. A sole or agent employer should set the beginning net OPEB obligation at zero and apply the
measurement and recognition requirements of Statement 45 prospectively. If an employer then contributes an
amount different from the ARC, this will create a net OPEB obligation (or asset) at the end of the first year, which
the employer should recognize in accrual basis financial statements.
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206. Q—Notwithstanding the answer to question 205, is a sole or agent employer permitted to make a retroactive
computation of its beginning net OPEB obligation (or asset) under certain conditions, and, if so, in what manner?
A—Yes. Retroactive computation of a sole or agent employer’s beginning net OPEB obligation is permitted if
the employer has actuarial information for years prior to implementation. Employers that choose to compute a
net OPEB obligation (or asset) at transition should apply the requirements of paragraphs 30 through 35 of
Statement 27 to that calculation; however, employers are not required to use the calculation period discussed
in paragraph 32 of that Statement. The calculation period used should be disclosed in notes to the employer’s
financial statements.
207. Q—If an employer has had actuarial valuations done on its OPEB plan in the past and previously reported an
OPEB liability, what should be reported as the beginning net OPEB obligation in the year of transition?
A—An employer in the circumstances described has two options with regard to a beginning net OPEB obligation in the year of transition. First, the employer may compute a beginning net OPEB obligation—the
transition liability—in the year of implementation of Statement 45. The transition liability, under this option,
should be calculated by applying the “look-back” requirements, excluding the calculation period, of paragraphs 30 through 35 of Statement 27. Unless calculated in this manner, any previously recognized OPEB
liability should not be reported as a transition liability. Second, the employer also has the option of prospective
implementation of Statement 45—that is, setting the beginning net OPEB obligation to zero in the year of
implementation.
208. Q—If a government previously has recognized an OPEB liability measured in accordance with other accounting
methods (for example, Financial Accounting Standards Board Statement No. 106, Employers’ Accounting for
Postretirement Benefits Other Than Pensions), what are the government’s options in regard to the treatment of
the previously recognized liability as of the transition date for implementation of Statement 45?
A—If a transition liability is reported, Statement 45 requires that it be determined following the guidance,
excluding the calculation period requirement, in paragraphs 30 through 35 of Statement 27. If as a result of
applying the other accounting method in the past an employer has the information available to retroactively calculate a beginning net OPEB obligation in accordance with the procedure set forth in paragraphs 30
through 35 of Statement 27, excluding paragraph 32, a transition liability may be calculated in that manner and
reported. Otherwise, an employer should apply the requirements of the Statement prospectively (and set the
beginning net OPEB obligation to zero).
209. Q—In addition to the beginning net OPEB obligation (or asset), if any, should a sole or agent employer that has
an OPEB-related debt to the plan recognize that liability at transition?
A—Yes. Employers that have converted a portion of their unfunded actuarial liability to OPEB-related debt
should recognize the amount of OPEB-related debt as a liability at transition. As discussed in question 31, for
sole and agent employers, the OPEB-related debt should be reported separately from the net OPEB obligation.
Cost-sharing employers
210. Q—What transition liability, if any, should a cost-sharing employer recognize as of the beginning of the year in
which Statement 45 is implemented?
A—At the beginning of the transition year, paragraph 38 of Statement 45 requires that a cost-sharing employer
recognize as OPEB liabilities a liability for any contractually required contributions that are due and payable (see
Technical Bulletin 2004-2) at the effective date of Statement 45 and an additional liability for any outstanding
OPEB-related debts to the plan.
59
211. Q—What should a cost-sharing employer do in regard to any other previously reported OPEB liability upon
implementing Statement 45?
A—As discussed in paragraph 38 of Statement 45, if a cost-sharing employer previously recognized amounts
other than those discussed in question 210, those liabilities should be reduced to zero at the beginning of the
transition year.
Disclosures
212. Q—What disclosures should an employer make in the year in which Statement 45 is implemented, in regard to
the transition?
A—In the year in which Statement 45 initially is implemented, employers should disclose whether its requirements were implemented prospectively or an OPEB liability was established at transition as permitted by the
Statement. If an employer reports an OPEB liability at transition, the amount of the transition liability should be
disclosed. In addition, if prior to implementation of Statement 45 an employer reported a liability or asset to an
OPEB plan, the difference between the previously reported amount and the OPEB liability reported at transition
for that same plan should be disclosed.
Statement 43
Introduction
213. Q—To what does the term OPEB plan refer in Statement 43?
A—The term OPEB plan is not defined in the glossary of Statement 43. However, as used in that Statement,
the term usually refers to a trust or agency fund used to administer the financing of OPEB and the payment of
benefits (that is, to assets under the stewardship of an administering entity). The use of the term is not limited
by financing policy; that is, it applies whether the benefits are fully funded, partially funded, or financed on a
pay-as-you-go basis. (See paragraph 7 of Statement 43.) It should be noted that the term may also be used in
a different sense in some contexts—that is, as referring to an employer’s substantive commitment or agreement
to provide OPEB—including, for example, provisions or understandings regarding the plan membership,
eligibility for benefits, the types of benefits to be provided, the points at which the payment or provision of
benefits will begin and end, and the method by which the benefits will be financed. The context generally should
illuminate in which sense the term is being used. (Also see the discussion in question 2 regarding the use of the
term plan in Statement 45.)
214. Q—In what circumstances does Statement 43 apply?
A—The requirements of Statement 43 are applicable in the following circumstances:
a. A defined benefit OPEB plan is administered as a trust, or equivalent arrangement, that meets the criteria
stated in paragraph 4 of Statement 43 (“qualifying trust”), the administrator of the qualifying trust is a
governmental entity, and the administrator (for example, a PERS) issues a plan financial report. The
requirements of Statement 43 are applicable in these circumstances, whether the plan is a single-employer
plan, an agent multiple-employer plan, or a cost-sharing multiple-employer plan.
b. A defined benefit OPEB plan is administered as a qualifying trust, and the employer or plan sponsor plan
includes the plan as an employee benefits trust fund in its own financial report. The requirements of
Statement 43 are applicable to reporting for the trust fund in these circumstances, whether the plan is a
single-employer plan, an agent multiple-employer plan, or a cost-sharing multiple-employer plan. (It should
60
be noted that a plan established as a qualifying trust is a legally separate entity from the employer; the
employer in such circumstances also should apply the financial reporting requirements of Statement 45.)
c. A governmental entity administers a multiple-employer plan that is not established as a qualifying trust and
either issues a stand-alone plan financial report or includes the plan as a fund in its own financial report. The
requirements of paragraph 41 of Statement 43 are applicable to reporting for the fund used to administer the
OPEB (which is required to be reported as an agency fund) in these circumstances.
d. A governmental entity administers a defined contribution plan and issues a plan financial report. Paragraph 42 of Statement 43 refers to relevant requirements in Statement 34, as amended by Statement 43,
and in Statement 25 regarding financial reporting of the defined contribution plan.
e. An employer with a defined contribution plan includes the plan as an employee benefits trust fund in the
employer’s financial report. Paragraph 42 of Statement 43 refers to relevant requirements in Statement 34,
as amended by Statement 43, and in Statement 25. (It should be noted that a defined contribution plan
established as a trust is a legally separate entity from the employer. The employer in such circumstances
also should apply the financial reporting requirements of Statement 45 applicable to an employer with a
defined contribution plan.)
215. Q—How are the requirements of Statement 43 similar to and different from the pension plan reporting
requirements of Statement 25?
A—The requirements of Statement 43 reflect the same overall approach to plan financial reporting adopted in
Statement 25. In addition, many of the specific requirements of Statement 43 are the same as or similar to those
of Statement 25, with respect to OPEB plans that are administered as trusts or equivalent arrangements.
However, the two sets of requirements differ in some respects as necessary to accommodate differences
between pension benefits and OPEB. For example, Statement 43:
a. Provides criteria for determining whether a multiple-employer OPEB plan qualifies as a cost-sharing plan for
purposes of the Statement, and provides accounting and financial reporting requirements for nonqualifying
plans. (See question 253.)
b. Provides requirements for the minimum frequency of actuarial valuations that differ from the parameters of
Statement 25. (See question 241.)
c. Provides more extensive guidance on issues specific to OPEB with regard to the determination of benefits
to be provided for actuarial valuation purposes—including determination of the substantive plan, separate
accounting for postemployment benefits such as healthcare when provided through the same group with
active-employee benefits, and consideration of an effective legal or contractual cap on the employer’s share
of benefits when projecting benefits. (See questions 49–73.)
d. Carries forward the Statement 25 provision that the discount rate assumption should be based on the
long-term expected rate of return on investments but broadens its application to accommodate OPEB
plans that have accumulated no assets and partially funded OPEB plans, as well as OPEB plans in which
the employer’s funding policy is to consistently contribute an amount at least equal to the ARC. (See
questions 79–83.)
e. Provides criteria for determining when an employer has made a contribution to an OPEB plan (as distinct
from earmarking employer assets with the present intention of making future contributions to an OPEB
plan). (See question 100.)
f. Requires additional note disclosures, including information about the current-year funded status of the plan,
actuarial methods and assumptions, and additional explanatory disclosures about the actuarial valuation
process. (See questions 236, 238, and 239.)
g. Requires an OPEB plan that uses the aggregate actuarial cost method for the purpose of determining the
annual required contribution of the employer (the ARC) to present funded status and funding progress
information using as a surrogate the entry age actuarial cost method (not required by Statement 25). (See
question 240.)
61
h. Provides an alternative measurement method that may be applied, as an alternative to an actuarial
valuation in accordance with the parameters, by an OPEB plan that meets the criteria set forth in paragraph 33 of Statement 43. (See questions 159–198.)
Statement 43 also includes requirements related to financial reporting for OPEB plans that are not administered
as qualifying trusts, or equivalent arrangements, that have no parallel in Statement 25.
216. Q—What is the relationship of Statement 43 to Statement 45?
A—Statement 43 applies to a trustee or administrator of an OPEB plan (that is, the trust or agency fund used
to finance and pay the benefits), or to an employer or sponsor that includes the plan as a trust or agency fund
in its financial report. It establishes the requirements for reporting the responsible entity’s stewardship of the
assets that will be used to finance the payment of benefits as they come due; thus, it requires reporting
statements of the plan net assets and the changes in the plan net assets administered. Statement 45 applies
to any employer that provides OPEB (that is, the employer pays all or part of the cost of the benefits). It
establishes the requirements for measurement and recognition of the employer’s expense or expenditures and
liabilities and for related disclosures and required supplementary information related to the employer’s OPEB
commitment.
Whether an employer that provides OPEB also is subject to the requirements of Statement 43 generally will
depend on whether the employer includes an OPEB plan as a trust or agency fund in its own financial report.
If so, then the employer should follow the applicable requirements of both Statement 45 and Statement 43. (Also
see question 3.)
Scope and Applicability of This Statement
217. Q—For accounting and financial reporting purposes, what types of benefits are included within the scope of
OPEB, so that a plan that provides those benefits should follow the requirements of Statement 43 applicable to
OPEB plans?
A—An OPEB plan is, first of all, a plan that provides postemployment benefits—that is, benefits that an
employer provides after an employee’s retirement or termination of active service that are part of the total
compensation for employee services. Once a financial statement preparer has determined that the benefits in
question are postemployment benefits, it then is necessary to distinguish whether the plan that provides the
benefits is a pension plan that should be accounted for in accordance with the requirements of Statement 25 or
an OPEB plan (a plan that provides postemployment benefits other than pension benefits) that should be
accounted for in accordance with the requirements of Statement 43. (A PERS might administer both pension and
OPEB plans.) For that purpose, an OPEB plan is a plan that provides:
• Postemployment healthcare benefits. These include medical, dental, vision, and other types of healthcare benefits. Postemployment healthcare benefits are classified as OPEB, regardless of whether they
are administered (a) by a defined benefit pension plan (in which case the healthcare benefits should be
reported as a separate OPEB plan, rather than as part of the pension plan) or (b) separately.
• Other forms of postemployment benefits (that is, other than postemployment healthcare or retirement
income, or pension benefits), if administered separately from a defined benefit pension plan. For
example, a separate plan that provides postemployment life insurance benefits or long-term-care
benefits should be reported under the requirements of Statement 43; however, if such benefits are
administered through a defined benefit pension plan, for financial reporting purposes they should be
included as part of the benefits of the pension plan, reported under the requirements of Statement 25.
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218. Q—Do the requirements of Statement 43 apply if a governmental entity administers or sponsors a multipleemployer OPEB plan, but a formal OPEB trust fund has not been established for that purpose?
A—Yes. Statement 43 applies both to trusts, or equivalent arrangements, that meet conditions stated in
paragraph 4 (for which the reporting requirements are similar to those of Statement 25 for pension trust funds)
and to funds used to administer multiple-employer OPEB plans that do not meet those conditions (for which
other reporting requirements of the Statement apply). (As discussed in paragraph 5, Statement 43 does not
apply to employer assets that an employer earmarks in some fashion within its governmental or proprietary
funds for application to OPEB in future periods.)
219. Q—Does Statement 43 apply only to single-employer and agent multiple-employer OPEB plans (those in which
Statement 45 requires the employer(s) to measure expense equal to annual OPEB cost)?
A—No. For plan reporting purposes, there generally is no distinction between single-employer, agent multipleemployer, and multiple-employer cost-sharing OPEB plans that are administered as qualifying trusts, or
equivalent arrangements. The same requirements of Statement 43 apply to all the preceding types of plans,
when administered in trust, or the equivalent. Statement 43 also applies to multiple-employer plans that are not
administered as a qualifying trust, or equivalent arrangement. In the latter case, the Statement specifies that the
plan should be classified as an agent multiple-employer plan and reported as an agency fund.
220. Q—If the financial reporting requirements of Statement 43 otherwise would apply, but a defined benefit
postemployment healthcare plan is financed on a pay-as-you-go basis and there is no accumulation of plan
assets, does that arrangement affect the applicability of Statement 43?
A—No. The requirements of the Statement are applicable without regard to the timing or method of payments
to finance plan benefits. (See paragraph 8 of Statement 43.) If a plan that is required to apply the requirements
of Statement 43 is financed on a pay-as-you-go basis and has no plan assets, liabilities, or net assets at the end
of a particular year, a statement of plan net assets may be unnecessary for that year (or, if presented, would
show zero values for all elements of the statement). Nevertheless, there still will have been increases and
decreases in plan net assets during the year—information that is required to be reported in a statement of
changes in plan net assets.
Public Employee Retirement Systems
221. Q—What is the difference between a public employee retirement system (PERS) and employee benefit plans?
Are the requirements of Statement 43 applicable to financial reporting by OPEB plans, by a PERS that
administers OPEB plans, or both?
A—A PERS is a governmental entity that may administer one or multiple employee benefit plans, including
defined benefit OPEB plans. When the financial report issued by a PERS includes more than one defined
benefit OPEB plan, the requirements of Statement 43 apply to each OPEB plan administered, rather than to the
PERS as an administrative organization. A PERS can meet the requirements for separate reporting of each
defined benefit OPEB plan by presenting combining financial statements and required supplementary information, in which each plan’s information is separately displayed or presented. For additional information about
financial reporting requirements for a special-purpose government that engages only in fiduciary activities (for
example, many PERS), see paragraphs 139 through 141 of Statement 34 and question 7.140 in the Comprehensive Implementation Guide—2004.
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222. Q—A PERS administers defined benefit postemployment healthcare benefits for several different groups of a
city’s employees, including police, firefighters, and general city employees. How should the PERS and the city
(employer) determine whether the benefit arrangement constitutes a single OPEB plan or multiple OPEB plans
for accounting and financial reporting purposes?
A—The essential criterion for distinguishing whether the PERS is administering one or multiple OPEB plans
relates to the presence or absence of restrictions on the benefits that may legally be paid with the assets
administered by the PERS. If all assets administered by the PERS, including those arising from member and
employer contributions related to all employee/retiree groups, may legally be used on an ongoing basis to pay
benefits for retirees or beneficiaries of any group, the plan is a single plan for financial reporting purposes. On
the other hand, if any portion of the total assets administered by the PERS is accumulated solely for the
payment of benefits to a particular class of employees or the employees of certain entities, and may not legally
be used to pay the benefits of other classes of employees or the employees of other entities, that portion of the
assets and related benefits is a separate plan for financial reporting purposes. (See paragraph 14a of Statement 43 for additional discussion.)
223. Q—May a pension plan that administers a postemployment healthcare plan combine the pension plan and the
OPEB plan for financial reporting purposes, rather than report the postemployment healthcare plan separately
under the requirements of Statement 43?
A—No. Statements 25 and 43 require separate reporting of each pension plan and each OPEB plan,
respectively. Combined reporting of the two plans (for example, under the requirements of Statement 25) would
not be in conformity with those requirements.
224. Q—A defined benefit pension plan provides postemployment healthcare benefits using a Section 401h account
within the pension trust fund. The employer makes a single contribution to the plan. After assessing the funded
status of the pension benefits, the trustees decide each year whether or how much of the total net assets of the
pension trust fund to transfer into the 401h account for healthcare benefits. The trustees also decide how much
of the total cost of providing healthcare benefits each year should be paid from the 401h account and how much
should be paid by the retirees. The plan’s ability to provide healthcare benefits is conditioned on its ability to
maintain sound funding of the pension benefits, which is the primary responsibility of the plan trustees. In
addition, the employer contributions to the plan ultimately will be limited by a statutory cap on employer
contributions to the pension plan. Should the PERS that administers the pension plan account for the
postemployment benefits as a separate, defined benefit OPEB plan in accordance with the requirements of
Statement 43?
A—Yes. The PERS should report the defined benefit pension plan and the OPEB plan administered by the
pension plan—which also is a defined benefit plan based on the distinguishing characteristics discussed in
question 19—as separate plans, in accordance with the requirements of Statements 25 and 43, respectively.
This will require, as parts of the accounting and financial reporting process, that the PERS:
a. Allocate the employer’s contribution to the pension trust fund between contributions in relation to the ARC
for pensions and contributions in relation to the ARC for postemployment healthcare benefits, or OPEB. For
example, the PERS might allocate to OPEB contributions the amount credited each year to the 401h
account for postemployment healthcare benefits.
b. Allocate the assets, liabilities, and net assets of the pension trust fund between pension plan net assets and
OPEB plan net assets. For example, the PERS might allocate to OPEB plan net assets the portion of the
total net assets of the pension trust fund represented by the year-end balance of the 401h account.
c. Project retiree healthcare benefits based on the types of benefits provided as part of the current substantive
plan at the time of each valuation and the historical pattern of sharing of the costs of coverage between the
employer and plan members to that point in time.
64
The PERS also should include in its disclosure of the funding policy for the OPEB plan the statutory maximum
rate for the employer’s total contribution to the pension trust fund, which potentially limits the amounts available
in the future to be allocated to the 401h account as employer OPEB contributions.
225. Q—A defined benefit pension plan administers a postemployment healthcare plan that is funded by “excess
investment earnings” (investment earnings for a particular year in excess of the long-term investment earnings
assumption used for actuarial valuation purposes). Excess investment earnings are credited to a plan net assets
reserve account within the pension trust fund, from which a portion of the total cost of healthcare insurance
coverage for retirees is paid. Should the PERS that administers the pension plan account for the postemployment benefits provided in this manner as a separate, defined benefit OPEB plan in accordance with the
requirements of Statement 43?
A—Yes. The PERS should report the arrangement described as two plans—a defined benefit pension plan and
a postemployment healthcare (OPEB) plan—in accordance with the requirements of Statements 25 and 43,
respectively. This will require, as part of the accounting and financial reporting process, that the PERS:
a. Allocate the employer’s total contribution to the pension trust fund between (1) contributions in relation to the
ARC for pensions and (2) contributions in relation to the ARC for postemployment healthcare benefits, or
OPEB. Although in form the healthcare benefits are provided by the plan, rather than the employer, in
substance it is the employer that supports the benefits through higher contribution requirements. Actuarial
valuations of the pension plan, from which the funded status of the plan and the ARC are derived, include
as a key assumption a long-term investment earnings (discount rate) assumption. The calculations assume
that actual earnings will exceed the assumption in some years and fall short of the assumption in other
years. If, however, an amount equal to the excess earnings on pension trust fund assets in good years is
applied to provide an additional postemployment benefit other than pensions, the employer’s contribution in
relation to the ARC for that year should not be regarded, for accounting and financial reporting purposes,
as supporting the pension benefits only. Rather, the employer is in the position of supporting, directly or
indirectly, two benefits. As an approach to allocating the employer’s total contribution, the PERS might, for
example, allocate a portion equal to the excess earnings for the year credited to the healthcare reserve as
a contribution in relation to the ARC for OPEB and correspondingly reduce the employer’s contribution in
relation to the ARC for pensions. Under this approach, there would be no employer contribution for OPEB
in any years in which no excess earnings are credited to the healthcare reserve.
b. Allocate the assets, liabilities, and net assets of the pension trust fund between pension plan net assets and
OPEB plan net assets. For example, the PERS might allocate to OPEB plan net assets the portion of the
total net assets of the pension trust fund represented by the year-end balance of the excess earnings
reserve account.
c. Project retiree healthcare benefits based on the types of benefits provided as part of the current substantive
plan at the time of each valuation and the historical pattern of sharing of the costs of coverage between the
employer and plan members to that point in time.
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OPEB Plans That Are Administered as Trusts (or Equivalent Arrangements)
226. Q—Paragraph 4b of Statement 43 states, as one of the criteria that are required to be met if an OPEB plan is
to be reported as a qualifying trust, that “[p]lan assets are dedicated to providing benefits to . . . retirees and their
beneficiaries in accordance with the terms of the plan.” If postemployment healthcare benefits (OPEB) and
another benefit that is not OPEB (for example, pension benefits) have been administered through a single trust
that otherwise meets the criteria in paragraph 4 (except possibly that the assets of the trust are dedicated to
providing OPEB and the other benefit), should that arrangement be considered as meeting the requirements of
paragraph 4b?
A—Yes. Both the postemployment healthcare benefit and the non-OPEB benefit have been administered
through a dedicated trust. The implementation of Statement 43 will require separation of the two benefits,
including an allocation of the assets of the trust between them, for accounting and financial reporting purposes.
The portion of the assets of the trust allocated to the postemployment healthcare benefit may be regarded, for
purposes of implementing Statement 43, as dedicated to providing those benefits.
Statement of Plan Net Assets
Assets
Receivables
227. Q—Statement 45 (the related Statement on accounting for OPEB by employers) requires sole and agent
employers to recognize expense for ARC-related contributions to an OPEB plan equal to annual OPEB cost,
without regard for the amount that the employer actually contributes to the plan that year, and to recognize a
liability (the net OPEB obligation) if the actual contribution is less. Is a single-employer or agent multipleemployer plan required to recognize a corresponding receivable from the employer(s) for the difference?
A—No. The amount recognized by the plan as a receivable and addition to plan net assets from employer
contributions would not necessarily be equal in amount to the difference between the amounts expensed and
paid by the employer for the year. The plan should not base receivable recognition solely on the employer’s
recognition of a liability but should follow the independent requirements in paragraph 20 of Statement 43 to
determine whether or not it should recognize a receivable for contributions due from the employer at year-end.
The plan potentially would recognize a receivable for contributions from the employer pursuant to a formal
commitment, if there is sufficient evidence to support recognition of a plan asset (discussed in paragraph 20),
or pursuant to a statutory or contractual requirement.
228. Q—An individual employer enters into a long-term installment contract with the plan for payment of contributions
(accounted for by the employer as OPEB-related debt), whereby the employer will make a series of installment
payments with interest extending more than one year after the plan’s financial report date. How should the plan
account for the contract?
A—The plan should recognize a receivable and an addition to plan net assets from employer contributions in
the year the contract is made. The plan should account for interest on the unpaid balance of the OPEB-related
debt using the effective interest method, unless use of the straight-line method would not produce significantly
different results, and should disclose the terms of the contract and the outstanding balance.
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Investments
229. Q—Should investments of a defined benefit OPEB plan be reported in the statement of plan net assets at a
market-related value consistent with the plan’s method of determining the actuarial value of assets for actuarial
valuation purposes?
A—No. With the exception of unallocated and allocated insurance contracts, paragraph 22 of Statement 43
requires that OPEB plan investments, including equity securities, debt securities, real estate, and other
investments, be reported in the statement of plan net assets at their fair value at the reporting date. Paragraph 22 defines fair value as “the amount that the plan could reasonably expect to receive for [the investment]
in a current sale between a willing buyer and a willing seller—that is, other than in a forced or liquidation sale.”
It further requires that fair value be measured by the market price of investments for which there is an active
market or estimated for investments for which a market price is not available. Footnote 4 to paragraph 22 further
specifies that, for OPEB plan investments, the fair value should reflect brokerage commissions and other costs
normally incurred in a sale, if determinable.
Liabilities
230. Q—Should the total unfunded actuarial accrued liabilities of an OPEB plan for benefits and refunds of member
contributions be recognized as liabilities of the plan?
A—No. Liabilities for benefits and refunds should be recognized as liabilities of the trust when they become due
and payable in accordance with the terms of the plan. The total unfunded actuarial accrued liability for benefits
and refunds should not be recognized as a financial statement liability of the trust. However, Statement 43
requires disclosure in the notes to the financial statements of the funded status of the plan, including the total
actuarial accrued liabilities, the actuarial value of plan assets, and the unfunded actuarial liability, as of the most
recent actuarial valuation date.
Statement of Changes in Plan Net Assets
231. Q—The net appreciation (depreciation) in the fair value of plan investments includes both realized and
unrealized gains and losses—that is, gains and losses on sales of investments during the period and unrealized
“mark to market” gains and losses on investments still in the portfolio at year-end. May a plan separately display
the realized and unrealized gains and losses?
A—No. As discussed in footnote 6 to paragraph 27d of Statement 43, separate display is not permitted, because
realized gains and losses are based on historical cost, whereas the financial statements reflect changes in fair
value (a different measurement attribute of investments). However, gains and losses realized during the year
may be disclosed if accompanied by appropriate disclosure that those gains and losses are the difference
between selling prices in the current year and the original cost of the investments sold, and that the realized
gains and losses disclosed include amounts recognized in the financial statements in prior years as part of the
net appreciation (depreciation) in fair value.
232. Q—Should interest income include the amortization of purchase premiums or discounts on debt securities?
A—No. Consistent with reporting the debt securities at fair value, the net appreciation or depreciation in fair
value should be reported as a component of net investment income, and interest income should be reported at
the stated interest rate, rather than the effective interest rate at the time of purchase, and purchase premiums
and discounts should not be amortized.
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233. Q—The only categories of additions to plan net assets specified in Statement 43 for required separate reporting
are contributions to the plan by source and net investment income. If a plan has additions to plan net assets of
a type other than one of the specified categories (for example, a transfer of assets when a plan member is added
to the plan by transfer from another plan), how should the plan report the addition?
A—An addition to plan net assets that does not fit one of the categories of additions listed in paragraph 27 of
Statement 43, such as an addition resulting from a transfer in of assets when a plan member is added by transfer
from another plan, may be reported as a separate, additional category, descriptively captioned.
Notes to the Financial Statements
234. Q—May an employer or sponsor that includes an OPEB plan as a trust fund in the employer’s or sponsor’s
financial report limit the disclosures related to the plan if a stand-alone plan financial report that conforms with
the requirements of Statement 43 also is available?
A—Provided that the employer or sponsor discloses how to obtain the stand-alone plan financial report, it may
reduce plan disclosures associated with the trust fund to the following disclosures specified in paragraph 30 of
Statement 43:
• Paragraph 30a(1)—identification of the plan as single-employer, agent multiple-employer, or cost-sharing
multiple-employer and the number of participating employers and other contributing entities
• Paragraph 30b—summary of significant accounting policies
• Paragraph 30c(4)—the terms of any long-term contracts for contributions to the plan and the amounts
outstanding at the reporting date.
235. Q—Should an employer that includes an OPEB plan as a trust fund in the employer’s financial report make both
the disclosures required by Statement 43 for the trust fund, and the disclosures required by Statement 45 as an
employer in the plan?
A—Yes. An employer that includes an OPEB plan as a trust fund in the employer’s financial report is
accountable from two perspectives within the same report: first, from the perspective of a participating employer
in the plan and, second, from the standpoint of asserted fiduciary responsibility for the trust fund (that is, for
stewardship of the plan assets). Accordingly, the employer is required to make both the disclosures required by
Statement 45 and those required by Statement 43. However, footnote 19 of Statement 45 provides for
coordination of disclosures to the extent that “[w]hen similar information is required by this Statement and
Statement 43, the employer should present the disclosures in a manner that avoids unnecessary duplication.”
In addition, footnote 21 of Statement 45 provides that if a sole employer includes that plan as a trust fund in the
employer’s report, the requirements of Statement 43 regarding the presentation of information about the funded
status and funding progress of the plan satisfy the similar requirements of paragraphs 25c and 26 of Statement 45. As discussed in question 234, paragraph 30 of Statement 43 also permits reduced trust fund
disclosures if there is a separately issued plan financial report prepared in accordance with the requirements of
Statement 43, and the employer discloses information about how to obtain a copy of that report. Paragraph 32
of Statement 43 similarly permits reduced required supplementary information when those conditions are met.
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236. Q—How are the note disclosure requirements of Statement 43 similar to and different from those of Statement 25 for defined benefit pension plans?
A—The note disclosure requirements of paragraph 30 of Statement 43 applicable to defined benefit OPEB plans
are generally similar to the requirements of paragraph 32 of Statement 25 applicable to defined benefit pension
plans. However, Statement 43 requires several additional disclosures or modified disclosures for OPEB plans,
including, most notably, the following:
a. Disclosure of legal or contractual maximum contribution rates, if applicable (paragraph 30c(2))
b. Disclosure of the funded status of the plan as of the most recent valuation date, including a requirement that
a plan that uses the aggregate actuarial cost method to determine the ARC disclose funded status
information prepared using the entry age actuarial cost method (paragraph 30d(1))
c. Explanatory disclosures about the actuarial valuation process, including the necessity of estimation and the
use of actuarial assumptions about future events, and that actuarially determined amounts are subject to
continual revision as actual results are compared to previous assumptions and new estimates are made
(paragraph 30d(2)(a–d))
d. Disclosure of actuarial methods and significant assumptions used (information presented as notes to
required supplementary information for defined benefit pension plans)—including disclosure by plans that
use the aggregate actuarial cost method that funded status information has been prepared using the entry
age actuarial cost method as a surrogate (paragraph 30d(2)(e)).
237. Q—When the note disclosure requirements of Statement 43 use the term funding policy or contributions in
accordance with the funding policy, does that refer to the annual required contributions of the employer (ARC)
calculated in accordance with the parameters?
A—No. The term funding policy is defined in the glossary of Statement 43 as “[t]he program for the amounts and
timing of contributions to be made by plan members, employer(s), and other contributing entities (for example,
state government contributions to a local government plan) to provide the benefits specified by an OPEB plan.”
It refers to the method established by the plan and the employer(s) of financing the benefits provided by the plan,
whether or not that method involves contributing the ARC. Similarly, contributions in accordance with the funding
policy refers to the amount that the funding policy requires the employer(s) to contribute to the plan, whether or
not that amount is equal to the ARC.
238. Q—If the funding policy pertaining to an OPEB plan includes legal or contractual maximum rates for employer,
member, or other contributions to the plan, should the legal or contractual maximum rates be disclosed?
A—Yes. Paragraph 30b(2), regarding disclosure of the funding policy for an OPEB plan, requires that legal or
contractual maximum contribution rates applicable to the plan members, the employer(s), and other contributing
entities should be included as part of that disclosure. (See also question 71 regarding the distinction between
a cap on employer contributions, such as a legal or contractual maximum employer contribution rate—which
should not be included in the determination of the actuarial present value of total projected benefits for
accounting purposes—and a cap on the employer’s share of benefits—which should be included in that
determination if deemed effective.)
239. Q—What information does Statement 43 require to be reported with regard to the funded status and funding
progress of an OPEB plan, and in what manner?
A—Statement 43 requires disclosure in the notes to the financial statements of information, as of the most
recent actuarial valuation date, about the actuarial accrued liability, the actuarial value of plan assets, the
unfunded actuarial accrued liability, the ratio of plan assets to the actuarial accrued liability (funded ratio),
covered payroll, and the unfunded actuarial accrued liability as a percentage of the covered payroll. In addition,
69
OPEB plans are required to present funding progress information (including the same elements of information
listed above) for the current and the two previous valuations in a multi-year trend schedule as required
supplementary information. Funded status and funding progress information should be prepared in accordance
with the parameters for an actuarial valuation or the alternative measurement method for qualifying plans that
choose to use that method.
240. Q—Statement 25 does not require a pension plan that determines the ARC using the aggregate actuarial cost
method (a method that does not separately calculate an actuarial accrued liability) to prepare a schedule of
funding progress. Does the same provision apply to an OPEB plan that uses the aggregate actuarial cost
method to calculate the ARC, in reference to the required disclosure of funded status and the required
presentation of multi-year trend information about funding progress?
A—No. Statement 43 departs from Statement 25 on this point. Paragraph 30d(1) of Statement 43 requires an
OPEB plan that uses the aggregate actuarial cost method to determine the ARC to disclose the funded status
of the plan using the entry age actuarial cost method for that purpose. Similarly, paragraphs 34d and 35 of that
Statement require an OPEB plan that uses the aggregate actuarial cost method to present the required schedule
of funding progress for the most recent actuarial valuation and the two preceding valuations using the entry age
actuarial cost method. Paragraph 35 also requires disclosure if the entry age actuarial cost method has been
used to provide approximate funding-progress information.
The Parameters
241. Q—How does the parameter regarding the minimum frequency of actuarial valuations for an OPEB plan differ
from the corresponding parameter of Statement 25 regarding the minimum frequency of actuarial valuations for
a pension plan?
A—Paragraph 35 of Statement 25 requires that a defined benefit pension plan obtain an actuarial valuation at
least biennially (that is, annually or biennially, at the plan’s option) for financial reporting purposes, without
regard to the size of the plan. Paragraph 33 of Statement 43 requires that a defined benefit OPEB plan obtain
an actuarial valuation for financial reporting purposes at least biennially if the plan’s total membership is 200 or
more, or at least triennially if the plan’s total membership is under 200. A plan’s total membership for that purpose
includes employees in active service, terminated employees who are eligible to receive benefits but have not yet
begun to receive them, and retired employees or their beneficiaries currently receiving benefits. Paragraph 33
of Statement 43 also requires that a new valuation be performed if significant changes have occurred since the
previous valuation that affect the valuation results, including significant changes in benefit provisions, the size
or composition of the membership, or other factors that impact long-term actuarial assumptions.
242. Q—In scheduling its actuarial valuations, what timing parameters should an OPEB plan arrange to meet so that
the information produced will comply for financial reporting purposes?
A—In addition to specifying the minimum frequency of actuarial valuations (discussed in question 241),
paragraph 33 of Statement 43 establishes requirements regarding the timing of actuarial valuations in relation
to the plan’s financial report date (the as-of date of the statement of plan net assets). The actuarial valuation date
is not required to coincide with the plan’s financial report date; for example, a plan with a financial report date
of June 30 could choose to schedule its actuarial valuations as of December 31. However, that date generally
should be the same date each year (or other valuation interval)—subject to the requirement that a new valuation
(that is, a valuation ahead of schedule) should be obtained if significant changes have occurred since the
previous valuation, as discussed in question 241. Whatever actuarial valuation date is used, the actuarially
70
determined information that is required to be reported for the current plan year should be based on a valuation
performed not more than:
• Twelve months before the financial report date, if valuations are performed annually
• Twenty-four months before the financial report date, if valuations are performed biennially
• Thirty-six months before the financial report date, if valuations are performed triennially.
If the same actuarial valuation will provide information both for plan financial reporting and for employer financial
reporting, valuations should be scheduled in order to meet both the frequency and timing parameters of
Statement 43, discussed in this question and question 241, and the frequency and timing parameters of
Statement 45, discussed in questions 37 and 41 through 43.
243. Q—Should the actuarial methods and assumptions used for OPEB plan financial reporting purposes be
consistent with those used for funding purposes?
A—As discussed in questions 45 and 46 with regard to employers, if the actuarial methods and assumptions
used for funding purposes conform with the parameters, an OPEB plan should use the same methods and
assumptions for accounting and financial reporting purposes. However, if an OPEB plan uses actuarial methods
and assumptions for funding purposes that do not conform with the parameters, the plan should not use the
nonconforming methods or assumptions for financial reporting purposes. For example, if the period used to
amortize the total unfunded actuarial accrued liability for funding purposes is greater than thirty years, the plan
should calculate actuarial information for financial reporting purposes using an amortization period of thirty
years or fewer, in accordance with the parameters. For financial reporting purposes, actuarial methods and
assumptions should conform to GASB parameters, even if the methods and assumptions used for funding
purposes do not. Therefore, in the latter situation, an OPEB plan should report actuarially determined
information, annual OPEB cost, and the net OPEB obligation, each calculated in conformity with the parameters, and should report contributions in relation to the ARC equal to amounts actually contributed to the plan
in accordance with the funding policy. In addition, as required by paragraph 30c(2) and 30c(3) of Statement 43,
the employer should disclose in the notes to the financial statements the required contribution rate(s) of plan
members and of the employer in accordance with the funding policy.
244. Q—May the plan and employer use different actuarial methods or assumptions to determine funded status
information?
A—No. As discussed in question 47, paragraph 34 of Statement 43 and paragraph 13 of Statement 45 require
that an OPEB plan and its participating employer(s) use the same actuarial methods and assumptions in
determining similar or related information in plan and employer financial reports.
245. Q—What plan or employer actuarial valuations would be needed for the following types of OPEB plans:
single-employer, agent multiple-employer, and cost-sharing multiple-employer?
A—In a single-employer plan, the same actuarial valuation would provide the information needed for accounting
and financial reporting both by the employer and by the plan. In an agent multiple-employer plan (effectively, a
collection of single-employer plans with pooling of some administrative functions for efficiency), an actuarial
valuation would be required of each employer’s plan, and information for plan financial reporting purposes would
be derived by a process of combining the information from the individual-employer plan valuations. In a
cost-sharing multiple-employer plan, a single actuarial valuation would be required for the plan as a whole.
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246. Q—A defined benefit pension plan provides both pension benefits and postemployment healthcare benefits.
The latter are provided through a Section 401h account established in the past by the board of trustees. The
employers make a single contribution to the pension plan, and the trustees decide each year the amount, if any,
of total plan net assets to assign to the 401h account for healthcare. There is a statutory cap on the employer
contribution rate that could apply at some point in the future if healthcare cost rates continue to increase. May
the PERS that administers the pension plan and the postemployment healthcare (OPEB) plan administered by
the pension plan include the projected effect of the contribution cap in its projection of healthcare benefits for
purposes of applying Statement 43?
A—No. Postemployment healthcare benefits should be projected based on the current substantive plan and the
pattern of sharing of the costs of coverage between the employer and plan members. (The portion paid from the
401h account should be attributed to the employers as the employers’ share of the cost of coverage.) However,
the employer contribution cap (the statutory maximum employer contribution rate) should be disclosed as part
of the required disclosure of funding policy, as discussed in question 238.
The parameters presented in paragraphs 34a through 34g of Statement 43 generally are the same for actuarial
valuations for employer and plan measurement purposes. For additional questions and answers related to
benefits to be included, actuarial assumptions, actuarial cost method, actuarial value of assets, annual
required contributions of the employer (the ARC), and contribution deficiencies or excess contributions, see
questions 34 through 107.
Required Supplementary Information
247. Q—What information should an OPEB plan present as required supplementary information (RSI)?
A—Generally, an OPEB plan should present two schedules as RSI—a schedule of funding progress and a
schedule of employer contributions—prepared in accordance with the parameters or the alternative measurement method, if applicable, immediately following the notes to the financial statements (paragraph 31 of
Statement 43). However, that general requirement would be modified in circumstances where an employer
includes an OPEB plan as an employee benefit trust fund in the employer’s financial report, and a stand-alone
plan report that includes the required schedules is issued and publicly available. In those circumstances:
• A cost-sharing or agent employer is not required to present either schedule as RSI if the employer includes
in its notes information about how to obtain the stand-alone plan financial report.
• A sole employer should present the schedule of funding progress but is not required to present the schedule
of employer contributions, if the employer includes in its notes information about how to obtain the stand-alone
plan financial report (paragraph 32 of Statement 43).
Schedule of funding progress
248. Q—Is the information presented as of the most recent valuation date in the schedule of funding progress the
same as that required to be disclosed in the funded status note?
A—Yes. The plan’s total actuarial accrued liabilities, plan net assets, unfunded actuarial liabilities, funded ratio,
annual covered payroll, and ratio of unfunded actuarial liabilities to covered payroll as of the most recent
actuarial date are presented in two ways:
a. The information is disclosed in a note to the financial statements regarding the plan’s most recently
measured funded status.
b. The information is included in the required multi-valuation schedule of funding progress, as the most recent
of three required data points.
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The connection between the funded status note and the schedule of funding progress is also required to be
disclosed in the notes to the financial statements, as follows:
Disclosure that the required schedule of funding progress immediately following the notes to the
financial statements presents multi-year trend information about whether the actuarial value of plan
assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits.
[Paragraph 30d(2)(b) of Statement 43]
249. Q—If an OPEB plan obtains actuarial valuations, or applies the alternative measurement method, on a two-year
or three-year schedule, should the plan present funding progress information for the year(s) between actuarial
valuations?
A—No. The funded status of the plan is measured only as of each actuarial valuation date. Therefore, the plan
should not include funding progress information for the years between valuations in the schedule of funding
progress. For example, if a plan with a June 30 fiscal year-end obtains actuarial valuations every two years, and
the most recent valuation was obtained on June 30, 20X5, the schedule of funding progress in the plan’s
June 30, 20X6, financial statements would include information from the June 30, 20X5, 20X3, and 20X1,
actuarial valuations.
Schedule of employer contributions
250. Q—If the plan’s financial reporting period is different from that of the employer(s), how should the plan
determine what is the ARC applicable to the plan’s financial reporting period?
A—The plan should present as the ARC pertaining to the plan’s financial reporting period the aggregate of the
participating employers’ ARCs for employer financial reporting periods as those periods overlap the plan’s
reporting period. For example, assume that a cost-sharing plan with a December 31 financial report date has
three participating employers with June 30, September 30, and December 31 financial report dates, respectively. For this plan, the ARC to be presented for the year ended December 31, 20X4, would be the aggregate,
weighted average of the participating employers’ ARCs for their financial reporting periods overlapping the
plan’s year ended December 31, 20X4, illustrated as follows:
Employer A (June 30 financial report date)
ARC for year ended June 30, 20X4
Times: percentage of months overlapping
$200,000
50%
ARC for year ended June 30, 20X5
Times: percentage of months overlapping
$225,000
50%
$100,000
112,500
212,500
Subtotal—Employer A
Employer B (September 30 financial report date)
ARC for year ended September 30, 20X4
Times: percentage of months overlapping
$100,000
75%
ARC for year ended September 30, 20X5
Times: percentage of months overlapping
$115,000
25%
75,000
28,750
103,750
Subtotal—Employer B
Employer C (December 31 financial report date)
ARC for year ended December 31, 20X4
Aggregate ARC—plan’s year ended December 31, 20X4
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150,000
$466,250
If the plan in this illustration recognized additions to plan assets from employer contributions for the year ended
December 31, 20X4, in the amount of $290,000, the plan’s schedule of employer contributions would show for
that year that the ARC was $466,250, and that additions to plan assets from ARC-related employer contributions
amounted to 62.2 percent of the ARC.
251. Q—How should the schedule of employer contributions be modified if the plan’s funding policy includes
contributions from sources other than the employer(s) and the plan members?
A—Required contributions from other sources should be included in the schedule, and the schedule should be
titled schedule of contributions from the employer(s) and other contributing entities. (Contributions from plan
members are outside the purpose of the schedule and should not be included.)
Notes to the required schedules
252. Q—Should amounts reported for prior years in the schedule of funding progress or the schedule of employer
contributions be restated for the effects of a significant change affecting the information presented?
A—No. However, significant factors affecting the interpretation of trends in the information presented in the
schedules—for example, changes in benefit provisions, size or composition of the total plan membership, or the
actuarial methods and assumptions used—should be disclosed in notes to the required schedules.
Alternative Measurement Method for Plans with Fewer Than One Hundred Plan Members
For questions and answers regarding paragraphs 39 and 40, on standards related to the alternative
measurement method, see questions 159 through 198.
OPEB Plans That Are Not Administered as Trusts (or Equivalent Arrangements)
253. Q—How should the administrator of a multiple-employer OPEB plan account for contributions received from
participating employers, premiums paid to insurers or benefits paid to participants, and assets held at year-end,
if the fund used to administer the plan is not a trust fund, or equivalent arrangement, that meets the criteria in
paragraph 4?
A—If the fund used to administer a multiple-employer OPEB plan is not a trust, or an equivalent entity, that is
legally separate from the employer(s) and plan administrator and in which (a) employer contributions to the plan
are irrevocable, (b) any plan assets accumulated are dedicated solely to the payment of benefits in accordance
with the term of the plan, and (c) plan assets are protected from claims by creditors of the participating
employers and the administrator, for accounting purposes the administrator effectively functions as an agent for
the various participating employers and should account for plan activities as agency fund activities. Accounting
for an agency fund involves essentially accounting for increases and decreases in fund assets and liabilities. No
net assets should be reported. The plan should account for fund assets and liabilities of the types discussed in
paragraphs 18 through 24 of Statement 43 in accordance with the requirements of those paragraphs. Any assets
that may be accumulated in excess of liabilities to pay premiums or benefits, or for investment or administrative
expenses incurred, should be offset by equal and offsetting liabilities to the participating employers in proportion
to their interests in those excess assets.
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254. Q—What plan disclosures generally are required for a plan that is reported as an agency fund?
A—A plan administrator or sponsor that reports a multiple-employer OPEB plan as an agency fund under the
requirements of Statement 43 for a plan that is not administered as a qualifying trust, or equivalent arrangement,
should apply the following disclosure requirements of that Statement:
• Paragraph 30a—plan description
• Paragraph 30b—summary of significant accounting policies
• Paragraph 30c(1)–30c(4)—contributions.
However, an employer that includes an OPEB plan as an agency fund in its financial report may limit the
disclosures for the agency fund to those required by paragraphs 30a(1), 30b, and 30c(4) if a stand-alone plan
financial report also is available and if the employer discloses information about how to obtain a copy.
255. Q—A group of governments formed a multiple-employer retiree healthcare plan, which one of the governments
administers using a non–trust fund to account for amounts received from the participating employers, amounts
paid to insurance companies, and residual assets held in the fund. The insurer rates the plan as a single group.
The funding policy adopted by the plan and employers is to contribute an amount sufficient to cover the
pay-as-you-go requirements of the plan and provide an operating reserve equal to the projected cash
requirements for the next six months. The participants describe the plan as a cost-sharing plan. How would the
plan and employers account for this arrangement?
A—The plan described does not meet the requirements of paragraph 4 of Statement 43 for accounting as a
cost-sharing plan because it is not administered as a trust fund that meets the criteria set forth in that paragraph.
In these circumstances (a multiple-employer plan that is not administered as a qualifying trust, or equivalent
arrangement), the plan should be accounted for as an agent multiple-employer plan. The fund type used should
be an agency fund, as discussed in response to the previous question. Participating employers in the plan
should follow the requirements of Statement 45 for agent employers, including basing their expense on annual
OPEB cost (rather than contractually required contributions, as would cost-sharing employers). In the circumstances described, the plan would not require actuarial evaluations at the administrative level, but separate
actuarial valuations would be required for each employer’s plan.
Defined Contribution Plans
256. Q—Is there a significant distinction, for accounting purposes, between the requirements for defined contribution
plans that provide retirement income (pension benefits) and the requirements for those that provide OPEB?
A—No. Regardless of the type of benefit provided, all defined contribution plans should be accounted for in
accordance with the same accounting and financial reporting requirements. That is, a defined contribution plan
should follow the reporting requirements for fiduciary funds generally, and for component units that are fiduciary
in nature, in paragraphs 69 through 73 and paragraphs 106 through 111 of Statement 34, as amended by
Statement 43. In addition, a defined contribution plan should follow the disclosure requirements in paragraph 41
of Statement 25.
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Effective Date and Transition
257. Q—An agent multiple-employer OPEB plan has participating employers that are phase 1, phase 2, and phase 3
governments. The largest employer is a phase 1 government. All participating employers have a financial
reporting date of June 30. The plan’s financial reporting date is December 31. What would be the plan’s effective
date?
A—The requirements of Statement 43 for financial reporting by an OPEB plan are effective one year before the
effective date of Statement 45 for the largest employer in the plan. Paragraph 36 of Statement 45 establishes
as the effective dates for implementation of the requirements of that Statement the employer’s first year
beginning after December 15, 2006, 2007, or 2008, for phase 1, 2, or 3 governments, respectively. An
employer’s implementation phase for that purpose is the same as the employer’s implementation phase for
Statement 34—based on the employer’s total revenue as defined in paragraph 143 of that Statement. The
largest employer in the illustrative agent multiple-employer plan is a phase 1 employer, for which the effective
date of Statement 45 is the first period beginning after December 15, 2006, or the employer’s year ending
June 30, 2008. The illustrative plan’s effective date is one year earlier—that is, the plan’s first period beginning
after December 15, 2005, or the year ending December 31, 2006. (If the example was modified so that the plan
also had a financial reporting date of June 30, the plan’s effective date would be the year ending June 30, 2007.)
Earlier implementation is encouraged. (Note that because the actuarial information required to be presented by
the plan incorporates actuarial information about the individual employers’ plans, compliance by the agent
multiple-employer plan would require that each of the employers would have obtained a timely initial valuation.)
(Also see question 201.)
258. Q—If a plan presents comparative financial statements, should it restate the financial statements for the prior
year(s) in the financial report for the year of implementation?
A—Yes. If comparative financial statements are presented in the report for the year in which Statement 43 is
implemented, restatement of the financial statements for the prior year is required.
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Appendix 1
GLOSSARY OF TERMS (FROM STATEMENTS 43 AND 45)
This appendix contains definitions of certain terms as they are used in Statements 43 and 45; the terms may have
different meanings in other contexts. Terms defined in Appendix 2, “Actuarial Terminology (from Statements 43
and 45),” are cross-referenced to that appendix.
Actuarial accrued liability
See Appendix 2, A-4.
Actuarial assumptions
See Appendix 2, C-2.
Actuarial cost method
See Appendix 2, A-2.
Actuarial experience gain and loss
See Appendix 2, A-8.
Actuarial present value of total projected benefits
Total projected benefits include all benefits estimated to be payable to plan members (retirees and beneficiaries,
terminated employees entitled to benefits but not yet receiving them, and current active members) as a result
of their service through the valuation date and their expected future service. The actuarial present value of total
projected benefits as of the valuation date is the present value of the cost to finance benefits payable in the
future, discounted to reflect the expected effects of the time value (present value) of money and the probabilities
of payment. Expressed another way, it is the amount that would have to be invested on the valuation date so
that the amount invested plus investment earnings will provide sufficient assets to pay total projected benefits
when due.
Actuarial valuation
See Appendix 2, C-3.
Actuarial valuation date
The date as of which an actuarial valuation is performed.
Actuarial value of assets
See Appendix 2, A-5.
Ad hoc postretirement benefit increase
See Postretirement benefit increase.
Agent multiple-employer plan (agent plan)
An aggregation of single-employer plans, with pooled administrative and investment functions. Separate
accounts are maintained for each employer so that the employer’s contributions provide benefits only for the
employees of that employer. A separate actuarial valuation is performed for each individual employer’s plan to
determine the employer’s periodic contribution rate and other information for the individual plan, based on the
benefit formula selected by the employer and the individual plan’s proportionate share of the pooled assets. The
results of the individual valuations are aggregated at the administrative level.
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Aggregate actuarial cost method
See Appendix 2, B-4.
Allocated insurance contract
A contract with an insurance company under which related payments to the insurance company are currently
used to purchase an immediate or deferred benefit for individual members.
Amortization (of unfunded actuarial accrued liability)
See Appendix 2, C-5.
Annual OPEB cost
An accrual-basis measure of the periodic cost of an employer’s participation in a defined benefit OPEB plan.
Annual required contributions of the employer(s) (ARC)
The employer’s periodic required contributions to a defined benefit OPEB plan, calculated in accordance with
the parameters.
Attained age actuarial cost method
See Appendix 2, B-3.
Automatic postretirement benefit increase
See Postretirement benefit increase.
Closed amortization period (closed basis)
A specific number of years that is counted from one date and, therefore, declines to zero with the passage of
time. For example, if the amortization period initially is thirty years on a closed basis, twenty-nine years remain
after the first year, twenty-eight years after the second year, and so forth. In contrast, an open amortization
period (open basis) is one that begins again or is recalculated at each actuarial valuation date. Within a
maximum number of years specified by law or policy (for example, thirty years), the period may increase,
decrease, or remain stable.
Contract value
The value of an unallocated contract that is determined by the insurance company in accordance with the terms
of the contract.
Contribution deficiencies (excess contributions)
The difference between the annual required contributions of the employer(s) (ARC) and the employer’s actual
contributions in relation to the ARC.
Cost-sharing multiple-employer plan
A single plan with pooling (cost-sharing) arrangements for the participating employers. All risks, rewards, and
costs, including benefit costs, are shared and are not attributed individually to the employers. A single actuarial
valuation covers all plan members, and the same contribution rate(s) applies for each employer.
Covered group
Plan members included in an actuarial valuation.
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Covered payroll
Annual compensation paid to active employees covered by an OPEB plan. If employees also are covered by a
pension plan, the covered payroll should include all elements included in compensation on which contributions
to the pension plan are based. For example, if pension contributions are calculated on base pay including
overtime, covered payroll includes overtime compensation.
Defined benefit OPEB plan
An OPEB plan having terms that specify the amount of benefits to be provided at or after separation from
employment. The benefits may be specified in dollars (for example, a flat dollar payment or an amount based
on one or more factors such as age, years of service, and compensation), or as a type or level of coverage (for
example, prescription drugs or a percentage of healthcare insurance premiums).
Defined benefit pension plan
A pension plan having terms that specify the amount of pension benefits to be provided at a future date or after
a certain period of time. The amount specified usually is a function of one or more factors such as age, years
of service, and compensation.
Defined contribution plan
A pension or OPEB plan having terms that (a) provide an individual account for each plan member and
(b) specify how contributions to an active plan member’s account are to be determined, rather than the income
or other benefits the member or his or her beneficiaries are to receive at or after separation from employment.
Those benefits will depend only on the amounts contributed to the member’s account, earnings on investments
of those contributions, and forfeitures of contributions made for other members that may be allocated to the
member’s account. For example, an employer may contribute a specified amount to each active member’s
postemployment healthcare account each month. At or after separation from employment, the balance of the
account may be used by the member or on the member’s behalf for the purchase of health insurance or other
healthcare benefits.
Employer’s contributions
Contributions made in relation to the annual required contributions of the employer (ARC). An employer has
made a contribution in relation to the ARC if the employer has (a) made payments of benefits directly to or on
behalf of a retiree or beneficiary, (b) made premium payments to an insurer, or (c) irrevocably transferred assets
to a trust, or an equivalent arrangement, in which plan assets are dedicated to providing benefits to retirees and
their beneficiaries in accordance with the terms of the plan and are legally protected from creditors of the
employer(s) or plan administrator.
Entry age actuarial cost method
See Appendix 2, B-2.
Equivalent single amortization period
The weighted average of all amortization periods used when components of the total unfunded actuarial
accrued liability are separately amortized and the average is calculated in accordance with the parameters.
Excess contributions (contribution deficiencies)
See Contribution deficiencies (excess contributions).
Fair value
The amount that a plan can reasonably expect to receive for an investment in a current sale between a willing
buyer and a willing seller—that is, other than in a forced or liquidation sale.
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Frozen attained age actuarial cost method
See Appendix 2, B-6.
Frozen entry age actuarial cost method
See Appendix 2, B-5.
Funded ratio
The actuarial value of assets expressed as a percentage of the actuarial accrued liability.
Funding excess
The excess of the actuarial value of assets over the actuarial accrued liability. See also Appendix 2, A-6.
Funding policy
The program for the amounts and timing of contributions to be made by plan members, employer(s), and other
contributing entities (for example, state government contributions to a local government plan) to provide the
benefits specified by an OPEB plan.
Healthcare cost trend rate
The rate of change in per capita health claims costs over time as a result of factors such as medical inflation,
utilization of healthcare services, plan design, and technological developments.
Insurance contract
See Allocated insurance contract and Unallocated insurance contract.
Insured benefit
An OPEB financing arrangement whereby an employer pays premiums to an insurance company, while
employees are in active service, in return for which the insurance company unconditionally undertakes an
obligation to pay the postemployment benefits of those employees or their beneficiaries, as defined in the
employer’s plan.
Investment return assumption (discount rate)
The rate used to adjust a series of future payments to reflect the time value of money.
Level dollar amortization method
The amount to be amortized is divided into equal dollar amounts to be paid over a given number of years; part
of each payment is interest and part is principal (similar to a mortgage payment on a building). Because payroll
can be expected to increase as a result of inflation, level dollar payments generally represent a decreasing
percentage of payroll; in dollars adjusted for inflation, the payments can be expected to decrease over time.
Level percentage of projected payroll amortization method
Amortization payments are calculated so that they are a constant percentage of the projected payroll of active
plan members over a given number of years. The dollar amount of the payments generally will increase over
time as payroll increases due to inflation; in dollars adjusted for inflation, the payments can be expected to
remain level.
Market-related value of plan assets
A term used with reference to the actuarial value of assets. A market-related value may be fair value, market
value (or estimated market value), or a calculated value that recognizes changes in fair value or market value
over a period of, for example, three to five years.
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Net OPEB obligation
The cumulative difference since the effective date of this Statement between annual OPEB cost and the
employer’s contributions to the plan, including the OPEB liability (asset) at transition, if any, and excluding
(a) short-term differences and (b) unpaid contributions that have been converted to OPEB-related debt.
Normal cost
See Appendix 2, A-3. In [Statements 43 and 45], the term refers to employer normal cost.
OPEB assets
The amount recognized by an employer for contributions to an OPEB plan greater than OPEB expense.
OPEB expenditures
The amount recognized by an employer in each accounting period for contributions to an OPEB plan on the
modified accrual basis of accounting.
OPEB expense
The amount recognized by an employer in each accounting period for contributions to an OPEB plan on the
accrual basis of accounting.
OPEB liabilities
The amount recognized by an employer for contributions to an OPEB plan less than OPEB expense/
expenditures.
OPEB-related debt
All long-term liabilities of an employer to an OPEB plan, the payment of which is not included in the annual
required contributions of a sole or agent employer (ARC) or the actuarially determined required contributions of
a cost-sharing employer. Payments generally are made in accordance with installment contracts that usually
include interest. Examples include contractually deferred contributions and amounts assessed to an employer
upon joining a multiple-employer plan.
Open amortization period (open basis)
See Closed amortization period (closed basis).
Other postemployment benefits
Postemployment benefits other than pension benefits. Other postemployment benefits (OPEB) include postemployment healthcare benefits, regardless of the type of plan that provides them, and all postemployment
benefits provided separately from a pension plan, excluding benefits defined as termination offers and benefits.
Parameters
The set of requirements for calculating actuarially determined OPEB information included in financial reports.
Pay-as-you-go
See Appendix 2, C-8.
Payroll growth rate
An actuarial assumption with respect to future increases in total covered payroll attributable to inflation; used in
applying the level percentage of projected payroll amortization method.
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Pension benefits
Retirement income and all other benefits, including disability benefits, death benefits, life insurance, and other
ancillary benefits, except healthcare benefits, that are provided through a defined benefit pension plan to plan
members and beneficiaries after termination of employment or after retirement. Postemployment healthcare
benefits are considered other postemployment benefits, whether they are provided through a defined benefit
pension plan or another type of plan.
Plan assets
Resources, usually in the form of stocks, bonds, and other classes of investments, that have been segregated
and restricted in a trust, or in an equivalent arrangement, in which (a) employer contributions to the plan are
irrevocable, (b) assets are dedicated to providing benefits to retirees and their beneficiaries, and (c) assets are
legally protected from creditors of the employer(s) or plan administrator, for the payment of benefits in
accordance with the terms of the plan.
Plan liabilities
Obligations payable by the plan at the reporting date, including, primarily, benefits and refunds due and payable
to plan members and beneficiaries, and accrued investment and administrative expenses. Plan liabilities do not
include actuarial accrued liabilities for benefits that are not due and payable at the reporting date.
Plan members
The individuals covered by the terms of an OPEB plan. The plan membership generally includes employees in
active service, terminated employees who have accumulated benefits but are not yet receiving them, and retired
employees and beneficiaries currently receiving benefits.
Plan net assets and Plan net assets held in trust for OPEB
The difference between total plan assets and total plan liabilities at the reporting date.
Postemployment
The period between termination of employment and retirement as well as the period after retirement.
Postemployment healthcare benefits
Medical, dental, vision, and other health-related benefits provided to terminated or retired employees and their
dependents and beneficiaries.
Postretirement benefit increase
An increase in the benefits of retirees or beneficiaries granted to compensate for the effects of inflation
(cost-of-living adjustment) or for other reasons. Ad hoc increases may be granted periodically by a decision of
the board of trustees, legislature, or other authoritative body; both the decision to grant an increase and the
amount of the increase are discretionary. Automatic increases are periodic increases specified in the terms of
the plan; they are nondiscretionary except to the extent that the plan terms can be changed.
Projected salary increase assumption
An actuarial assumption with respect to future increases in the individual salaries and wages of active plan
members; used in determining the actuarial present value of total projected benefits when the benefit amounts
are related to salaries and wages. The expected increases commonly include amounts for inflation, enhanced
productivity, and employee merit and seniority.
Projected unit credit actuarial cost method
See Appendix 2, B-1.
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Public employee retirement system (PERS)
A state or local governmental entity entrusted with administering one or more pension plans. A PERS also may
administer other types of employee benefit plans, including postemployment healthcare plans and deferred
compensation plans. A PERS also may be an employer that provides or participates in a pension plan or other
types of employee benefit plans for employees of the system.
Reporting date
The date of the financial statements; the last day of the fiscal year.
Required supplementary information (RSI)
Schedules, statistical data, and other information that are an essential part of financial reporting and should be
presented with, but are not part of, the basic financial statements of a governmental entity.
Select and ultimate rates
Actuarial assumptions that contemplate different rates for successive years. Instead of a single assumed rate
with respect to, for example, the investment return assumption, the actuary may apply different rates for the
early years of a projection and a single rate for all subsequent years. For example, if an actuary applies an
assumed investment return of 8 percent for year 20W0, 7.5 percent for 20W1, and 7 percent for 20W2 and
thereafter, then 8 percent and 7.5 percent are select rates, and 7 percent is the ultimate rate.
Single-employer plan
A plan that covers the current and former employees, including beneficiaries, of only one employer.
Special termination benefits
Benefits offered by an employer for a short period of time as an inducement to employees to hasten the
termination of services. For example, to reduce payroll and related costs, an employer might offer enhanced
pension benefits or OPEB to employees as an inducement to take early termination, for employees who accept
the offer within a sixty-day window of opportunity.
Sponsor
The entity that established the plan. The sponsor generally is the employer or one of the employers that
participate in the plan to provide benefits for their employees. Sometimes, however, the sponsor establishes the
plan for the employees of other entities but does not include its own employees and, therefore, is not a
participating employer of that plan. An example is a state government that establishes a plan for the employees
of local governments within the state, but the employees of the state government are covered by a different plan.
Stand-alone plan financial report
A report that contains the financial statements of a plan and is issued by the plan or by the public employee
retirement system that administers the plan. The term stand-alone is used to distinguish such a financial report
from plan financial statements that are included in the financial report of the plan sponsor or employer (pension
or other employee benefit trust fund).
Substantive plan
The terms of an OPEB plan as understood by the employer(s) and plan members.
Terminal funding
See Appendix 2, C-10.
83
Termination offers and benefits
Inducements offered by employers to employees to hasten the termination of services, or payments made in
consequence of the early termination of services. Termination offers and benefits include special termination
benefits, early-retirement incentive programs, and other termination-related benefits.
Transition year
The fiscal year in which this Statement is first implemented.
Ultimate rate
See Select and ultimate rates.
Unallocated insurance contract
A contract with an insurance company under which payments to the insurance company are accumulated in an
unallocated pool or pooled account (not allocated to specific members) to be used either directly or through the
purchase of annuities to meet benefit payments when employees retire. Moneys held by the insurance company
under an unallocated contract may be withdrawn and otherwise invested.
Unfunded actuarial accrued liability (unfunded actuarial liability)
See Appendix 2, A-6.
Unprojected unit credit actuarial cost method
See Appendix 2, B-1.
Year-based assumptions
See Select and ultimate rates.
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Appendix 2
ACTUARIAL TERMINOLOGY (FROM STATEMENTS 43 AND 45)
This paragraph contains terms and definitions adopted by the Interim Actuarial Standards Board (now the Actuarial
Standards Board) of the American Academy of Actuaries in 1988. The terms and definitions are reproduced, with
permission, including the original section headings and item numbers, as published in “Appendix II: Pension Actuarial
Terminology” of Actuarial Standard of Practice No. 4, Measuring Pension Obligations, approved for publication by the
Actuarial Standards Board in October 1993.1 Although specifically adopted in relation to pensions, these terms and
definitions also are generally applicable to other postemployment benefits. Five items in the original (B-7, B-8, B-9,
C-1, and C-6) are not included in this paragraph because they describe actuarial cost methods not included in the
parameters or define terms not used in [Statement 43 or Statement 45]. Terms with an asterisk are not used in
[Statement 43 or Statement 45] but have been included because they are used in the definitions of other terms.
Section A
CORE TERMS
A-1* Actuarial Present Value
The value of an amount or series of amounts payable or receivable at various times, determined as of a given
date by the application of a particular set of Actuarial Assumptions. For purposes of this standard, each such
amount or series of amounts is:
a. adjusted for the probable financial effect of certain intervening events (such as changes in compensation
levels, Social Security, marital status, etc.),
b. multiplied by the probability of the occurrence of an event (such as survival, death, disability, termination of
employment, etc.) on which the payment is conditioned, and
c. discounted according to an assumed rate (or rates) of return to reflect the time value of money.
A-2 Actuarial Cost Method or Funding Method
A procedure for determining the Actuarial Present Value of pension plan benefits and expenses and for
developing an actuarially equivalent allocation of such value to time periods, usually in the form of a Normal Cost
and an Actuarial Accrued Liability.
Note: An Actuarial Cost Method is understood to be a Closed Group Actuarial Cost Method unless otherwise
stated.
A-3 Normal Cost or Normal Actuarial Cost
That portion of the Actuarial Present Value of pension plan benefits and expenses which is allocated to a
valuation year by the Actuarial Cost Method.
Note 1: The presentation of Normal Cost should be accompanied by reference to the Actuarial Cost Method
used.
Note 2: Any payment in respect of an Unfunded Actuarial Accrued Liability is not part of Normal Cost (see
Amortization Payment).
1Actuarial Standard of Practice No. 4 may be obtained from the Actuarial Standards Board, 1100 Seventeenth Street, NW, 7th Floor, Washington, DC
20036.
85
Note 3: For pension plan benefits which are provided in part by employee contributions, Normal Cost refers to
the total of employee contributions and employer Normal Cost unless otherwise specifically stated.
A-4 Actuarial Accrued Liability, Actuarial Liability, Accrued Liability, or Actuarial Reserve
That portion, as determined by a particular Actuarial Cost Method, of the Actuarial Present Value of pension plan
benefits and expenses which is not provided for by future Normal Costs.
Note: The presentation of an Actuarial Accrued Liability should be accompanied by reference to the Actuarial
Cost Method used; for example, by hyphenation (“Actuarial Accrued Liability—XYZ,” where “XYZ”
denotes the Actuarial Cost Method) or by a footnote.
A-5 Actuarial Value of Assets or Valuation Assets
The value of cash, investments and other property belonging to a pension plan, as used by the actuary for the
purpose of an Actuarial Valuation.
Note: The statement of Actuarial Assumptions should set forth the particular procedures used to determine this
value.
A-6 Unfunded Actuarial Accrued Liability, Unfunded Actuarial Liability, Unfunded Accrued Liability, or
Unfunded Actuarial Reserve
The excess of the Actuarial Accrued Liability over the Actuarial Value of Assets.
Note: This value may be negative in which case it may be expressed as a negative Unfunded Actuarial Accrued
Liability, the excess of the Actuarial Value of Assets over the Actuarial Accrued Liability, or the Funding
Excess.
A-7* Unfunded Frozen Actuarial Accrued Liability or Unfunded Frozen Actuarial Liability
An Unfunded Actuarial Accrued Liability which is not adjusted (“frozen”) from one Actuarial Valuation to the next
to reflect Actuarial Gains (Losses) under certain Actuarial Cost Methods. Generally, this amount is adjusted by
any increments or decrements in Actuarial Accrued Liability due to changes in pension plan benefits or Actuarial
Assumptions subsequent to the date it is frozen. Adjustments are made from one Actuarial Valuation to the next
to reflect the addition of interest and deduction of Amortization Payments.
A-8 Actuarial Gain (Loss) or Experience Gain (Loss)
A measure of the difference between actual experience and that expected based upon a set of Actuarial
Assumptions, during the period between two Actuarial Valuation dates, as determined in accordance with a
particular Actuarial Cost Method.
Note 1: The effect on the Actuarial Accrued Liability and/or the Normal Cost resulting from changes in the
Actuarial Assumptions, the Actuarial Cost Method or pension plan provisions should be described as
such, not as an Actuarial Gain (Loss).
Note 2: The manner in which the Actuarial Gain (Loss) affects future Normal Cost and Actuarial Accrued Liability
allocations depends upon the particular Actuarial Cost Method Used.
86
Section B
ACTUARIAL COST METHODS
B-1 Unit Credit Actuarial Cost Method
A method under which the benefits (projected or unprojected) of each individual included in an Actuarial
Valuation are allocated by a consistent formula to valuation years. The Actuarial Present Value of benefits
allocated to a valuation year is called the Normal Cost. The Actuarial Present Value of benefits allocated to all
periods prior to a valuation year is called the Actuarial Accrued Liability.
Note 1: The description of this method should state the procedures used, including:
(a) how benefits are allocated to specific time periods;
(b) the procedures used to project benefits, if applicable; and
(c) a description of any other method used to value a portion of the pension plan’s benefits.
Note 2: Under this method, the Actuarial Gains (Losses), as they occur, generally reduce (increase) the
Unfunded Actuarial Accrued Liability.
B-2 Entry Age Actuarial Cost Method or Entry Age Normal Actuarial Cost Method
A method under which the Actuarial Present Value of the Projected Benefits of each individual included in an
Actuarial Valuation is allocated on a level basis over the earnings or service of the individual between entry age
and assumed exit age(s). The portion of this Actuarial Present Value allocated to a valuation year is called the
Normal Cost. The portion of this Actuarial Present Value not provided for at a valuation date by the Actuarial
Present Value of future Normal Costs is called the Actuarial Accrued Liability.
Note 1: The description of this method should state the procedures used, including:
(a)
(b)
(c)
(d)
(e)
whether the allocation is based on earnings or service;
where aggregation is used in the calculation process;
how entry age is established;
what procedures are used when different benefit formulas apply to various periods of service; and
a description of any other method used to value a portion of the pension plan’s benefits.
Note 2: Under this method, the Actuarial Gains (Losses), as they occur, reduce (increase) the Unfunded
Actuarial Accrued Liability.
B-3 Attained Age Actuarial Cost Method
A method under which the excess of the Actuarial Present Value of Projected Benefits over the Actuarial Accrued
Liability in respect of each individual included in an Actuarial Valuation is allocated on a level basis over the
earnings or service of the individual between the valuation date and assumed exit. The portion of this Actuarial
Present Value which is allocated to a valuation year is called the Normal Cost. The Actuarial Accrued Liability
is determined using the Unit Credit Actuarial Cost Method.
Note 1: The description of this method should state the procedures used, including:
(a) whether the allocation is based on earnings or service;
(b) where aggregation is used in the calculation process; and
(c) a description of any other method used to value a portion of the pension plan’s benefits.
Note 2: Under this method, the Actuarial Gains (Losses), as they occur, reduce (increase) the Unfunded
Actuarial Accrued Liability.
87
Note 3: The differences which regularly arise between the Normal Cost under this method and the Normal Cost
under the Unit Credit Actuarial Cost Method will affect the determination of future Actuarial Gains
(Losses).
B-4 Aggregate Actuarial Cost Method
A method under which the excess of the Actuarial Present Value of Projected Benefits of the group included in
an Actuarial Valuation over the Actuarial Value of Assets is allocated on a level basis over the earnings or service
of the group between the valuation date and assumed exit. This allocation is performed for the group as a whole,
not as a sum of individual allocations. That portion of the Actuarial Present Value allocated to a valuation year
is called the Normal Cost. The Actuarial Accrued Liability is equal to the Actuarial Value of Assets.
Note 1: The description of this method should state the procedures used, including:
(a) whether the allocation is based on earnings or service;
(b) how aggregation is used in the calculation process; and
(c) a description of any other method used to value a portion of the pension plan’s benefits.
Note 2: Under this method, the Actuarial Gains (Losses), as they occur, reduce (increase) future Normal Costs.
B-5 Frozen Entry Age Actuarial Cost Method
A method under which the excess of the Actuarial Present Value of Projected Benefits of the group included in
an Actuarial Valuation, over the sum of the Actuarial Value of Assets plus the Unfunded Frozen Actuarial Accrued
Liability, is allocated on a level basis over the earnings or service of the group between the valuation date and
assumed exit. This allocation is performed for the group as a whole, not as a sum of individual allocations. The
Frozen Actuarial Accrued Liability is determined using the Entry Age Actuarial Cost Method. The portion of this
Actuarial Present Value allocated to a valuation year is called the Normal Cost.
Note 1: The description of this method should state the procedures used, including:
(a) whether the allocation is based on earnings or service;
(b) how aggregation is used in the calculation process; and
(c) a description of any other method used to value a portion of the pension plan’s benefits.
Note 2: Under this method, the Actuarial Gains (Losses), as they occur, reduce (increase) future Normal Costs.
B-6 Frozen Attained Age Actuarial Cost Method
A method under which the excess of the Actuarial Present Value of Projected Benefits of the group included in
an Actuarial Valuation, over the sum of the Actuarial Value of Assets plus the Unfunded Frozen Actuarial Accrued
Liability, is allocated on a level basis over the earnings or service of the group between the valuation date and
assumed exit. This allocation is performed for the group as a whole, not as a sum of individual allocations. The
Unfunded Frozen Actuarial Accrued Liability is determined using the Unit Credit Actuarial Cost Method. The
portion of this Actuarial Present Value allocated to a valuation year is called the Normal Cost.
Note 1: The description of this method should state the procedures used, including:
(a) whether the allocation is based on earnings or service;
(b) how aggregation is used in the calculation process; and
(c) a description of any other method used to value a portion of the pension plan’s benefits.
Note 2: Under this method, the Actuarial Gains (Losses), as they occur, reduce (increase) future Normal Costs.
88
Section C
SUPPLEMENTAL GLOSSARY
C-2 Actuarial Assumptions
Assumptions as to the occurrence of future events affecting pension costs, such as: mortality, withdrawal,
disablement and retirement; changes in compensation and Government provided pension benefits; rates of
investment earnings and asset appreciation or depreciation; procedures used to determine the Actuarial Value
of Assets; characteristics of future entrants for Open Group Actuarial Cost Methods; and other relevant items.
C-3 Actuarial Valuation
The determination, as of a valuation date, of the Normal Cost, Actuarial Accrued Liability, Actuarial Value of
Assets, and related Actuarial Present Values for a pension plan.
C-4* Actuarially Equivalent
Of equal Actuarial Present Value, determined as of a given date with each value based on the same set of
Actuarial Assumptions.
C-5
Amortization Payment
That portion of the pension plan contribution which is designed to pay interest on and to amortize the Unfunded
Actuarial Accrued Liability or the Unfunded Frozen Actuarial Accrued Liability.
C-7* Open Group/Closed Group
Terms used to distinguish between two classes of Actuarial Cost Methods. Under an Open Group Actuarial Cost
Method, Actuarial Present Values associated with expected future entrants are considered; under a Closed
Group Actuarial Cost Method, Actuarial Present Values associated with future entrants are not considered.
C-8
Pay-as-You-Go
A method of financing a pension plan under which the contributions to the plan are generally made at about the
same time and in about the same amount as benefit payments and expenses becoming due.
C-9* Projected Benefits
Those pension plan benefit amounts which are expected to be paid at various future times under a particular
set of Actuarial Assumptions, taking into account such items as the effect of advancement in age and past and
anticipated future compensation and service credits. That portion of an individual’s Projected Benefit allocated
to service to date, determined in accordance with the terms of a pension plan and based on future compensation as projected to retirement, is called the Credited Projected Benefit.
C-10 Terminal Funding
A method of funding a pension plan under which the entire Actuarial Present Value of benefits for each
individual is contributed to the plan’s fund at the time of withdrawal, retirement or benefit commencement.
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Appendix 3
INTRODUCTION AND STANDARDS SECTIONS (FROM STATEMENT 45)
Introduction
1. The objective of this Statement is to improve the faithfulness of representations and usefulness of information
included in the financial reports of state and local governmental employers regarding other postemployment
benefits1 (OPEB). OPEB refers to postemployment benefits other than pension benefits and includes
(a) postemployment healthcare benefits and (b) other types of postemployment benefits (for example, life
insurance) if provided separately from a pension plan. Like pensions, OPEB arises from an exchange of salaries and
benefits for employee services rendered and constitutes part of the compensation for those services. However,
current financial reporting practices for OPEB generally are based on pay-as-you-go financing approaches. They
generally fail to measure or recognize the cost of OPEB during the periods when employees render the services or
to provide relevant information about OPEB obligations and the extent to which progress is being made in funding
those obligations. This Statement addresses those issues.
2. The approach adopted in this Statement generally is consistent with the approach taken in Statement No. 27,
Accounting for Pensions by State and Local Governmental Employers. However, certain requirements of this
Statement differ from the requirements of Statement 27 to reflect differences between pension benefits and OPEB.
3. Statement No. 43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, establishes
standards for reporting of OPEB plans—including reporting of the plan assets and liabilities and, where applicable,
the net assets and the changes in plan net assets, held in trust or as an agent for OPEB—and for disclosure of
information about the funded status and funding progress of the plan and about employer contributions to the plan.
The effective dates and many of the measurement and disclosure requirements of Statement 43 and this Statement
are closely related, and certain provisions of this Statement refer to Statement 43. The two Statements include
provisions to coordinate disclosures to avoid duplication when a government that participates in an OPEB plan also
reports the plan as a fiduciary fund or component unit, or when a separately issued plan report, prepared in
accordance with the requirements of Statement 43, is publicly available.
Standards of Governmental Accounting and Financial Reporting
Scope and Applicability of This Statement
4. This Statement establishes standards of accounting and financial reporting for OPEB expense/expenditures and
related OPEB liabilities or OPEB assets, note disclosures, and required supplementary information (RSI) in the
financial reports of state and local governmental employers. Accounting and financial reporting for trust and agency
funds of the employer are addressed in Statement 43.
5. The requirements of this Statement address employer reporting for participation in defined benefit OPEB plans
and in defined contribution plans that provide postemployment benefits other than pensions. Defined benefit OPEB
plans are plans having terms that specify the benefits to be provided at or after separation from employment. The
benefits may be specified in dollars (for example, a flat dollar payment or an amount based on one or more factors
such as age, years of service, and compensation), or as a type or level of coverage (for example, prescription drugs
or a percentage of healthcare insurance premiums). In contrast, a defined contribution plan is a plan having terms that
(a) provide an individual account for each plan member and (b) specify how contributions to an active plan member’s
1Consistent
with previous GASB pronouncements, the glossary and actuarial terminology presented in [Appendix 2 of this guide] are authoritative
elements of this Statement. Terms defined in those paragraphs are printed in boldface type when they first appear.
91
account are to be determined, rather than the income or other benefits the member or his or her beneficiaries are to
receive at or after separation from employment. In a defined contribution plan, those benefits will depend only on the
amounts contributed to the member’s account, earnings on investments of those contributions, and forfeitures of
contributions made for other members that may be allocated to the member’s account. For example, an employer
may contribute a specified amount to each active member’s postemployment healthcare account each month. At or
after separation from employment, the balance of the account may be used by the member or on the member’s behalf
for the purchase of health insurance or other healthcare benefits.
6. The requirements of this Statement apply to the financial statements of all state and local governmental employers
that provide postemployment benefits other than pension benefits. The requirements apply whether the employer’s
financial statements are presented in separately issued (stand-alone) financial reports or are included in the financial
reports of another governmental entity.
7. OPEB arises from an exchange of salaries and benefits for employee services, and it is part of the compensation
that employers offer for services received. As used in this Statement, OPEB includes:
a. Postemployment healthcare benefits—including medical, dental, vision, hearing, and other health-related
benefits—whether provided separately or provided through a defined benefit pension plan
b. Other forms of postemployment benefits—for example, life insurance, disability, long-term care, and other
benefits—when provided separately from a defined benefit pension plan.
8. Inducements offered by employers to employees to hasten the termination of services, or payments made in
consequence of the early termination of services (collectively referred to as termination offers and benefits), are
different in nature from compensation for services. Accordingly, termination offers and benefits—including special
termination benefits as defined in National Council on Governmental Accounting (NCGA) Interpretation 8, Certain
Pension Matters, early-retirement incentive programs, and other termination-related benefits—are distinguished from
OPEB and are excluded from the scope of this Statement, regardless of who provides or administers them. However,
the effects, if any, of an employee’s acceptance of a special termination offer on OPEB obligations incurred through
an existing defined benefit plan (for example, an increase in the employer’s obligation to provide postemployment
healthcare benefits) should be accounted for in accordance with the requirements of this Statement and Statement 43, rather than the requirements of NCGA Interpretation 8.
9. Conversion of a terminating employee’s unused sick leave credits to an individual account to be used for payment
of postemployment benefits on that person’s behalf is a termination payment, as the term is used in Statement
No. 16, Accounting for Compensated Absences. The portion of sick leave expected to be compensated in that manner
should be accounted for as a compensated absence in accordance with the requirements of that Statement. However,
when a terminating employee’s unused sick leave credits are converted to provide or to enhance a defined benefit
OPEB (for example, postemployment healthcare benefits), the resulting benefit or increase in benefit should be
accounted for in accordance with the requirements of this Statement and Statement 43.
10. This Statement supersedes or amends all previous authoritative guidance on accounting and financial reporting
for an employer’s OPEB expense/expenditures and related information. It supersedes GASB Statement No. 12,
Disclosure of Information on Postemployment Benefits Other Than Pension Benefits by State and Local Governmental Employers, and paragraph 24 of GASB Statement 27. It amends paragraph 5 of NCGA Interpretation 6, Notes to
the Financial Statements Disclosure; paragraph 2 of GASB Statement No. 10, Accounting and Financial Reporting for
Risk Financing and Related Insurance Issues; footnotes 6 and 7 of GASB Statement 16; paragraphs 6, 7, and 39 of
GASB Statement 27; and paragraph 7 of GASB Interpretation No. 6, Recognition and Measurement of Certain
Liabilities and Expenditures in Governmental Fund Financial Statements.
92
Employers with Defined Benefit OPEB Plans
Sole and Agent Employers
Measurement of annual OPEB cost and net OPEB obligation 2
11. For employers with single-employer or agent multiple-employer (agent) plans (sole and agent employers),
annual OPEB cost should be equal to the annual required contributions of the employer (ARC)3 to the plan for
that year, calculated in accordance with paragraphs 12 and 13 (the parameters), unless the employer has a net
OPEB obligation4 to the plan at the beginning of the year. The requirements for measuring annual OPEB cost when
an employer has a net OPEB obligation are discussed in paragraphs 14 through 16. However, a sole or agent
employer may elect to base its annual OPEB cost on the ARC calculated in accordance with the alternative
measurement method discussed in paragraphs 33 through 35, if the employer meets either of the following criteria:
a. The employer is the sole employer in a plan with fewer than one hundred total plan members.
b. The employer is an agent employer with fewer than one hundred total plan members, and the agent multipleemployer plan in which the employer participates (1) is not required to obtain an actuarial valuation for the purpose
of financial reporting in conformity with Statement 435 or (2) does not issue a financial report prepared in conformity
with the requirements of that Statement.
For purposes of this Statement, a plan’s total membership is the sum of its employees in active service, terminated
employees who have accumulated benefits but are not yet receiving them, and retired employees and beneficiaries
currently receiving benefits.
Calculation of the ARC (the parameters)
12. For financial reporting purposes, an actuarial valuation should be performed in accordance with this paragraph
and paragraph 13 at the following minimum frequency:
a. For plans with a total membership of 200 or more—at least biennially
b. For plans with a total membership of fewer than 200—at least triennially.
The actuarial valuation date need not be the employer’s balance sheet6 date, but generally should be the same date
each year (or other applicable interval). However, a new valuation should be performed if, since the previous
valuation, significant changes have occurred that affect the results of the valuation, including significant changes in
benefit provisions, the size or composition of the population covered by the plan, or other factors that impact
2The terms annual OPEB cost and net OPEB obligation are used to refer to the results of applying the measurement requirements of this Statement,
regardless of the amounts that should be recognized in the financial statements using the accrual or modified accrual basis of accounting. Recognition
requirements are addressed in paragraphs 17 through 21, after the measurement requirements. When the modified accrual basis is used, the amount
recognized as OPEB expenditures may not be equal to annual OPEB cost. However, regardless of the amount recognized, paragraph 25 requires the
disclosure of annual OPEB cost and, if applicable, the components of annual OPEB cost and net OPEB obligation balances.
3
When the actuarial determination of the ARC is based on a projection of covered payroll for the period to which the ARC will apply, the payroll
measure used may be the projected covered payroll, the budgeted payroll, or the actual covered payroll for the year. Any of those measures of covered
payroll, consistently applied, is acceptable for calculating annual OPEB cost and the net OPEB obligation, if any. Comparisons between the ARC and
contributions made should be based on the same measure of covered payroll, consistently applied, whether that measure is projected, budgeted, or
actual payroll. The ARC does not include payments of OPEB-related debt. An OPEB-related debt is any long-term liability of an employer to an OPEB
plan that is not included in the ARC. Payments generally are made in accordance with installment contracts that usually include interest. Examples
include contractually deferred contributions and amounts assessed to an employer upon joining a multiple-employer plan. Therefore, payments of
OPEB-related debt are not included in annual OPEB cost.
4The net OPEB obligation may be either positive (a liability) or negative (an asset). The term net OPEB obligation, as used in this Statement, refers
to either situation.
5That is, the plan does not meet the criteria of paragraph 4 of Statement 43 for financial reporting as a trust, or equivalent arrangement, or the plan
meets those criteria but has fewer than one hundred total plan members and, therefore, is eligible to use the alternative measurement method.
6For
purposes of this Statement, the term balance sheet includes the government-wide and proprietary fund statements of net assets and the
statement of fiduciary net assets, required to be presented as components of the basic financial statements, as discussed in Statement
No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments.
93
long-term assumptions. The ARC reported for the employer’s current fiscal year should be based on the results of
the most recent actuarial valuation, performed in accordance with the parameters as of a date not more than
twenty-four months before the beginning of that year, if valuations are annual, or not more than twenty-four months
before the beginning of the first year of the two-year or three-year period for which that valuation provides the ARC,
if valuations are biennial or triennial.
13. The ARC and all other actuarially determined OPEB information included in an employer’s financial report should
be calculated in accordance with this paragraph, consistently applied. The actuarial methods and assumptions
applied for financial reporting should be the same methods and assumptions applied in determining the plan’s funding
requirements, unless compliance with this paragraph requires the use of different methods or assumptions. A plan
and its participating employer(s) should apply the same actuarial methods and assumptions in determining similar or
related information included in their respective financial reports.7
a. Benefits to be included:
(1) The actuarial present value of total projected benefits should include all benefits to be provided to plan
members or beneficiaries in accordance with the current substantive plan (the plan terms as understood by
the employer and plan members) at the time of each valuation, including any changes to plan terms that have
been made and communicated to employees. Usually, the written plan is the best evidence of the terms of the
exchange; however, in some cases the substantive plan may differ from the written plan. Accordingly, other
information also should be taken into consideration in determining the benefits to be provided, including other
communications between the employer and plan members and an established pattern of practice with regard
to the sharing of benefit costs between the employer and plan members. Calculations should be made based
on the types of benefits in force at the time of the valuation and the pattern of sharing of benefit costs between
the employer and plan members to that point.
(2) When an employer provides benefits to both active employees and retirees through the same plan, the
benefits to retirees should be segregated for actuarial measurement purposes, and the projection of future
retiree benefits should be based on claims costs, or age-adjusted premiums approximating claims costs, for
retirees, in accordance with actuarial standards issued by the Actuarial Standards Board.8 However, when an
employer participates in a community-rated plan, in which premium rates reflect the projected health claims
experience of all participating employers rather than that of any single participating employer, and the insurer
or provider organization charges the same unadjusted premiums for both active employees and retirees, it is
appropriate to use the unadjusted premiums as the basis for projection of retiree benefits, to the extent
permitted by actuarial standards.9
(3) A legal or contractual cap on the employer’s share of the benefits to be provided to retirees and beneficiaries
each period should be considered in projecting benefits to be provided by the employer(s) in future periods, if
the cap is assumed to be effective taking into consideration the employer’s record of enforcing the cap in the
past and other relevant factors and circumstances.
(4) Benefits to be provided by means of allocated insurance contracts for which payments to an insurance
company (a) have been made and (b) have irrevocably transferred to the insurer the responsibility for providing
the benefits, should be excluded (and allocated insurance contracts should be excluded from plan assets).
7
This provision and the parameters also are included in Statement 43.
8
See Actuarial Standard of Practice No. 6 (ASOP 6), Measuring Retiree Group Benefit Obligations, revised edition (Washington, DC: Actuarial
Standards Board, December 2001), or its successor documents.
9ASOP
6, as revised in December 2001, discusses the issue as follows:
Use of Premium Rates—Although an analysis of the plan sponsor’s actual claims experience is preferable, the actuary may use premium rates
as the basis for initial per capita health care rates, with appropriate analysis and adjustment for the premium rate basis. The actuary who uses
premium rates for this purpose should adjust them for changes in benefit levels, covered population, or program administration. The actuary
should consider that the actual cost of health insurance varies by age . . . , but the premium rates paid by the plan sponsor may not. For
example, the actuary may use a single unadjusted premium rate applicable to both active employees and non-Medicare-eligible retirees if the
actuary has determined that the insurer would offer the same premium rate if only non-Medicare-eligible retirees were covered. [paragraph
3.4.5]
94
b. Actuarial assumptions—The selection of all actuarial assumptions, including the healthcare cost trend rate in
valuations of postemployment healthcare plans, should be guided by actuarial standards. Accordingly, actuarial
assumptions should be based on the actual experience of the covered group, to the extent that credible
experience data are available, but should emphasize expected long-term future trends rather than give undue
weight to recent past experience. The reasonableness of each actuarial assumption should be considered
independently based on its own merits, its consistency with each other assumption, and the combined impact of
all assumptions.
c. Economic assumptions—In addition to complying with the guidance in subparagraph b of this paragraph, the
investment return assumption (discount rate) should be the estimated long-term investment yield on the
investments that are expected to be used to finance the payment of benefits, with consideration given to the nature
and mix of current and expected investments and the basis used to determine the actuarial value of assets
(subparagraph e). For this purpose, the investments expected to be used to finance the payment of benefits are
(1) plan assets for plans for which the employer’s funding policy is to contribute consistently an amount at least
equal to the ARC, (2) assets of the employer for plans that have no plan assets, or (3) a combination of the two for
plans that are being partially funded. The discount rate for a partially funded plan should be a blended rate that
reflects the proportionate amounts of plan and employer assets expected to be used. The investment return
assumption and other economic assumptions should include the same assumption with respect to inflation.
d. Actuarial cost method—One of the following actuarial cost methods should be used: entry age, frozen entry
age, attained age, frozen attained age, projected unit credit,10 or aggregate, as described in [Appendix 2],
Section B.
e. Actuarial value of assets—Plan assets should be valued using methods and techniques that are consistent with the
class and anticipated holding period of the assets, the investment return assumption, other assumptions used in
determining the actuarial present value of total projected benefits, and current actuarial standards for asset
valuation.11 Accordingly, the actuarial value of plan assets generally should be market related.
f. Annual required contributions of the employer (ARC)—The ARC should be actuarially determined in accordance
with the parameters. The amount should include the employer’s normal cost and a provision(s) for amortizing the
total unfunded actuarial accrued liability (UAAL), or unfunded actuarial liability (UAL), in accordance with the
following requirements:12
(1) Maximum amortization period—The maximum acceptable amortization period for the total unfunded actuarial
liability is thirty years. The total unfunded actuarial liability may be amortized as one amount, or components
of the total may be separately amortized. When components are amortized over different periods, the
individual amortization periods should be selected so that the equivalent single amortization period
for all components combined does not exceed the maximum acceptable period.
(2) Equivalent single amortization period—The equivalent single amortization period is the number of years
incorporated in a weighted average amortization factor for all components of the total UAL combined and
should be calculated as follows:
10
Unprojected unit credit is acceptable for plans in which benefits already accumulated for years of service are not affected by future salary levels.
11See
footnote 8.
12The
total unfunded actuarial liability may be positive (actuarial accrued liability greater than the actuarial value of assets) or negative (actuarial
accrued liability less than the actuarial value of assets, or funding excess). The term unfunded actuarial liability refers to either situation. Separate
determination and amortization of the unfunded actuarial liability are not part of the aggregate actuarial cost method and are not required when that
method is used with regard to the computation of the ARC; however, the disclosure requirements of paragraphs 25c, 25d(5)(d), and 26 are applicable
when that method is used.
95
(a) Determine the amortization factor for each component of the total UAL using its associated amortization
period and the discount rate selected in accordance with subparagraphs b and c of this paragraph.
(b) Calculate next year’s amortization payment for each of the components by dividing each component by its
associated amortization factor.
(c) Calculate the weighted average amortization factor by dividing the total UAL by the sum of next year’s
individual amortization payments.
(d) Calculate the equivalent single amortization period as the number of years incorporated in the weighted
average amortization factor (from c) at the discount rate used in subparagraph f(2)(a) of this paragraph.
(3) Minimum amortization period—A significant decrease in the total unfunded actuarial liability generated by a
change from one of the actuarial cost methods specified in subparagraph d of this paragraph to another of those
methods, or by a change in the method(s) used to determine the actuarial value of assets (for example, a change
from a method that spreads increases or decreases in market value over five years to a method that uses current
market value), should be amortized over a period of not less than ten years. The minimum amortization period
is not required when a plan is closed to new entrants and all or almost all of the plan members have retired.
(4) Amortization method—The provision(s) for amortizing the total unfunded actuarial liability may be determined in
level dollar amounts or as a level percentage of projected payroll of active plan members. If the level
percentage of projected payroll method is used, the assumed payroll growth rate should not include an
assumed increase in the number of active plan members; however, projected decreases in that number should
be included if no new members are permitted to enter the plan (for example, a plan that covers only employees
hired before a certain date).
g. Contribution deficiencies or excess contributions of the employer—A contribution deficiency or excess
contribution is the difference between the ARC for a given year and the employer’s contributions13 in relation to
the ARC. For the purposes of this Statement, an employer has made a contribution in relation to the ARC if the
employer has (1) made payments of benefits directly to or on behalf of a retiree or beneficiary, (2) made premium
payments to an insurer, or (3) irrevocably transferred assets to a trust, or equivalent arrangement, in which plan
assets are dedicated to providing benefits to retirees and their beneficiaries in accordance with the terms of the
plan and are legally protected from creditors of the employer(s) or plan administrator. Earmarking of employer
assets or other means of financing that do not meet the conditions in the preceding sentence do not constitute
contributions in relation to the ARC, and the assets earmarked or otherwise accumulated should be considered
employer assets for the purposes of this Statement. Amortization of a contribution deficiency or excess contribution
should begin at the next actuarial valuation, unless settlement is expected not more than one year after the
deficiency or excess occurred. If settlement has not occurred by the end of that term, amortization should begin
at the next actuarial valuation.
Calculation of interest on the net OPEB obligation and the adjustment to the ARC
14. The employer’s net OPEB obligation comprises (a) the OPEB liability (asset) at transition, if any, determined in
accordance with paragraph 37, and (b) the cumulative difference since the effective date of this Statement between
annual OPEB cost and the employer’s contributions, excluding (1) short-term differences and (2) unpaid contributions
that have been converted to OPEB-related debt. A short-term difference is one that the employer intends to settle by
the first actuarial valuation date after the difference occurred or, if the first valuation is scheduled within a year, not
more than one year after the difference occurred. If the amount remains unsettled at the end of that term, the
employer should include the entire unsettled difference in the net OPEB obligation. (An amount for actuarial
amortization of the difference should be included in the next and subsequent ARCs, as required by paragraph 13g.)
As discussed in footnote 3, an OPEB-related debt is any long-term liability of an employer to an OPEB plan that is not
included in the ARC.14
13As used in this Statement, the term employer’s contributions means contributions made in relation to the ARC. The term does not include amounts
attributable to plan members under the terms of the plan (for example, employee contributions transmitted to the plan by the employer and
contributions paid by the employer on the employees’ behalf that are not included in the ARC). Similarly, the net OPEB obligation should not include
amounts attributable to plan members under the terms of the plan.
14
Or in the actuarially determined required contributions of a cost-sharing employer.
96
15. When an employer has a net OPEB obligation, annual OPEB cost should be equal to the ARC, one year’s interest
on the net OPEB obligation, and an adjustment to the ARC. The interest should be calculated on the balance of the
net OPEB obligation at the beginning of the year, using the investment return rate assumed in determining the ARC
for that year (paragraph 13c). Because this calculation of interest is independent of the actuarial calculation, the ARC
should be adjusted to offset the amount of interest (and principal, if any) already included in the ARC for amortization
of past contribution deficiencies or excess contributions of the employer. That portion of the ARC is not precisely
determinable but can be reasonably approximated based on the net OPEB obligation, as discussed in paragraph 16.
16. The adjustment to the ARC should be equal to the discounted present value (ordinary annuity) of the balance of
the net OPEB obligation at the beginning of the year, calculated using the same amortization methodology used in
determining the ARC for that year. (The adjustment applies only for that year; a new calculation should be made each
year.) That is, the adjustment should be calculated using the same (a) amortization method (level dollar or level
percentage of projected payroll), (b) actuarial assumptions used in applying the amortization method, and
(c) amortization period that were used in determining the ARC for that year.15 The adjustment should be deducted
from the ARC if the beginning balance of the net OPEB obligation is positive (cumulative annual OPEB cost is greater
than cumulative employer contributions), or added to the ARC if the net OPEB obligation is negative.
Recognition of OPEB expense/expenditures, liabilities, and assets
17. When an employer contributes to more than one OPEB plan, all recognition requirements should be applied
separately for each plan.16 (Separate display in the financial statements is not required, except as indicated in
subsequent paragraphs.) OPEB expense/expenditures include either or both of the following: (a) contributions in
relation to the ARC and (b) accrual or payments of OPEB-related debt (which is not included in the ARC or the net
OPEB obligation). Liabilities for OPEB-related debt should be adjusted consistent with the recognition of related
expense/expenditures. ARC-related liabilities (assets) should be adjusted to equal the year-end balance of the net
OPEB obligation, as discussed in paragraphs 20 and 21.
18. When an employer makes ARC-related contributions to the same plan from more than one fund, the employer
should determine what portion of the ARC applies to each fund. When the employer has a net OPEB obligation and
the related liability (asset) is allocated to more than one fund, between fund(s) and general long-term liabilities, or
between governmental and business-type activities in the government-wide statement of net assets, the employer
should allocate the interest and ARC adjustment components of annual OPEB cost to each liability (asset), based on
its proportionate share of the beginning balance of the net OPEB obligation.
Recognition in governmental fund financial statements
19. OPEB expenditures from governmental funds should be recognized on the modified accrual basis. The amount
recognized should be equal to the amount contributed to the plan or expected to be liquidated with expendable
available financial resources. The recognition of expenditures in relation to the ARC also should be consistent with the
criteria for contributions in relation to the ARC stated in paragraph 13g.
15When more than one period is used in determining the ARC, the period for the adjustment to the ARC should be the period used to amortize net
actuarial experience gains and losses. When the ARC is determined according to the frozen entry age, frozen attained age, or aggregate actuarial
cost method, the period for the adjustment to the ARC should be the average remaining service life of active plan members.
16An employer contributes to more than one OPEB plan if any portion of the total assets contributed to a plan administrator(s) is accumulated solely
for the payment of benefits to certain classes of employees (for example, public safety employees) and may not legally be used to pay benefits to other
classes of employees (for example, general employees). That portion of the total assets and the associated benefits constitutes a separate plan for
which separate recognition by the employer is required, even if the assets are pooled by the plan administrator with other assets for investment
purposes.
97
Recognition in proprietary and fiduciary fund financial statements
20. OPEB expense of proprietary and fiduciary funds should be recognized on the accrual basis in fund financial
statements. The employer should report OPEB expense for the year in relation to the ARC equal to annual OPEB
cost. The net OPEB obligation should be adjusted for any difference between OPEB expense in relation to the ARC
and contributions made in relation to the ARC (including short-term differences incurred), based on the criteria for
contributions stated in paragraph 13g. A positive (negative) year-end balance in the net OPEB obligation should be
recognized as the year-end liability (asset) in relation to the ARC. OPEB expense arising from the incurrence of
OPEB-related debt should be recognized in full in the year the debt is incurred.17 Year-end balances of short-term
differences or OPEB-related debt should be recognized as liabilities separate from the net OPEB obligation. OPEB
liabilities and assets to different plans should not be offset in the financial statements.
Recognition in government-wide financial statements
21. OPEB expense reported in government-wide financial statements should be recognized on the accrual basis.
The employer should report OPEB expense for the year in relation to the ARC equal to annual OPEB cost. The net
OPEB obligation should be adjusted for any difference between OPEB expense in relation to the ARC and
contributions made in relation to the ARC (including short-term differences incurred). A positive (negative) year-end
balance in the net OPEB obligation should be recognized as the year-end liability (asset) in relation to the ARC. OPEB
expense arising from the incurrence of OPEB-related debt should be recognized in full in the year the debt is
incurred.18 Year-end balances of short-term differences or OPEB-related debt should be recognized as liabilities
separate from the net OPEB obligation. OPEB liabilities and assets to different plans should not be offset in the
financial statements.
Cost-Sharing Employers
22. Employers that participate in cost-sharing multiple-employer plans (cost-sharing employers) should apply the
following accounting and financial reporting requirements of this Statement:
a. Employers should apply the requirements of this Statement applicable to cost-sharing employers if the plan is
administered as a formal trust, or equivalent arrangement, in which all of the following conditions are met:
(1) Employer contributions to the plan are irrevocable.
(2) Plan assets are dedicated to providing benefits to retirees and their beneficiaries in accordance with the terms
of the plan.
(3) Plan assets are legally protected from creditors of the employer(s) or plan administrator.
b. If any multiple-employer plan is not administered as a formal trust, or equivalent arrangement, in which all of the
preceding conditions are met, that plan should be classified as an agent multiple-employer plan for financial
reporting purposes, and employers should apply the requirements of this Statement applicable to agent employers.
23. Cost-sharing employers in plans that meet the conditions of paragraph 22a should recognize annual OPEB
expense/expenditures for their contractually required contributions to the plan in fund financial statements on the
accrual basis or on the modified accrual basis, whichever applies for the fund(s) used to report the employer’s
contributions. Modified accrual recognition should be in accordance with the criteria stated in the second sentence of
paragraph 19. Recognition of expense in government-wide financial statements should be on the accrual basis. OPEB
liabilities and assets result from the difference between contributions required and contributions made. OPEB
liabilities and assets to different plans should not be offset in the financial statements.
17
For example, if a government enters a cost-sharing OPEB plan and, as a condition of entry, incurs an OPEB-related debt to the plan in the amount
of the unfunded actuarial accrued liabilities for past service of its employees at the time of entry, the government should recognize the full amount of
the debt in the year that it enters the plan.
18
See footnote 17.
98
Notes to the Financial Statements
24. Employers should include the following information in the notes to their financial statements19 for each defined
benefit OPEB plan in which they participate, regardless of the type of plan (except as indicated). Disclosures for more
than one plan should be combined in a manner that avoids unnecessary duplication.
a. Plan description.
(1) Name of the plan, identification of the public employee retirement system (PERS) or other entity that
administers the plan, and identification of the plan as a single-employer, agent multiple-employer, or costsharing multiple-employer defined benefit OPEB plan.
(2) Brief description of the types of benefits and the authority under which benefit provisions are established or
may be amended.
(3) Whether the OPEB plan issues a stand-alone financial report or is included in the report of a PERS or another
entity, and, if so, how to obtain the report.
b. Funding policy.
(1) Authority under which the obligations of the plan members, employer(s), and other contributing entities (for
example, state contributions to local government plans) to contribute to the plan are established or may be
amended.
(2) Required contribution rate(s) of plan members. The required contribution rate(s) could be expressed as a rate
(amount) per member or as a percentage of covered payroll.
(3) Required contribution rate(s) of the employer in accordance with the funding policy, in dollars or as a
percentage of current-year covered payroll, and, if applicable, legal or contractual maximum contribution rates.
If the plan is a single-employer or agent plan and the rate differs significantly from the ARC, disclose how the
rate is determined (for example, by statute or by contract) or that the plan is financed on a pay-as-you-go basis.
If the plan is a cost-sharing plan, disclose the required contributions in dollars and the percentage of that
amount contributed for the current year and each of the two preceding years, and how the required contribution
rate is determined (for example, by statute or by contract, or on an actuarially determined basis) or that the plan
is financed on a pay-as-you-go basis.
25. Sole and agent employers should disclose the following information for each plan, in addition to the information
required by paragraph 24:
a. For the current year, annual OPEB cost and the dollar amount of contributions made. If the employer has a net
OPEB obligation, also disclose the components of annual OPEB cost (ARC, interest on the net OPEB obligation,
and adjustment to the ARC), the increase or decrease in the net OPEB obligation, and the net OPEB obligation
at the end of the year.
b. For the current year and each of the two preceding years, annual OPEB cost, percentage of annual OPEB cost
contributed that year, and net OPEB obligation at the end of the year. (For the first two years, the required
information should be presented for the transition year, and for the current and transition years, respectively.)
c. Information about the funded status of the plan as of the most recent valuation date, including the actuarial
valuation date, the actuarial value of assets, the actuarial accrued liability, the total unfunded actuarial liability (or
funding excess), the actuarial value of assets as a percentage of the actuarial accrued liability (funded ratio), the
annual covered payroll, and the ratio of the unfunded actuarial liability (or funding excess) to annual covered
19Statement 43 includes the requirements for the notes to the financial statements (and schedules of RSI, if applicable) of OPEB plans reported as
trust or agency funds in the employer’s financial reports. When similar information is required by this Statement and Statement 43, the employer
should present the disclosures in a manner that avoids unnecessary duplication.
99
payroll.20 The information should be calculated in accordance with the parameters. However, employers that meet
the criteria in paragraph 11 may elect to use the alternative measurement method discussed in paragraphs 33
through 35. Employers that use the aggregate actuarial cost method should prepare this information using the
entry age actuarial cost method for that purpose only.21
d. Disclosure of information about actuarial methods and assumptions used in valuations on which reported
information about the ARC, annual OPEB cost, and the funded status and funding progress of OPEB plans is
based, including the following:
(1) Disclosure that actuarial valuations involve estimates of the value of reported amounts and assumptions about
the probability of events far into the future, and that actuarially determined amounts are subject to continual
revision as actual results are compared to past expectations and new estimates are made about the future.
(2) Disclosure that the required schedule of funding progress immediately following the notes to the financial
statements presents multi-year trend information about whether the actuarial value of plan assets is increasing
or decreasing over time relative to the actuarial accrued liability for benefits.
(3) Disclosure that calculations are based on the types of benefits provided under the terms of the substantive plan
at the time of each valuation and on the pattern of sharing of costs between the employer and plan members
to that point. In addition, if applicable, the employer should disclose that the projection of benefits for financial
reporting purposes does not explicitly incorporate the potential effects of legal or contractual funding limitations
(as discussed in the disclosure of funding policy in paragraph 24b(3)) on the pattern of cost sharing between
the employer and plan members in the future.22
(4) Disclosure that actuarial calculations reflect a long-term perspective. In addition, if applicable, disclosure that,
consistent with that perspective, actuarial methods and assumptions used include techniques that are
designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets.
(5) Identification of the actuarial methods and significant assumptions used to determine the ARC for the current
year and the information required by paragraph 25c. The disclosures should include:
(a) The actuarial cost method.
(b) The method(s) used to determine the actuarial value of assets.
(c) The assumptions with respect to the inflation rate, investment return (including the method used to
determine a blended rate for a partially funded plan, if applicable), postretirement benefit increases if
applicable, projected salary increases if relevant to determination of the level of benefits, and, for
postemployment healthcare plans, the healthcare cost trend rate. If the economic assumptions contemplate different rates for successive years (year-based or select and ultimate rates), the rates that should
be disclosed are the initial and ultimate rates.
(d) The amortization method (level dollar or level percentage of projected payroll) and the amortization period
(equivalent single amortization period, for plans that use multiple periods) for the most recent actuarial
valuation and whether the period is closed or open. Employers that use the aggregate actuarial cost
method should disclose that because the method does not identify or separately amortize unfunded
actuarial liabilities, information about funded status and funding progress has been prepared using the
entry age actuarial cost method for that purpose, and that the information presented is intended to
approximate the funding progress of the plan.
20
Paragraph 26a requires sole and agent employers to present as RSI (schedule of funding progress) the same elements of information for the most
recent actuarial valuation and the two preceding valuations.
21For sole employers that include the plan in the financial reporting entity (as a trust fund), presentation of information about the plan’s funded status
and funding progress as required for the plan by Statement 43 meets the requirements of this paragraph and paragraph 26. For agent employers, the
requirements of this paragraph and paragraph 26 apply to the employer’s individual plan. The information should be presented even if the aggregate
multiple-employer plan (all employers) is included as an OPEB trust fund in the employer’s report and the required funded status and funding progress
information is presented for the aggregate plan.
22If an employer also elects to include in the annual financial report pro forma quantitative information about postemployment healthcare benefits (for
example, pro forma calculations of the ARC, annual OPEB cost, or the funded status of the plan) recalculated to take into consideration a funding
limitation, that information should be presented as supplementary information.
100
Required Supplementary Information
26. Sole and agent employers should present the following information for the most recent actuarial valuation and the
two preceding valuations:23
a. Information about the funding progress of the plan, including, for each valuation, each of the elements of
information listed in paragraph 25c
b. Factors that significantly affect the identification of trends in the amounts reported, including, for example, changes
in benefit provisions, the size or composition of the population covered by the plan, or the actuarial methods and
assumptions used. (The amounts reported for prior years should not be restated.)
The information should be calculated in accordance with the parameters and should be presented as RSI. Employers
that use the aggregate actuarial cost method should prepare the information using the entry age actuarial cost
method and should disclose that fact and that the purpose of this disclosure is to provide information that
approximates the funding progress of the plan.24
27. If the cost-sharing plan in which an employer participates does not issue and make publicly available a
stand-alone plan financial report prepared in accordance with the requirements of Statement 43, and the plan is not
included in the financial report of a PERS or another entity, the cost-sharing employer should present as RSI in its own
financial report schedules of funding progress and employer contributions for the plan (and notes to these schedules),
prepared in accordance with the requirements of Statement 43. The employer should disclose that the information
presented relates to the cost-sharing plan as a whole, of which the employer is one participating employer, and should
provide information helpful for understanding the scale of the information presented relative to the employer.
Insured Benefits
28. For purposes of this Statement, an insured benefit is an OPEB financing arrangement whereby an employer
pays premiums to an insurance company while employees are in active service, in return for which the insurance
company unconditionally undertakes an obligation to pay the postemployment benefits of those employees or their
beneficiaries, as defined in the employer’s plan. If an employer’s OPEB financing arrangement with the insurance
company does not meet these criteria, the benefit is not an insured benefit for financial reporting purposes, and the
employer should comply with all requirements of this Statement for sole and agent employers. Employers with insured
benefits should recognize OPEB expense (in proprietary and fiduciary fund financial statements and in the
government-wide statement of activities) or expenditures (in governmental fund financial statements) equal to the
annual contributions or premiums required in accordance with their agreement with the insurance company and
should disclose the following information in the notes to the financial statements:
a. A brief description of the insured benefit, including the authority under which benefit provisions are established or
may be amended.
b. The fact that the obligation for the payment of benefits has been effectively transferred from the employer to one
or more insurance companies. Also disclose whether the employer has guaranteed benefits in the event of the
insurance company’s insolvency.
c. The current-year OPEB expense/expenditures and contributions or premiums paid.
23Until three actuarial valuations have been performed in accordance with the parameters, the required information should be presented for as many
years as it is available. Retroactive application of this Statement is not required. However, as provided in paragraph 37, employers that have available
actuarial information that was calculated using methods and assumptions that do not differ significantly from the parameters for periods prior to the
implementation date may elect to apply the measurement requirements of this Statement retroactively. Those employers may be able to provide
information in accordance with the parameters for the prior three actuarial valuations when this Statement is first implemented.
24
See footnote 21.
101
Employers with Defined Contribution Plans
29. Employers with defined contribution plans should recognize annual OPEB expense (in proprietary and fiduciary
fund financial statements and in the government-wide statement of activities) or expenditures (in governmental fund
financial statements) equal to their required contributions, in accordance with the terms of the plan. Recognition in the
fund financial statements should be on the accrual or modified accrual basis, whichever applies for the fund(s) used
to report the employer’s contributions. Recognition in government-wide financial statements should be on the accrual
basis. An OPEB liability or asset results from the difference between contributions required and contributions made
to a plan. OPEB liabilities and assets to different plans should not be offset in the financial statements.
30. An OPEB plan may have both defined benefit and defined contribution characteristics. If the plan provides a
defined benefit in some form—that is, if the benefit to be provided is a function of factors other than the amounts
contributed to an active member’s account during employment and amounts earned on contributed assets—the
employer should apply the requirements of this Statement for defined benefit plans.
31. Employers should include the following information in the notes to their financial statements for each defined
contribution plan to which they are required to contribute:25
a. Name of the plan, identification of the PERS or other entity that administers the plan, and identification of the plan
as a defined contribution plan
b. Brief description of the plan provisions and the authority under which they are established or may be amended
c. Contribution requirements (for example, the contribution rate in dollars or as a percentage of salary) of the plan
members, employer, and other contributing entities (for example, state contributions to local government plans)
and the authority under which the requirements are established or may be amended
d. The contributions actually made by plan members and the employer.
Special Funding Situations
32. Some governmental entities are legally responsible for contributions to OPEB plans that cover the employees of
another governmental entity or entities. For example, a state government may be legally responsible for the annual
“employer” contributions to an OPEB plan that covers employees of school districts within the state. In those cases,
the entity that is legally responsible for the contributions should comply with all applicable provisions of this Statement
for measurement and recognition of expense/expenditures, liabilities, assets, note disclosures, and RSI. If the plan is
a defined benefit OPEB plan and the entity with legal responsibility for contributions is the only contributing entity, the
requirements of this Statement for sole employers apply, regardless of the number of entities whose employees are
covered by the plan.26
Alternative Measurement Method for Employers with Fewer Than One Hundred Plan Members
33. The parameters of paragraphs 12 and 13 concerning the measurement of the ARC and of the funded status of
OPEB plans, including the requirements of paragraph 12 regarding the minimum frequency of actuarial valuations and
the requirement of paragraph 13b that the selection of actuarial assumptions should be guided by actuarial standards,
generally are applicable to all sole and agent employers. However, employers that meet the criteria in paragraph 11
may elect to apply certain simplifying modifications for the selection of actuarial assumptions, as stated in paragraph 34.
25Statement
No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, discusses the
requirements for the notes to the financial statements of defined contribution plans that are reported as trust funds in the employer’s financial reports.
When similar information is required by this Statement and Statement 25, the employer should present the disclosures in a manner that avoids
unnecessary duplication.
26Statement
No. 24, Accounting and Financial Reporting for Certain Grants and Other Financial Assistance, provides standards for recognizing
payments made on a government’s behalf by another entity.
102
34. Employers that meet the eligibility test in paragraph 33 may elect either to apply the parameters of paragraphs 12
and 13 in their entirety or to apply the parameters with one or more of the following specific modifications. Employers
that apply these modifications should disclose that they have used the alternative measurement method permitted by
this Statement and should disclose in the notes to the financial statements the source or basis of all significant
assumptions or methods selected in accordance with this paragraph, in addition to all other disclosure requirements
of this Statement.
a. General considerations—The projection of benefits should include assumptions regarding all significant factors
affecting the amount and timing of projected future benefit payments, including, where applicable, the factors listed
below. Additional assumptions may be needed depending on the benefits being provided. Assumptions generally
should be based on the actual experience of the covered group, to the extent that credible experience data are
available, but should emphasize expected long-term future trends rather than give undue weight to recent past
experience. However, grouping techniques that base the selection of assumptions on combined experience data
for similar plans may be used, as discussed in subparagraph i of this paragraph. The reasonableness of each
assumption should be considered independently based on its own merits and its consistency with each other
assumption. For example, each assumption of which general inflation is a component should include the same
assumption with regard to that component. In addition, consideration should be given to the reasonableness of the
combined impact of all assumptions.
b. Expected point in time at which benefits will begin to be provided—The assumption should reflect past experience
and future expectations for the covered group. The assumption may incorporate a single assumed retirement age
for all active employees or an assumption that all active employees will retire upon attaining a certain number of
years of service.
c. Marital and dependency status—The employer may base these assumptions on the current status of active and
retired plan members or on historical demographic data for retirees in the covered group.
d. Mortality—The employer should base this assumption on current published mortality tables.
e. Turnover—The employer generally should base both the assumed probability that an active plan member will
remain employed until the assumed retirement age and the expected future working lifetime of plan members, for
purposes of allocating the present value of expected benefits to periods, on the historical age-based turnover
experience of the covered group using the calculation method in paragraph 35a. However, if experience data are
not available, the employer should assign the probability of remaining employed until the assumed retirement age
using Table 1 in paragraph 35b, and should determine the expected future working lifetime of plan members using
Table 2 in paragraph 35c.
f. Healthcare cost trend rate—The employer should derive select and ultimate assumptions about healthcare cost
trends in future years for which benefits are projected from an objective source.
g. Use of health insurance premiums—An employer participating in an experience-rated healthcare plan that
provides benefits through premium payments to an insurer or other service provider may use the plan’s current
premium structure as the initial per capita healthcare rates for the purpose of projecting future healthcare benefit
payments. However, if the same premium rates are given for both active employees and retirees, and the plan is
not a community-rated plan, as discussed in paragraph 13a(2), the employer should (1) obtain from the insurer
age-adjusted premium rates for retirees or, if that information cannot be obtained from the insurer, (2) estimate
age-adjusted premiums for retirees using the method provided in Tables 3 through 5 of paragraph 35d, as
appropriate.
h. Plans with coverage options—When a postemployment benefit plan provides plan members more than one
coverage option, the employer should base assumptions regarding members’ coverage choices on the experience
of the covered group, considering differences, if any, in the choices of pre- and post-Medicare-eligible members.
i. Use of grouping—The employer may use grouping techniques. One such technique is to group participants based
on common demographic characteristics (for example, participants within a range of ages or years of service),
where the obligation for each participant in the group is expected to be similar for commonly grouped individuals.
Another technique is to group plans with similar expected costs and benefits.
103
35. This paragraph includes calculation methods and default values for use with the alternative measurement
method in determining (a) the probability that active plan members will remain employed until retirement age, (b) the
expected future working lifetime of plan members, and (c) age-adjusted premiums for retirees in certain situations.
a. Employers that use historical age-based turnover experience of the covered group when applying the alternative
measurement method, as discussed in paragraph 34e, should use the following methodology to calculate the
probability of remaining employed until retirement age and the expected future working lifetime of plan members:
Age
Probability
of
Termination
in Next Year
(a)
Probability
of
Remaining
Employed
from Earliest
Entry Age to
Beginning
of Year
(c)
Probability
of
Remaining
Employed
for
Next Year
(b)
Probability
of
Remaining
Employed
from Age
Shown to
Assumed
Retirement
Age
(d)
Expected
Future
Working
Lifetime for
Assumed
Retirement
Age
(e)
Column a: For each age (n) from the earliest entry age to assumed retirement age, list the age-based probabilities
of termination in the next year for the covered group.
Column b: Compute the probability at each age of remaining employed for the next year. This value should be
calculated as 1 – a.
Column c: Set the initial value in column c to equal 1.000. For each subsequent age (n), column c values should be
calculated as: c(n – 1) × b(n – 1).
Column d: For each age (n), these values should be calculated as the product of the values in column b from age n
to the year prior to the assumed retirement age.
Column e: These values should be calculated as the sum of c from age (n) to the year prior to the assumed retirement
age, divided by the value of c at age (n). At the assumed retirement age, this value should be set to 0.
b. Employers that are not using historical age-based turnover experience of the covered group when applying the
alternative measurement method, as discussed in paragraph 34e, should use the following table to determine the
probability of remaining employed until the assumed retirement age:
104
Table 1—Probability of Remaining Employed until Assumed Retirement Age,
by Age 27—Default Values28
Age
Assumed Retirement Age
48
47
50 and over
49
46
45
20
21
22
0.296
0.321
0.349
0.300
0.326
0.354
0.304
0.330
0.359
0.309
0.335
0.364
0.314
0.340
0.370
0.319
0.346
0.376
23
24
25
0.379
0.410
0.440
0.384
0.416
0.446
0.389
0.421
0.453
0.395
0.428
0.460
0.401
0.434
0.467
0.408
0.441
0.474
26
27
28
0.472
0.503
0.534
0.478
0.510
0.541
0.485
0.517
0.549
0.493
0.525
0.558
0.500
0.533
0.566
0.508
0.542
0.575
29
30
31
0.564
0.593
0.622
0.572
0.602
0.631
0.580
0.610
0.640
0.589
0.620
0.650
0.598
0.629
0.660
0.607
0.639
0.670
32
33
34
0.650
0.677
0.703
0.659
0.687
0.713
0.669
0.696
0.723
0.679
0.707
0.734
0.689
0.718
0.745
0.700
0.730
0.758
35
36
37
0.729
0.753
0.777
0.739
0.764
0.788
0.749
0.775
0.799
0.761
0.787
0.811
0.772
0.799
0.824
0.785
0.812
0.837
38
39
40
0.799
0.821
0.841
0.811
0.832
0.853
0.822
0.844
0.865
0.835
0.857
0.878
0.847
0.870
0.891
0.861
0.884
0.906
41
42
43
0.860
0.879
0.896
0.873
0.891
0.909
0.885
0.904
0.922
0.899
0.918
0.936
0.912
0.932
0.950
0.927
0.947
0.965
44
45
46
0.912
0.928
0.943
0.925
0.941
0.957
0.938
0.955
0.970
0.953
0.969
0.985
0.967
0.984
1.000
0.983
1.000
1.000
47
48
49
0.958
0.972
0.986
0.971
0.986
1.000
0.985
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
50+
27Age
For ages 50+, the probability of remaining employed until retirement age is 1.000.
could be the entry age or the attained (current) age of the plan member, depending upon the calculation being made.
28These
default probabilities were adapted from data maintained by the U.S. Office of Personnel Management regarding the experience of the
employee group covered by the Federal Employees Retirement System.
105
c. Employers that are not using historical age-based turnover experience of the covered group when applying the
alternative measurement method, as discussed in paragraph 34e, should use the following table to determine the
expected future working lifetime of plan members:
Table 2—Expected Future Working Lifetimes of Employees, by Age29
—Default Values30
Age
Assumed Retirement Age
75
74
73
72
71
70
69
68
67
66
65
64
63
62
61
20
21
22
22
23
24
22
23
23
21
22
23
21
22
23
21
22
22
21
21
22
20
21
22
20
21
21
20
20
21
19
20
21
19
20
20
19
19
20
19
19
20
18
19
19
18
18
19
23
24
25
25
26
26
24
25
26
24
25
26
24
24
25
23
24
25
23
24
24
22
23
24
22
23
23
22
22
23
21
22
23
21
22
22
21
21
22
20
21
21
20
20
21
19
20
20
26
27
28
27
28
29
27
28
28
26
27
28
26
27
27
25
26
27
25
26
26
24
25
25
24
25
25
24
24
24
23
24
24
23
23
23
22
23
23
22
22
22
21
21
22
21
21
21
29
30
31
29
30
30
29
29
30
28
29
29
28
28
28
27
27
28
26
27
27
26
26
26
25
26
26
25
25
25
24
24
25
24
24
24
23
23
23
22
23
23
22
22
22
21
21
21
32
33
34
30
31
31
30
30
30
29
29
29
28
29
29
28
28
28
27
27
27
27
27
27
26
26
26
25
25
25
25
25
24
24
24
24
23
23
23
23
23
22
22
22
22
21
21
21
35
36
37
31
31
31
30
30
30
29
29
29
29
29
28
28
28
28
27
27
27
27
26
26
26
26
25
25
25
25
24
24
24
24
23
23
23
23
22
22
22
22
21
21
21
21
20
20
38
39
40
31
30
30
30
30
29
29
29
29
28
28
28
27
27
27
27
26
26
26
26
25
25
25
24
24
24
23
23
23
23
23
22
22
22
21
21
21
21
20
20
20
19
19
19
18
41
42
43
30
30
29
29
29
28
28
28
27
27
27
26
26
26
25
26
25
25
25
24
24
24
23
23
23
22
22
22
22
21
21
21
20
20
20
19
20
19
18
19
18
17
18
17
17
44
45
46
29
28
27
28
27
27
27
26
26
26
25
25
25
24
24
24
23
23
23
22
22
22
22
21
21
21
20
20
20
19
19
19
18
19
18
17
18
17
16
17
16
15
16
15
14
47
48
49
27
26
26
26
25
25
25
24
24
24
23
23
23
22
22
22
21
21
21
20
20
20
19
19
19
19
18
18
18
17
17
17
16
16
16
15
15
15
14
14
14
13
13
13
12
50+
29See
For ages 50+, expected future working lifetime equals assumed retirement age minus age.
footnote 27.
30
See footnote 28.
106
Assumed Retirement Age
60
59
58
57
56
55
54
53
52
51
50
49
48
47
46
45
18
18
19
17
18
18
17
17
18
17
17
17
16
17
17
16
16
17
16
16
16
16
16
16
15
15
16
15
15
15
15
15
15
14
15
15
14
14
14
14
14
14
13
14
14
13
13
13
19
19
20
19
19
19
18
19
19
18
18
19
18
18
18
17
17
18
17
17
17
16
17
17
16
16
16
16
16
16
15
15
15
15
15
15
14
15
15
14
14
14
14
14
14
13
13
13
20
20
21
20
20
20
19
19
20
19
19
19
18
18
19
18
18
18
17
17
17
17
17
17
16
16
16
16
16
16
16
15
15
15
15
15
15
14
14
14
14
14
14
13
13
13
13
13
21
21
21
20
20
20
20
20
20
19
19
19
19
18
18
18
18
18
17
17
17
17
17
16
16
16
16
16
15
15
15
15
15
15
14
14
14
14
13
13
13
13
13
12
12
12
12
11
21
21
20
20
20
20
19
19
19
19
18
18
18
18
17
17
17
17
17
16
16
16
16
15
15
15
15
15
14
14
14
14
13
14
13
13
13
12
12
12
12
11
11
11
10
11
10
10
20
20
19
19
19
18
18
18
18
18
17
17
17
17
16
16
16
15
16
15
15
15
14
14
14
14
13
13
13
12
13
12
11
12
11
11
11
11
10
10
10
9
10
9
8
9
8
7
19
18
18
18
17
17
17
17
16
16
16
15
16
15
14
15
14
13
14
13
13
13
12
12
12
12
11
12
11
10
11
10
9
10
9
8
9
8
7
8
7
7
7
7
6
7
6
5
17
16
16
16
15
15
15
15
14
14
14
13
14
13
12
13
12
11
12
11
10
11
10
9
10
9
8
9
8
8
8
8
7
8
7
6
7
6
5
6
5
4
5
4
3
4
3
2
15
14
13
14
13
12
13
12
11
12
11
11
11
10
10
10
9
9
9
9
8
9
8
7
8
7
6
7
6
5
6
5
4
5
4
3
4
3
2
3
2
1
2
1
0
1
0
0
13
12
11
12
11
10
11
10
9
10
9
8
9
8
7
8
7
6
7
6
5
6
5
4
5
4
3
4
3
2
3
2
1
2
1
0
1
0
0
0
0
0
0
0
0
0
0
0
For ages 50+, expected future working lifetime equals assumed retirement age minus age.
107
d. When the same premiums are charged to active employees and retirees, and the employer or plan sponsor is
unable to obtain age-adjusted premium information for retirees from the insurer or service provider, the following
approach should be used to age-adjust premiums for purposes of projecting future benefits for retirees:
(1) To adjust premiums for ages under 65:
(a) Identify the premium charged for active and retired plan members under age 65.
(b) Calculate the average age of plan members (actives and retirees or beneficiaries) to which the premium
identified in step a applies.
(c) For each active plan member, and each retired member or beneficiary under age 65, identify the greater
of expected retirement age or current age.
(d) Calculate the average of the ages identified in step c.
(e) Calculate the midpoint age between the result of step d and age 65: result of step d + (0.5 × [65 – result
of step d]).
(f) Using the results of steps b and e, locate the appropriate factor in Table 3. The factor also can be calculated
directly as 1.04(result of step e – result of step b).
(g) Multiply the factor identified in step f by the premium identified in step a. The result is the current-year
age-adjusted premium that should be used as the basis for projecting future benefits for ages under age 65.
108
Table 3—Default Factors for Calculating Age-Adjusted Premiums for
Ages under 65
Average
Age of
Plan
Members
Midpoint Age (from paragraph 35d(1)(e))
52
53
54
55
56
57
58
59
60
61
62
63
64
25
2.88
3.00
3.12
3.24
3.37
3.51
3.65
3.79
3.95
4.10
4.27
4.44
4.62
26
2.77
2.88
3.00
3.12
3.24
3.37
3.51
3.65
3.79
3.95
4.10
4.27
4.44
27
2.67
2.77
2.88
3.00
3.12
3.24
3.37
3.51
3.65
3.79
3.95
4.10
4.27
28
2.56
2.67
2.77
2.88
3.00
3.12
3.24
3.37
3.51
3.65
3.79
3.95
4.10
29
2.46
2.56
2.67
2.77
2.88
3.00
3.12
3.24
3.37
3.51
3.65
3.79
3.95
30
2.37
2.46
2.56
2.67
2.77
2.88
3.00
3.12
3.24
3.37
3.51
3.65
3.79
31
2.28
2.37
2.46
2.56
2.67
2.77
2.88
3.00
3.12
3.24
3.37
3.51
3.65
32
2.19
2.28
2.37
2.46
2.56
2.67
2.77
2.88
3.00
3.12
3.24
3.37
3.51
33
2.11
2.19
2.28
2.37
2.46
2.56
2.67
2.77
2.88
3.00
3.12
3.24
3.37
34
2.03
2.11
2.19
2.28
2.37
2.46
2.56
2.67
2.77
2.88
3.00
3.12
3.24
35
1.95
2.03
2.11
2.19
2.28
2.37
2.46
2.56
2.67
2.77
2.88
3.00
3.12
36
1.87
1.95
2.03
2.11
2.19
2.28
2.37
2.46
2.56
2.67
2.77
2.88
3.00
37
1.80
1.87
1.95
2.03
2.11
2.19
2.28
2.37
2.46
2.56
2.67
2.77
2.88
38
1.73
1.80
1.87
1.95
2.03
2.11
2.19
2.28
2.37
2.46
2.56
2.67
2.77
39
1.67
1.73
1.80
1.87
1.95
2.03
2.11
2.19
2.28
2.37
2.46
2.56
2.67
40
1.60
1.67
1.73
1.80
1.87
1.95
2.03
2.11
2.19
2.28
2.37
2.46
2.56
41
1.54
1.60
1.67
1.73
1.80
1.87
1.95
2.03
2.11
2.19
2.28
2.37
2.46
42
1.48
1.54
1.60
1.67
1.73
1.80
1.87
1.95
2.03
2.11
2.19
2.28
2.37
43
1.42
1.48
1.54
1.60
1.67
1.73
1.80
1.87
1.95
2.03
2.11
2.19
2.28
44
1.37
1.42
1.48
1.54
1.60
1.67
1.73
1.80
1.87
1.95
2.03
2.11
2.19
45
1.32
1.37
1.42
1.48
1.54
1.60
1.67
1.73
1.80
1.87
1.95
2.03
2.11
46
1.27
1.32
1.37
1.42
1.48
1.54
1.60
1.67
1.73
1.80
1.87
1.95
2.03
47
1.22
1.27
1.32
1.37
1.42
1.48
1.54
1.60
1.67
1.73
1.80
1.87
1.95
48
1.17
1.22
1.27
1.32
1.37
1.42
1.48
1.54
1.60
1.67
1.73
1.80
1.87
49
1.12
1.17
1.22
1.27
1.32
1.37
1.42
1.48
1.54
1.60
1.67
1.73
1.80
50
1.08
1.12
1.17
1.22
1.27
1.32
1.37
1.42
1.48
1.54
1.60
1.67
1.73
51
1.04
1.08
1.12
1.17
1.22
1.27
1.32
1.37
1.42
1.48
1.54
1.60
1.67
52
1.00
1.04
1.08
1.12
1.17
1.22
1.27
1.32
1.37
1.42
1.48
1.54
1.60
53
0.96
1.00
1.04
1.08
1.12
1.17
1.22
1.27
1.32
1.37
1.42
1.48
1.54
54
0.92
0.96
1.00
1.04
1.08
1.12
1.17
1.22
1.27
1.32
1.37
1.42
1.48
55
0.89
0.92
0.96
1.00
1.04
1.08
1.12
1.17
1.22
1.27
1.32
1.37
1.42
56
0.85
0.89
0.92
0.96
1.00
1.04
1.08
1.12
1.17
1.22
1.27
1.32
1.37
57
0.82
0.85
0.89
0.92
0.96
1.00
1.04
1.08
1.12
1.17
1.22
1.27
1.32
58
0.79
0.82
0.85
0.89
0.92
0.96
1.00
1.04
1.08
1.12
1.17
1.22
1.27
59
0.76
0.79
0.82
0.85
0.89
0.92
0.96
1.00
1.04
1.08
1.12
1.17
1.22
60
0.73
0.76
0.79
0.82
0.85
0.89
0.92
0.96
1.00
1.04
1.08
1.12
1.17
109
(2) To adjust premiums for ages 65 or older:31
(a) Identify the premium charged for active and retired plan members age 65 or older.
(b) Calculate the average age of plan members (actives and retirees or beneficiaries) to which the premium
identified in step a applies.
(c) For each active plan member, and each retired member or beneficiary (whether age pre-65 or age 65 or
older), identify the greater of current age or age 65.
(d) Calculate the average of the ages identified in step c.
(e) Calculate the average life expectancy of all plan members (actives and retirees or beneficiaries).
(f) Calculate the midpoint age between the result of step d and the result of step e: result of step d + (0.5 × [result
of step e – result of step d]).
(g) Using the results of steps b and f, locate the appropriate factor in Table 4 (for plans with no Medicare
coordination) or Table 5 (for plans with Medicare coordination). The factor in Table 4 also can be calculated
directly as 1.04(64 – result of step b) × 1.03(result of step f – 64). The factor in Table 5 also can be calculated directly
as 0.5 × 1.04(64 – result of step b) × 1.03(result of step f – 64).
(h) Multiply the factor identified in step g by the premium identified in step a. The result is the current-year
age-adjusted premium that should be used as the basis for projecting future benefits for ages 65 or older.
31
The procedures described in paragraph 35d(2) would be applied only in cases in which retirees age 65 or older are included in a single, blended
premium rate assessed by the insurer or service provider. If separate premium rates are assessed for retirees age 65 or older, preparers would follow
the steps in paragraph 35d(1) for age-adjusting blended premiums for under age 65 and would use the separately assessed premium rates (without
additional age adjustment) for age 65 or older.
110
Table 4—Default Factors for Calculating Age-Adjusted Premiums for Ages 65
or Older (No Medicare Coordination)
Average
Age of
Plan
Members
Midpoint Age (from paragraph 35d(2)(f))
65
66
67
68
69
70
71
72
73
74
75
25
4.75
4.90
5.04
5.20
5.35
5.51
5.68
5.85
6.02
6.20
6.39
26
4.57
4.71
4.85
5.00
5.15
5.30
5.46
5.62
5.79
5.97
6.14
27
4.40
4.53
4.66
4.80
4.95
5.10
5.25
5.41
5.57
5.74
5.91
28
4.23
4.35
4.48
4.62
4.76
4.90
5.05
5.20
5.35
5.52
5.68
29
4.06
4.19
4.31
4.44
4.57
4.71
4.85
5.00
5.15
5.30
5.46
30
3.91
4.03
4.15
4.27
4.40
4.53
4.67
4.81
4.95
5.10
5.25
31
3.76
3.87
3.99
4.11
4.23
4.36
4.49
4.62
4.76
4.90
5.05
32
3.61
3.72
3.83
3.95
4.07
4.19
4.31
4.44
4.58
4.71
4.86
33
3.47
3.58
3.69
3.80
3.91
4.03
4.15
4.27
4.40
4.53
4.67
34
3.34
3.44
3.54
3.65
3.76
3.87
3.99
4.11
4.23
4.36
4.49
35
3.21
3.31
3.41
3.51
3.62
3.72
3.84
3.95
4.07
4.19
4.32
36
3.09
3.18
3.28
3.38
3.48
3.58
3.69
3.80
3.91
4.03
4.15
37
2.97
3.06
3.15
3.25
3.34
3.44
3.55
3.65
3.76
3.88
3.99
38
2.86
2.94
3.03
3.12
3.21
3.31
3.41
3.51
3.62
3.73
3.84
39
2.75
2.83
2.91
3.00
3.09
3.18
3.28
3.38
3.48
3.58
3.69
40
2.64
2.72
2.80
2.89
2.97
3.06
3.15
3.25
3.34
3.44
3.55
41
2.54
2.61
2.69
2.77
2.86
2.94
3.03
3.12
3.22
3.31
3.41
42
2.44
2.51
2.59
2.67
2.75
2.83
2.91
3.00
3.09
3.18
3.28
43
2.35
2.42
2.49
2.56
2.64
2.72
2.80
2.89
2.97
3.06
3.15
44
2.26
2.32
2.39
2.47
2.54
2.62
2.69
2.78
2.86
2.94
3.03
45
2.17
2.24
2.30
2.37
2.44
2.52
2.59
2.67
2.75
2.83
2.92
46
2.09
2.15
2.21
2.28
2.35
2.42
2.49
2.57
2.64
2.72
2.80
47
2.01
2.07
2.13
2.19
2.26
2.33
2.40
2.47
2.54
2.62
2.70
48
1.93
1.99
2.05
2.11
2.17
2.24
2.30
2.37
2.44
2.52
2.59
49
1.85
1.91
1.97
2.03
2.09
2.15
2.21
2.28
2.35
2.42
2.49
50
1.78
1.84
1.89
1.95
2.01
2.07
2.13
2.19
2.26
2.33
2.40
51
1.72
1.77
1.82
1.87
1.93
1.99
2.05
2.11
2.17
2.24
2.30
52
1.65
1.70
1.75
1.80
1.86
1.91
1.97
2.03
2.09
2.15
2.22
53
1.59
1.63
1.68
1.73
1.78
1.84
1.89
1.95
2.01
2.07
2.13
54
1.52
1.57
1.62
1.67
1.72
1.77
1.82
1.88
1.93
1.99
2.05
55
1.47
1.51
1.56
1.60
1.65
1.70
1.75
1.80
1.86
1.91
1.97
56
1.41
1.45
1.50
1.54
1.59
1.63
1.68
1.73
1.79
1.84
1.89
57
1.36
1.40
1.44
1.48
1.53
1.57
1.62
1.67
1.72
1.77
1.82
58
1.30
1.34
1.38
1.42
1.47
1.51
1.56
1.60
1.65
1.70
1.75
59
1.25
1.29
1.33
1.37
1.41
1.45
1.50
1.54
1.59
1.64
1.68
60
1.20
1.24
1.28
1.32
1.36
1.40
1.44
1.48
1.53
1.57
1.62
111
Table 5—Default Factors for Calculating Age-Adjusted Premiums for Ages 65 or Older (with Medicare Coordination)
Average
Age of
Plan
Members
Midpoint Age (from paragraph 35d(2)(f))
65
66
67
68
69
70
71
72
73
74
75
25
2.38
2.45
2.52
2.60
2.68
2.76
2.84
2.92
3.01
3.10
3.20
26
2.29
2.35
2.43
2.50
2.57
2.65
2.73
2.81
2.90
2.98
3.07
27
2.20
2.26
2.33
2.40
2.47
2.55
2.62
2.70
2.78
2.87
2.95
28
2.11
2.18
2.24
2.31
2.38
2.45
2.52
2.60
2.68
2.76
2.84
29
2.03
2.09
2.16
2.22
2.29
2.36
2.43
2.50
2.57
2.65
2.73
30
1.95
2.01
2.07
2.14
2.20
2.27
2.33
2.40
2.48
2.55
2.63
31
1.88
1.94
1.99
2.05
2.11
2.18
2.24
2.31
2.38
2.45
2.53
32
1.81
1.86
1.92
1.97
2.03
2.09
2.16
2.22
2.29
2.36
2.43
33
1.74
1.79
1.84
1.90
1.96
2.01
2.07
2.14
2.20
2.27
2.33
34
1.67
1.72
1.77
1.83
1.88
1.94
1.99
2.05
2.12
2.18
2.24
35
1.61
1.65
1.70
1.76
1.81
1.86
1.92
1.98
2.03
2.10
2.16
36
1.54
1.59
1.64
1.69
1.74
1.79
1.84
1.90
1.96
2.02
2.08
37
1.48
1.53
1.58
1.62
1.67
1.72
1.77
1.83
1.88
1.94
2.00
38
1.43
1.47
1.51
1.56
1.61
1.66
1.70
1.76
1.81
1.86
1.92
39
1.37
1.41
1.46
1.50
1.55
1.59
1.64
1.69
1.74
1.79
1.85
40
1.32
1.36
1.40
1.44
1.49
1.53
1.58
1.62
1.67
1.72
1.77
41
1.27
1.31
1.35
1.39
1.43
1.47
1.52
1.56
1.61
1.66
1.71
42
1.22
1.26
1.29
1.33
1.37
1.41
1.46
1.50
1.55
1.59
1.64
43
1.17
1.21
1.25
1.28
1.32
1.36
1.40
1.44
1.49
1.53
1.58
44
1.13
1.16
1.20
1.23
1.27
1.31
1.35
1.39
1.43
1.47
1.52
45
1.09
1.12
1.15
1.19
1.22
1.26
1.30
1.33
1.37
1.42
1.46
46
1.04
1.07
1.11
1.14
1.17
1.21
1.25
1.28
1.32
1.36
1.40
47
1.00
1.03
1.06
1.10
1.13
1.16
1.20
1.23
1.27
1.31
1.35
48
0.96
0.99
1.02
1.05
1.09
1.12
1.15
1.19
1.22
1.26
1.30
49
0.93
0.96
0.98
1.01
1.04
1.08
1.11
1.14
1.17
1.21
1.25
50
0.89
0.92
0.95
0.97
1.00
1.03
1.06
1.10
1.13
1.16
1.20
51
0.86
0.88
0.91
0.94
0.97
0.99
1.02
1.05
1.09
1.12
1.15
52
0.82
0.85
0.87
0.90
0.93
0.96
0.98
1.01
1.04
1.08
1.11
53
0.79
0.82
0.84
0.87
0.89
0.92
0.95
0.98
1.00
1.03
1.07
54
0.76
0.79
0.81
0.83
0.86
0.88
0.91
0.94
0.97
0.99
1.02
55
0.73
0.75
0.78
0.80
0.83
0.85
0.88
0.90
0.93
0.96
0.99
56
0.70
0.73
0.75
0.77
0.79
0.82
0.84
0.87
0.89
0.92
0.95
57
0.68
0.70
0.72
0.74
0.76
0.79
0.81
0.83
0.86
0.88
0.91
58
0.65
0.67
0.69
0.71
0.73
0.76
0.78
0.80
0.83
0.85
0.88
59
0.63
0.65
0.66
0.68
0.71
0.73
0.75
0.77
0.79
0.82
0.84
60
0.60
0.62
0.64
0.66
0.68
0.70
0.72
0.74
0.76
0.79
0.81
112
Effective Date and Transition
36. The requirements of this Statement are effective in three phases. Governments that were phase 1 governments
for the purpose of implementation of Statement 34 should apply the requirements of this Statement in financial
statements for periods beginning after December 15, 2006. Governments that were phase 2 governments for the
purpose of implementation of Statement 34 should apply the requirements of this Statement in financial statements
for periods beginning after December 15, 2007. Governments that were phase 3 governments for the purpose of
implementation of Statement 34 should apply the requirements of this Statement in financial statements for periods
beginning after December 15, 2008. The related Statement 43 on OPEB plan reporting is effective for plan reporting
periods beginning after December 15, 2005, 2006, or 2007, for plans in which the largest participating employer is a
phase 1, phase 2, or phase 3 government, respectively, for purposes of this paragraph. Earlier application of this
Statement is encouraged. All component units should implement the requirements of this Statement no later than the
same year as their primary government.
OPEB Liabilities (Assets) at Transition (Defined Benefit OPEB Plans)
Sole and Agent Employers
37. When first implementing the requirements of this Statement, sole and agent employers should set their net OPEB
obligation at zero as of the beginning of the transition year and should apply the measurement and recognition
requirements of this Statement on a prospective basis. However, a sole or agent employer that has actuarial
information for years prior to implementation may elect to compute its net OPEB obligation (asset) at transition
retroactively. An employer that elects to apply the requirements of this Statement retroactively should follow the
method required for calculation of pension liabilities (assets) in paragraphs 30 through 35 of Statement 27. However,
the calculation period set forth in paragraph 32 of that Statement is not mandatory. Employers should disclose in the
notes to the financial statements the calculation period used.
Cost-Sharing Employers
38. The OPEB liability at the beginning of the transition year for a cost-sharing employer should be equal to the
employer’s (a) contractually required contributions that are due and payable at the effective date and (b) OPEBrelated debt, if applicable. If a cost-sharing employer has recognized OPEB liabilities for amounts other than those
specified in this paragraph, those liabilities should be reduced to zero.
Disclosures
39. In the transition year, employers should make the following disclosures for each single-employer, agent, and
cost-sharing plan, even if the OPEB liability (asset) was zero both before and at the effective date. The employer
should disclose either that this Statement was implemented prospectively (zero net OPEB obligation at transition) or
that an OPEB liability (asset) at transition was determined in accordance with this Statement. The employer also
should disclose the amount of the OPEB liability (asset) at transition, if any, and the difference, if any, between that
amount and any previously reported liability (asset) to the same plan.
The provisions of this Statement need
not be applied to immaterial items.
113
Appendix 4
ACCOUNTING PROCEDURES FOR ANNUAL OPEB COST WHEN AN EMPLOYER HAS A NET OPEB
OBLIGATION (FROM STATEMENT 45)
This appendix illustrates calculations that, if applicable, are required by Statement 45 for sole and agent employers.
The facts assumed in the examples are illustrative only and are not intended to modify or limit the requirements of
[Statement 45] or to indicate the Board’s endorsement of the policies or practices shown.
Accounting Procedures for Calculating Interest, Adjusting the ARC, and Computing Annual OPEB Cost
[paragraphs 14–16 of [Statement 45]]
1. Annual OPEB cost is the measure required by [Statement 45] of a sole or agent employer’s “cost” of participating
in an OPEB plan. The measure should be calculated and disclosed, regardless of (a) the amount recognized as OPEB
expense (in proprietary and fiduciary fund financial statements and in government-wide financial statements) or
expenditures (in governmental fund financial statements) on the accrual or modified accrual basis and (b) the amount
paid in relation to the employer’s annual required contributions (ARC) in accordance with the parameters. When an
employer has no net OPEB obligation, annual OPEB cost is equal to the ARC.
2. A net OPEB obligation is the cumulative difference since the effective date of [Statement 45] between annual
OPEB cost and an employer’s contributions to a plan, including the OPEB liability (asset) at transition (if any) and
excluding (a) short-term differences, as defined in paragraph 14 [of Statement 45], and (b) unpaid contributions that
have been converted to OPEB-related debt. An employer may have a net OPEB obligation to more than one plan; net
OPEB obligations to different plans should not be combined. When a net OPEB obligation has a liability (positive)
balance, annual OPEB cost is equal to (a) the ARC, plus (b) one year’s interest on the beginning balance of the net
OPEB obligation, less (c) an adjustment to the ARC to offset, approximately, the amount included in the ARC for
amortization of the past contribution deficiencies. (This summary assumes a liability balance. When a net OPEB
obligation has an asset [negative] balance, the interest adjustment should be deducted from and the ARC adjustment
should be added to the ARC, to determine annual OPEB cost.)
3. When a contribution deficiency occurs, the next and subsequent ARCs include an amount for amortization of the
deficiency (except for short-term differences, as defined in paragraph 14 of [Statement 45]). The same accounting
parameters apply for amortizing contribution deficiencies as for any other actuarial loss. The amount included in the
ARC for amortization of the deficiency depends on the amortization methodology applied and generally is not
precisely determinable. The accounting adjustments are designed to estimate the amortization amount, remove it
from the ARC, and add back an appropriate amount for interest on the net OPEB obligation. The purpose of the
interest and ARC adjustments is to avoid “double-counting” annual OPEB cost and liabilities. Without the adjustments,
annual OPEB cost and the net OPEB obligation (liability) would be overstated by the portion of the amortization
amount previously recognized in annual OPEB cost. With the adjustments, annual OPEB cost should be approximately equal to the ARC that would have been charged if all prior ARCs had been paid in full, plus one year’s interest
on the net OPEB obligation. The interest is an estimate of the investment earnings lost to the plan on the contributions
that were not made. Making the adjustments also allows the employer to return to reporting annual OPEB cost equal
to the ARC, either when amortization of the deficiency is complete or earlier upon full payment of the net OPEB
obligation including interest.
4. Each year’s adjustments should be calculated using the same amortization method, period, and assumptions
applied in calculating the ARC for that year. Each year’s adjustments apply only for that year; there is no amortization
schedule to follow. In accordance with the parameters, the method should be either level percentage of projected
payroll (level percent) or level dollar. The period should be the period applied by the actuary for amortizing actuarial
experience gains and losses. In calculating the amortization amount, the actuary uses an amortization factor that
115
incorporates the period and a discount rate. When level dollar is used, the discount rate is the investment return rate
(assumed return on the investments that are expected to be used to finance the payment of benefits). When level
percent is used, the discount rate is slightly less than the difference between the investment return rate and the
inflation rate (assumed payroll growth rate). (One formula for calculating a level percent discount rate is: [(1 +
investment return rate) / (1 + inflation rate)] – 1. For example, if the investment return and inflation assumptions are
5.5 percent and 4.5 percent, respectively, the discount rate is [1.055/1.045] – 1, or approximately 0.96 percent.)
5. To make the adjustments, the financial statement preparer needs to know the investment return rate and the
amortization factor applicable to the year for which the adjustments are made. The investment return rate and the
factor may vary from employer to employer and from year to year. However, the accounting procedures for calculating
the adjustments are identical.
a. The interest adjustment equals the balance of the net OPEB obligation at the beginning of the year times the
investment return rate.
b. The ARC adjustment equals the balance of the net OPEB obligation at the beginning of the year divided by the
amortization factor.
6. Following are five examples of the accounting calculations:
Example
No.
Amortization
Method
Amortization
Period
1
Level dollar closed
15 years
2
Level percent closed
15 years
3
Level percent open
15 years
4
5
Level percent open
Level percent closed
15 years
15 years
Employer Contribution
ARC, except year 0
(contribution less than the ARC)
ARC, except year 0
(contribution less than the ARC)
ARC, except year 0
(contribution less than the ARC)
Irregular
ARC, except year 0
(contribution greater than the ARC)
a. Each example assumes that (1) the employer has no net OPEB obligation at the beginning of year 0 and
(2) without the effect of contribution deficiencies or excess contributions, the ARC for all years would be $7,500.
(All other effects on the ARC are assumed to offset each other so that the effect of the deficiency or excess
contribution can be seen.) The accounting procedures are the same in each example.
b. The assumptions are included at the top of each example. The amortization factors are based on the actuarial
assumptions and the amortization method and period. (Use of a different formula for calculating the factors could
produce slightly different factors. The financial statement preparer would use the same factors as the actuary.)
Simplified actuarial calculations are included to the right of the accounting calculations to illustrate the similarity of
the two calculations. However, the accounting and actuarial calculations are independent of each other, and the
actuary generally would not separately amortize contribution deficiencies and excess contributions; they would be
amortized with other actuarial gains and losses and may be fully or partially offset by those amounts. Therefore,
neither the actuary nor the financial statement preparer would “see” the effect of a contribution deficiency or excess
contribution on each year’s ARC. The accounting procedures approximate the actuarial calculations; the results
may not always be as similar as in these examples. As indicated in paragraph 16 of Statement 45, each year’s
adjustments apply only for that year; a new calculation should be made each year. Therefore, each year’s
calculations in these examples have been rounded to the nearest dollar. The results for individual years could be
slightly different if a complete amortization schedule was prepared in year 1.
c. The employer can return to reporting annual OPEB cost equal to the ARC in any year, if the net OPEB obligation
balance is paid in full, plus interest. Examples 1 through 4 show the amount that should be paid, if the decision to
pay the balance is made in year 11. Example 5 (initial overcontribution of the ARC) shows the amount that should
be paid if the decision is made to reduce the negative net OPEB obligation (prepaid expense) to zero in year 11.
116
117
7,500
7,898
7,899
7,898
7,898
7,899
7,898
7,899
7,899
7,899
7,898
7,898
7,898
7,899
7,898
7,899
($7,500 + 12)
ARC
(2)
—
220
210
200
189
177
165
152
139
125
109
94
77
59
40
21
(5.5% x 9)
—
398
399
398
398
399
398
399
399
399
398
398
398
399
398
399†
(9 / 5)
—
10.04
9.59
9.12
8.62
8.09
7.54
6.95
6.33
5.68
5.00
4.27
3.51
2.70
1.85
0.95
7,500
7,720
7,710
7,700
7,689
7,677
7,665
7,652
7,639
7,625
7,609
7,594
7,577
7,559
7,540
7,521
(2 + 3 – 4)
OPEB
Cost
(6)
3,500
7,898
7,899
7,898
7,898
7,899
7,898
7,899
7,899
7,899
7,898
7,898
7,898
7,899
7,898
7,899
4,000
(178)
(189)
(198)
(209)
(222)
(233)
(247)
(260)
(274)
(289)
(304)
(321)
(340)
(358)
(378)
(6 – 7)
4,000
3,822
3,633
3,435
3,226
3,004
2,771
2,524
2,264
1,990
1,701
1,397
1,076
736
378
0
(BB* + 8)
4,000
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
(2 – 7)
—
10.04
9.59
9.12
8.62
8.09
7.54
6.95
6.33
5.68
5.00
4.27
3.51
2.70
1.85
0.95
—
398
399
398
398
399
398
399
399
399
398
398
398
399
398
†
399
(13 / 11)
Change in Net OPEB
Amort. Amort. of
Contri- Net OPEB Obligation
bution Obligation Balance Loss/ (Gain) Factor Loss/(Gain)
(8)
(9)
(10)
(11)
(7)
(12)
ACTUARY
7,898
7,500
94
0
398
0
4.27
—
7,594
7,500
9,295
7,500
†
*BB = beginning balance for the year.
Adjusted for rounding errors, to bring ending balance to zero.
11
12
(1,701)
0
0
0
(1,397)
0
4.27
—
398
0
If the employer decided in year 11 to pay the outstanding balance and return to reporting annual OPEB cost equal to the
ARC, the amount that should be paid is: $1,701 + $7,594 = $9,295. The calculations for years 11 and 12 would be as follows:
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Year
(1)
Interest on
Net OPEB ARC Ad- Amort.
Obligation justment Factor
(3)
(4)
(5)
FINANCIAL STATEMENT PREPARER
Example 1
Employer contribution: ARC, except year 0 (contribution less than the ARC)
Amortization method and period: Level dollar closed, 15 years
Investment
:
return
: : 5.5% per year
Amortization factor as shown (5.5% per year for 15 years, declining one year per year)
0
0
4,000
3,822
3,633
3,435
3,226
3,004
2,771
2,524
2,264
1,990
1,701
1,397
1,076
736
378
0
[(BB* x 1.055)+
(10 – 12)]
Ending
Balance
(13)
118
7,500
7,788
7,802
7,816
7,832
7,848
7,865
7,884
7,903
7,924
7,947
7,970
7,996
8,028
8,063
8,113
($7,500 + 12)
ARC
(2)
—
220
216
212
206
199
191
181
170
157
142
126
107
85
61
33
(5.5% x 9)
—
288
302
316
332
348
365
384
403
424
447
470
496
528
563
613
(9 / 5)
—
13.91
13.04
12.17
11.28
10.39
9.49
8.58
7.67
6.74
5.80
4.86
3.91
2.94
1.97
0.99
7,500
7,720
7,716
7,712
7,706
7,699
7,691
7,681
7,670
7,657
7,642
7,626
7,607
7,585
7,561
7,533
(2 + 3 – 4)
OPEB
Cost
(6)
3,500
7,788
7,802
7,816
7,832
7,848
7,865
7,884
7,903
7,924
7,947
7,970
7,996
8,028
8,063
8,113
4,000
(68)
(86)
(104)
(126)
(149)
(174)
(203)
(233)
(267)
(305)
(344)
(389)
(443)
(502)
(580)
(6 – 7)
4,000
3,932
3,846
3,742
3,616
3,467
3,293
3,090
2,857
2,590
2,285
1,941
1,552
1,109
607
27
(BB* + 8)
4,000
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
(2 – 7)
—
13.91
13.04
12.17
11.28
10.39
9.49
8.58
7.67
6.74
5.80
4.86
3.91
2.94
1.97
0.99
—
288
302
316
332
348
365
384
403
424
447
470
496
528
563
613
(13 / 11)
Change in Net OPEB
Contri- Net OPEB Obligation Loss/ Amort. Amort. of
bution Obligation Balance (Gain) Factor Loss/(Gain)
(8)
(9)
(10)
(11)
(7)
(12)
ACTUARY
4,000
3,932
3,846
3,742
3,616
3,467
3,293
3,090
2,857
2,590
2,285
1,941
1,552
1,109
607
27
[(BB* x 1.055)+
(10 – 12)]
Ending
Balance
(13)
7,970
7,500
126
0
470
0
*BB = beginning balance for the year.
11
12
4.86
—
7,626
7,500
9,911
7,500
(2,285)
0
0 (1,941)
0
0
4.86
—
470
0
0
0
If the employer decided in year 11 to reduce the net OPEB asset balance to zero and return to reporting annual OPEB cost equal to the
ARC, the amount that should be paid is $7,626 + $2,285 = $9,911. The calculations for years 11 and 12 would be as follows:
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Year
(1)
Interest on
Net OPEB ARC Ad- Amort.
Obligation justment Factor
(3)
(4)
(5)
FINANCIAL STATEMENT PREPARER
Example 2
Employer contribution: ARC, except year 0 (contribution less than the ARC)
Amortization method and period: Level percent closed, 15 years
Investment return: 5.5% per year
Inflation: 4.5% per year
Amortization factor as shown (approximately 0.96% per year for 15 years, declining one year per year)
119
7,500
7,788
7,783
7,778
7,773
7,769
7,764
7,760
7,755
7,751
7,747
7,742
7,738
7,734
7,730
7,726
($7,500 + 12)
ARC
(2)
—
220
216
213
209
205
202
199
195
192
189
185
182
179
176
173
(5.5% x 9)
—
288
283
278
273
269
264
260
255
251
247
242
238
234
230
226
(9 / 5)
—
13.91
13.91
13.91
13.91
13.91
13.91
13.91
13.91
13.91
13.91
13.91
13.91
13.91
13.91
13.91
7,500
7,720
7,716
7,713
7,709
7,705
7,702
7,699
7,695
7,692
7,689
7,685
7,682
7,679
7,676
7,673
(2 + 3 – 4)
OPEB
Cost
(6)
3,500
7,788
7,783
7,778
7,773
7,769
7,764
7,760
7,755
7,751
7,747
7,742
7,738
7,734
7,730
7,726
4,000
(68)
(67)
(65)
(64)
(64)
(62)
(61)
(60)
(59)
(58)
(57)
(56)
(55)
(54)
(53)
(6 – 7)
4,000
3,932
3,865
3,800
3,736
3,672
3,610
3,549
3,489
3,430
3,372
3,315
3,259
3,204
3,150
3,097
(BB* + 8)
4,000
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
(2 – 7)
—
13.91
13.91
13.91
13.91
13.91
13.91
13.91
13.91
13.91
13.91
13.91
13.91
13.91
13.91
13.91
—
288
283
278
273
269
264
260
255
251
247
242
238
234
230
226
(13 / 11)
Change in Net OPEB
Contri- Net OPEB Obligation Loss/ Amort. Amort. of
bution Obligation Balance (Gain) Factor Loss/(Gain)
(7)
(8)
(9)
(10)
(11)
(12)
ACTUARY
7,742
7,500
185
0
242
0
13.91
—
7,685 11,057
7,500 7,500
(3,372)
0
0 (3,315)
0
0
13.91
—
242
0
0
0
4,000
3,932
3,865
3,800
3,736
3,672
3,610
3,549
3,489
3,430
3,372
3,315
3,259
3,204
3,150
3,097
ºA constant fifteen-year period is assumed for simplicity. When the period is allowed to fluctuate, the amortization factor will. be different each year.
*BB = beginning balance for the year.
11
12
Ending
Balance
(13)
[(BB* x 1.055)+
(10 – 12)]
If the employer decided in year 11 to pay the outstanding balance and return to reporting annual OPEB cost equal to the ARC,
:the amount that should be paid is: $7,685 + $3,372 = $11,057. The calculations for years 11 and 12 would be as follows:
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Year
(1)
Interest on
Net OPEB ARC Ad- Amort.
Obligation justment Factor
(3)
(4)
(5)
FINANCIAL STATEMENT PREPARER
Example 3
Employer contribution: ARC, except year 0 (contribution less than the ARC)
Amortization method and period: Level percent open, 15 years
Investment return: 5.5% per year
Amortization factor: 13.91 (approximately 0.96%, for 15 years, constant)º
120
7,500
7,859
8,221
8,584
8,938
9,287
9,565
9,772
9,947
10,046
10,136
10,187
10,205
10,203
10,172
10,103
($7,500 + 12)
ARC
(2)
—
275
551
829
1,100
1,367
1,580
1,738
1,872
1,948
2,016
2,056
2,070
2,068
2,044
1,992
(5.5% x 9)
—
359
721
1,084
1,438
1,787
2,065
2,272
2,447
2,546
2,636
2,687
2,705
2,703
2,672
2,603
(9 / 5)
—
13.91
13.91
13.91
13.91
13.91
13.91
13.91
13.91
13.91
13.91
13.91
13.91
13.91
13.91
13.91
5,000
5,025
5,051
4,929
4,850
3,867
2,880
2,438
1,372
1,248
716
256
(30)
(432)
(956)
(1,508)
(6 – 7)
5,000
10,025
15,076
20,005
24,855
28,722
31,602
34,040
35,412
36,660
37,376
37,632
37,602
37,170
36,214
34,706
(BB* + 8)
Change in Net OPEB
Contri- Net OPEB Obligation
bution Obligation Balance
(7)
(8)
(9)
7,500 2,500
7,775 2,750
8,051 3,000
8,329 3,400
8,600 3,750
8,867 5,000
9,080 6,200
9,238 6,800
9,372 8,000
9,448 8,200
9,516 8,800
9,556 9,300
9,570 9,600
9,568 10,000
9,544 10,500
9,492 11,000
(2 + 3 – 4)
OPEB
Cost
(6)
5,000
5,109
5,221
5,184
5,188
4,287
3,365
2,972
1,947
1,846
1,336
887
605
203
(328)
(897)
(2 – 7)
Loss/
(Gain)
(10)
—
13.91
13.91
13.91
13.91
13.91
13.91
13.91
13.91
13.91
13.91
13.91
13.91
13.91
13.91
13.91
—
359
721
1,084
1,438
1,787
2,065
2,272
2,447
2,546
2,636
2,687
2,705
2,703
2,672
2,603
(13 / 11)
Amort. Amort. of
Factor Loss/(Gain)
(11)
(12)
ACTUARY
10,187
7,500
2,056
0
2,687
0
13.91
—
9,556 46,932
7,500 7,500
(37,376)
0
0 (36,745)
0
0
13.91
—
2,687
0
ºA constant fifteen-year period is assumed for simplicity. When the period is allowed to fluctuate, the amortization factor will
be different each year.
*BB = beginning balance for the year.
11
12
If the employer decided in year 11 to pay the outstanding balance to begin reporting annual OPEB cost equal to the ARC,
the amount that should be paid is $9,556 + $37,376 = $46,932. The calculations for years 11 and 12 would be as follows:
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Year
(1)
Interest on
Net OPEB ARC Ad- Amort.
Obligation justment Factor
(3)
(4)
(5)
FINANCIAL STATEMENT PREPARER
Example 4
Employer contribution: Irregular
Amortization method and period: Level percent open, 15 years
Investment return: 5.5% per yearº
Inflation: 4.5% per year
Amortization factor: 13.91 (approximately 0.96%, for 15 years, constant)
0
0
5,000
10,025
15,076
20,005
24,855
28,722
31,602
34,040
35,412
36,660
37,376
37,632
37,602
37,170
36,214
34,706
[(BB* x 1.055)+
(10 – 12)]
Ending
Balance
(13)
121
7,500
7,428
7,425
7,421
7,417
7,413
7,409
7,404
7,399
7,394
7,388
7,382
7,376
7,368
7,359
7,341
($7,500 + 12)
ARC
(2)
—
55
54
53
51
50
48
45
43
39
36
31
27
21
15
8
(5.5% x 9)
—
72
75
79
83
87
91
96
101
106
112
118
124
132
141
159†
(9 / 5)
—
13.91
13.04
12.17
11.28
10.39
9.49
8.58
7.67
6.74
5.80
4.86
3.91
2.94
1.97
0.99
7,500
7,445
7,446
7,447
7,449
7,450
7,452
7,455
7,457
7,461
7,464
7,469
7,473
7,479
7,485
7,492
(2 – 3 + 4)
OPEB
Cost
(6)
8,500
7,428
7,425
7,421
7,417
7,413
7,409
7,404
7,399
7,394
7,388
7,382
7,376
7,368
7,359
7,341
(1,000)
17
21
26
32
37
43
51
58
67
76
87
97
111
126
151
(6 – 7)
(2 – 7)
(1,000) (1,000)
(983)
0
(962)
0
(936)
0
(904)
0
(867)
0
(824)
0
(773)
0
(715)
0
(648)
0
(572)
0
(485)
0
(388)
0
(277)
0
(151)
0
0
0
(BB* + 8)
—
13.91
13.04
12.17
11.28
10.39
9.49
8.58
7.67
6.74
5.80
4.86
3.91
2.94
1.97
0.99
—
(72)
(75)
(79)
(83)
(87)
(91)
(96)
(101)
(106)
(112)
(118)
(124)
(132)
(141)
(159)†
(13 / 11)
Change in Net OPEB
Net OPEB Obligation
(Asset)
Loss/ Amort. Amort. of
Contri- Obligation
Balance (Gain) Factor Loss/(Gain)
(Asset)
bution
(8)
(9)
(10)
(11)
(7)
(12)
ACTUARY
(1,000)
(983)
(962)
(936)
(904)
(867)
(824)
(773)
(715)
(648)
(572)
(485)
(388)
(277)
(151)
0
[(BB* x 1.055)+
(10 – 12)]
Ending
Balance
(13)
7,382
7,500
31
0
118
0
4.86
—
7,469
7,500
6,897
7,500
†
*BB = beginning balance for the year.
Adjusted for rounding errors, to bring ending balance to zero.
11
12
572
0
0
0
485
0
4.86
—
(118)
0
0
0
If the employer decided in year 11 to reduce the net OPEB asset balance to zero and return to reporting annual OPEB cost equal to the
:ARC, the amount that should be paid is $7,469 – $572 = $6,897. The calculations for years 11 and 12 would be as follows:
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Year
(1)
Interest on
Net OPEB ARC Ad- Amort.
Asset
justment Factor
(3)
(4)
(5)
FINANCIAL STATEMENT PREPARER
Example 5
Employer contribution: ARC, except year 0 (contribution greater than the ARC)
Amortization method and period: Level percent closed, 15 years
:Investment return: 5.5% per year
Inflation: 4.5% per year
Amortization factor as shown (approximately 0.96% per year for 15 years, declining one year per year)
Appendix 5
ILLUSTRATIONS OF DISCLOSURES (FROM STATEMENT 45)
This appendix illustrates disclosures required by [Statement 45]. The facts assumed in these examples are
illustrative only and are not intended to modify or limit the requirements of [Statement 45] or to indicate the Board’s
endorsement of the policies or practices shown. Disclosures in addition to those illustrated also are required.
Illustrations 2 and 4 are coordinated with Illustrations 1 and 2 of [Appendix 9 of this guide]. In addition, Illustration 7
is coordinated with Illustrations 1 and 2a in [Appendix 7 of this guide].
Illustration 1
Summary of Note Disclosures and Required Supplementary Information (RSI) for Employer
Reporting
Illustration 2
Notes to the Financial Statements for an Employer Contributing to a Single-Employer
Defined Benefit Healthcare Plan
Illustration 3
Notes to the Financial Statements and Schedule of Funding Progress for an Employer
Contributing to an Agent Multiple-Employer Defined Benefit Healthcare Plan
Illustration 4
Notes to the Financial Statements for an Employer Contributing to a Cost-Sharing
Multiple-Employer Defined Benefit Healthcare Plan
Illustration 5
Notes to the Financial Statements for an Employer Contributing to a Cost-Sharing
Multiple-Employer Defined Benefit Healthcare Plan with Legal Funding Limitations
Illustration 6
Notes to the Financial Statements and Schedules of Funding Progress for an Employer
Contributing to Three Single-Employer Defined Benefit OPEB Plans
Illustration 7
Notes to the Financial Statements and Schedule of Funding Progress for an Employer Using
the Alternative Measurement Method
123
124
RSI ¶26
Notes
¶24 and ¶25
RSI ¶26
RSI ¶26
Notes
¶24 and ¶25
RSI ¶26
RSI ¶26
Notes
¶24 and ¶25
RSI ¶26
Notes
¶24 and ¶25
Notes
¶24 and ¶25
RSI ¶31–¶37
(Full)
Notes ¶30
(Full)
RSI ¶31–¶37
(Reduced)
Notes ¶30
(Reduced)
Employer
Notes
¶24 and ¶25
Notes
¶24 and ¶25
Notes
¶24 and ¶25
Employer
Other
Employee
Benefit
Trust Fund
Single-Employer Plan
RSI ¶31–¶37
(Full)
Notes ¶30
(Full)
Notes ¶30
(Reduced)
Other
Employee
Benefit
Trust Fund
Type of Plan
Agent MultipleEmployer Plan2
Notes ¶41
(Full)
Notes ¶41
(Reduced)
Agency
Fund
RSI ¶27
Notes
¶24
Notes
¶24
Notes
¶24
Notes
¶24
Employer
RSI ¶31–¶37
(Full)
Notes ¶30
(Full)
Notes ¶30
(Reduced)
Other
Employee
Benefit
Trust Fund
Cost-Sharing MultipleEmployer Plan3
in multiple-employer plans that do not meet the conditions of ¶22a should apply the requirements of [Statement 45] applicable to agent employers instead of the requirements of
Statement 45 applicable to cost-sharing employers.
3Employers
For agent employers, ¶26 RSI (employer) is for the employer’s individual plan; ¶31–¶37 RSI (other employee benefit trust fund) is for the aggregate (all employers) plan.
2
numbers in the Employer columns refer to [Statement 45]; paragraph numbers in the Other Employee Benefit Trust Fund and Agency Fund columns refer to Statement 43. Full RSI
comprises a schedule of funding progress and a schedule of employer contributions for at least three valuations and RSI notes. Reduced RSI (and ¶26 RSI for employers) comprises a schedule
of funding progress for at least three valuations. (All stand-alone plan reports are required to include full notes and RSI.)
1Paragraph
NO
NO
NO
YES
YES
YES
YES
NO
Plan
Issues
Stand-Alone
Report
Employer Report
Includes Other
Employee Benefit
Trust Fund or
an Agency Fund
Reporting Situation
Illustration 1—Summary of Note Disclosures and Required Supplementary Information (RSI)
for Employer Reporting1
Illustration 2—Notes to the Financial Statements for an Employer Contributing to a Single-Employer Defined
Benefit Healthcare Plan
[Note: This example assumes that the plan is included as an other employee benefit trust fund in the employer’s
financial reporting entity. Only those disclosures required by [Statement 45] are illustrated. In accordance with
footnote 21 of [Statement 45], the requirement to present a schedule of funding progress covering at least three
actuarial valuations would be met by complying with paragraphs 31 through 35 of Statement 43. That schedule is not
illustrated here. Information required by Statement 43 because the plan is reported as an other employee benefit trust
fund would be shown in addition to the information illustrated below. If the plan was not included in the employer’s
financial reporting entity, the employer would be required to present a schedule of funding progress similar to those
included in Illustrations 3, 6, and 7 of this appendix.]
State of Grande
Notes to the Financial Statements
for the Year Ended June 30, 20X2
Note X. Postemployment Healthcare Plan
Plan Description. State Retired Employees Healthcare Plan (SREHP) is a single-employer defined benefit
healthcare plan administered by the Grande Retirement System. SREHP provides medical and dental insurance
benefits to eligible retirees and their spouses. Article 37 of the Statutes of the State of Grande assigns the authority
to establish and amend benefit provisions to the state legislature. The Grande Retirement System issues a publicly
available financial report that includes financial statements and required supplementary information for SREHP. That
report may be obtained by writing to Grande Retirement System, State Government Lane, Latte, GR 01000, or by
calling 1-800-555-PLAN.
Funding Policy. The contribution requirements of plan members and the state are established and may be amended
by the state legislature. The required contribution is based on projected pay-as-you-go financing requirements, with
an additional amount to prefund benefits as determined annually by the legislature. For fiscal year 20X2, the state
contributed $357.7 million to the plan, including $190.7 million for current premiums (approximately 84 percent of total
premiums) and an additional $167.0 million to prefund benefits. Plan members receiving benefits contributed $35.4
million, or approximately 16 percent of the total premiums, through their required contribution of $50 per month for
retiree-only coverage and $105 for retiree and spouse coverage.
Annual OPEB Cost and Net OPEB Obligation. The state’s annual other postemployment benefit (OPEB) cost
(expense) is calculated based on the annual required contribution of the employer (ARC), an amount actuarially
determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of funding that,
if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities
(or funding excess) over a period not to exceed thirty years. The following table shows the components of the state’s
annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the state’s net OPEB
obligation to SREHP (dollar amounts in thousands):
Annual required contribution
Interest on net OPEB obligation
Adjustment to annual required contribution
Annual OPEB cost (expense)
Contributions made
Increase in net OPEB obligation
Net OPEB obligation—beginning of year
Net OPEB obligation—end of year
125
$ 577,180
90,437
(95,258)
572,359
(357,682)
214,677
1,349,811
$1,564,488
The state’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB
obligation for 20X2 and the two preceding years were as follows (dollar amounts in thousands):
Fiscal
Year
Ended
Annual
OPEB Cost
6/30/X0
6/30/X1
6/30/X2
$497,538
538,668
572,359
Percentage of
Annual OPEB
Cost Contributed
67.4%
64.8
62.5
Net
OPEB
Obligation
$1,160,171
1,349,811
1,564,488
Funded Status and Funding Progress. As of December 31, 20X1, the most recent actuarial valuation date, the plan
was 58.1 percent funded. The actuarial accrued liability for benefits was $8.8 billion, and the actuarial value of assets
was $5.1 billion, resulting in an unfunded actuarial accrued liability (UAAL) of $3.7 billion. The covered payroll (annual
payroll of active employees covered by the plan) was $2.2 billion, and the ratio of the UAAL to the covered payroll was
165 percent.
Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about
the probability of occurrence of events far into the future. Examples include assumptions about future employment,
mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual
required contributions of the employer are subject to continual revision as actual results are compared with past
expectations and new estimates are made about the future. The schedule of funding progress, presented as required
supplementary information following the notes to the financial statements, presents multi-year trend information about
whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued
liabilities for benefits.
Actuarial Methods and Assumptions. Projections of benefits for financial reporting purposes are based on the
substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits
provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and
plan members to that point. The actuarial methods and assumptions used include techniques that are designed to
reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent
with the long-term perspective of the calculations.
In the December 31, 20X1, actuarial valuation, the entry age actuarial cost method was used. The actuarial
assumptions included a 6.7 percent investment rate of return (net of administrative expenses), which is a blended rate
of the expected long-term investment returns on plan assets and on the employer’s own investments calculated
based on the funded level of the plan at the valuation date, and an annual healthcare cost trend rate of 12 percent
initially, reduced by decrements to an ultimate rate of 5 percent after ten years. Both rates included a 4.5 percent
inflation assumption. The actuarial value of assets was determined using techniques that spread the effects of
short-term volatility in the market value of investments over a five-year period. The UAAL is being amortized as a level
percentage of projected payroll on an open basis. The remaining amortization period at December 31, 20X1, was
seventeen years.
126
Illustration 3—Notes to the Financial Statements and Schedule of Funding Progress for an Employer
Contributing to an Agent Multiple-Employer Defined Benefit Healthcare Plan
City of Mocha
Notes to the Financial Statements
for the Year Ended June 30, 20X2
Note X. Postemployment Healthcare Plan
Plan Description. The city’s defined benefit postemployment healthcare plan, Mocha Postemployment Healthcare
Plan (MPHP), provides medical benefits to eligible retired city employees and their beneficiaries. MPHP is affiliated
with the Municipal Retired Employees Health Plan (MREHP), an agent multiple-employer postemployment healthcare plan administered by the Robusta Retirement System. Article 39 of the Statutes of the State of Robusta assigns
the authority to establish and amend the benefit provisions of the plans that participate in MREHP to the respective
employer entities; for MPHP, that authority rests with the city of Mocha. The Robusta Retirement System issues a
publicly available financial report that includes financial statements and required supplementary information for
MREHP. That report may be obtained by writing to Robusta Retirement System, 399 Grocer Aisle, Caffe, RO 02000,
or by calling 1-877-555-PLAN.
Funding Policy. The contribution requirements of plan members and the city are established and may be amended
by the MREHP board of trustees. MPHP members receiving benefits contribute $75 per month for retiree-only
coverage and $150 per month for retiree and spouse coverage to age 65, and $40 and $80 per month, respectively,
thereafter.
The city of Mocha is required to contribute the annual required contribution of the employer (ARC), an amount
actuarially determined in accordance with the parameters of GASB Statement 45. The ARC represents a level of
funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded
actuarial liabilities (or funding excess) over a period not to exceed thirty years. The current ARC rate is 13.75 percent
of annual covered payroll.
Annual OPEB Cost. For 20X2, the city’s annual OPEB cost (expense) of $870,517 for MPHP was equal to the ARC.
The city’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB
obligation for 20X2 and the two preceding years were as follows:
Fiscal
Year
Ended
Annual
OPEB Cost
6/30/X0
6/30/X1
6/30/X2
$929,401
910,042
870,517
Percentage of
Annual OPEB
Cost Contributed
100%
100
100
Net
OPEB
Obligation
$0
0
0
Funded Status and Funding Progress. The funded status of the plan as of December 31, 20X1, was as follows:
Actuarial accrued liability (AAL)
$ 19,490,482
Actuarial value of plan assets
15,107,180
Unfunded actuarial accrued liability (UAAL)
$ 4,383,302
Funded ratio (actuarial value of plan assets/AAL)
77.5%
Covered payroll (active plan members)
$ 6,331,031
UAAL as a percentage of covered payroll
69.2%
Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about
the probability of occurrence of events far into the future. Examples include assumptions about future employment,
mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual
127
required contributions of the employer are subject to continual revision as actual results are compared with past
expectations and new estimates are made about the future. The schedule of funding progress, presented as required
supplementary information following the notes to the financial statements, presents multi-year trend information that
shows whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued
liabilities for benefits.
Actuarial Methods and Assumptions. Projections of benefits for financial reporting purposes are based on the
substantive plan (the plan as understood by the employer and plan members) and include the types of benefits
provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and
plan members to that point. The actuarial methods and assumptions used include techniques that are designed to
reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the
long-term perspective of the calculations.
In the December 31, 20X1, actuarial valuation, the entry age actuarial cost method was used. The actuarial
assumptions included a 7.5 percent investment rate of return (net of administrative expenses) and an annual
healthcare cost trend rate of 12 percent initially, reduced by decrements to an ultimate rate of 5 percent after ten years.
Both rates include a 4.5 percent inflation assumption. The actuarial value of MPHP assets was determined using
techniques that spread the effects of short-term volatility in the market value of investments over a three-year period.
MPHP’s unfunded actuarial accrued liability is being amortized as a level percentage of projected payroll on a closed
basis. The remaining amortization period at December 31, 20X1, was twenty-two years.
REQUIRED SUPPLEMENTARY INFORMATION
Schedule of Funding Progress for MPHP
Actuarial
Valuation
Date
Actuarial
Value of
Assets
(a)
Actuarial
Accrued
Liability
(AAL)—
Entry Age
(b)
Unfunded
AAL
(UAAL)
(b – a)
Funded
Ratio
(a / b)
12/31/W9
12/31/X0
12/31/X1
$10,138,007
12,093,839
15,107,180
$16,867,561
17,572,474
19,490,482
$6,729,554
5,478,635
4,383,302
60.1%
68.8
77.5
128
Covered
Payroll
(c)
$5,984,554
6,182,351
6,331,031
UAAL as a
Percentage of
Covered
Payroll
((b – a) / c)
112.4%
88.6
69.2
Illustration 4—Notes to the Financial Statements for an Employer Contributing to a Cost-Sharing
Multiple-Employer Defined Benefit Healthcare Plan
Brewer State University
Notes to the Financial Statements
for the Year Ended June 30, 20X2
Note X. University Retiree Health Plan
Plan Description. Brewer State University contributes to the State University Retiree Health Plan (SURHP), a
cost-sharing multiple-employer defined benefit postemployment healthcare plan administered by the Grande Retirement System. SURHP provides medical benefits to retired employees of participating universities. Article 38 of the
Statutes of the state of Grande assigns the authority to establish and amend benefit provisions to the SURHP board
of trustees. The Grande Retirement System issues a publicly available financial report that includes financial
statements and required supplementary information for SURHP. That report may be obtained by writing to Grande
Retirement System, State Government Lane, Latte, GR 01000, or by calling 1-800-555-PLAN.
Funding Policy. Article 38 provides that contribution requirements of the plan members and the participating
employers are established and may be amended by the SURHP board of trustees. Plan members or beneficiaries
receiving benefits contribute $65 per month for retiree-only coverage and $135 for retiree and spouse coverage to age
65, and $35 and $75 per month, respectively, thereafter.
Participating universities are contractually required to contribute at a rate assessed each year by SURHP, currently
8.75 percent of annual covered payroll. The SURHP board of trustees sets the employer contribution rate based on
the annual required contribution of the employers (ARC), an amount actuarially determined in accordance with the
parameters of GASB Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is
projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) of the plan
over a period not to exceed thirty years. The university’s contributions to SURHP for the years ended June 30, 20X2,
20X1, and 20X0, were $58,717, $49,886, and $47,375, respectively, which equaled the required contributions each
year.
129
Illustration 5—Notes to the Financial Statements for an Employer Contributing to a Cost-Sharing
Multiple-Employer Defined Benefit Healthcare Plan with Legal Funding Limitations
Percolator School District
Notes to the Financial Statements
for the Year Ended June 30, 20X2
Note X. Retiree Health Plan
Plan Description. Percolator School District contributes to the state of Mezzo Teachers’ Retiree Health Plan
(MTRHP), a cost-sharing multiple-employer defined benefit postemployment healthcare plan administered by the
Mezzo Teachers’ Retirement System (MTRS). MTRHP provides medical benefits to retired teachers of participating
school districts. Article 145(b) of the Statutes of the State assigns the authority to establish and amend benefit
provisions to the MTRS board of trustees. MTRS issues a publicly available financial report that includes financial
statements and required supplementary information for MTRHP. That report may be obtained by writing to Mezzo
Teachers’ Retirement System, State Circle, Cappuccino, MZ 01000, or by calling 1-800-555-PLAN.
Funding Policy. Article 145(b) provides that contribution requirements of the participating employers and of plan
members to the MTRS (defined benefit pension plan) are established and may be amended by the MTRS board of
trustees. Participating employers and active pension plan members are required to contribute to the pension plan at
rates expressed as percentages of the payroll of active pension plan members, currently 15 percent and 7 percent of
payroll, respectively. Article 145(b) states that the employer contribution rate may not exceed 17 percent of payroll and
that the employee contribution rate may not exceed 8 percent.
The retiree health plan was established and is administered as an Internal Revenue Code Section 401h account
within the defined benefit pension plan, under the authority granted by the state of Mezzo to the MTRS board of
trustees. The board of trustees is authorized to allocate a portion of the total employer contributions made into the
pension plan to the 401h account as the employer contribution for retiree healthcare benefits. For the year ended
June 30, 20X2, the employer contribution allocated to the retiree healthcare plan was 5 percent of payroll. The amount
of employer contributions allocated to the healthcare plan each year is subject to the trustees’ primary responsibility
to ensure that pension benefits are adequately funded and also is limited by the provisions of Section 401h.
The board of trustees also is authorized to establish requirements for contributions to the retiree healthcare plan by
retirees or their surviving beneficiaries. For the year ended June 30, 20X2, retirees or their beneficiaries contributed
$75 dollars per month for retiree-only coverage and $160 per month for retiree and spouse coverage to age 65, and
$30 and $65 dollars per month, respectively, thereafter.
The district’s contributions to MTRS for the years June 30, 20X2, 20X1, and 20X0, were $450,231, $423,185, and
$398,657, respectively, of which $150,077, $126,955, and $127,570, respectively, was allocated to the healthcare
plan.
130
Illustration 6—Notes to the Financial Statements and Schedules of Funding Progress for an Employer
Contributing to Three Single-Employer Defined Benefit OPEB Plans
[Note: This illustration shows one way in which an employer with several plans can combine disclosures so that the
required information is presented for each plan without unnecessary duplication. The illustration assumes that each
plan issues a stand-alone report that complies with Statement 43. However, the plans are not included in the
employer’s financial reporting entity. Therefore, the employer is required to present a schedule of funding progress for
each plan, in accordance with paragraph 26 of [Statement 45].]
City of Peaberry
Notes to the Financial Statements
for the Year Ended June 30, 20X2
Note X. Postemployment Benefits Other Than Pensions
Plan Descriptions. The city of Peaberry contributes to two single-employer defined benefit healthcare plans:
Municipal Retired Employees Healthcare Plan (MREHP) and Fire and Police Retiree Healthcare Plan (FPRHP). Each
plan provides medical benefits to eligible retired city employees and beneficiaries. The city also sponsors the Elected
Officials Retiree Life Insurance Plan (EORLIP), a single-employer defined benefit life insurance plan that provides
eligible retired elected officials with a death benefit equal to two times their final salary.
Benefit provisions for MREHP and FPRHP are established and amended through negotiations between the city and
the respective unions. Article 64(a) of the Peaberry City Code assigns the authority to establish benefit provisions for
EORLIP to the city council. Each plan issues a publicly available financial report that includes financial statements and
required supplementary information for that plan. Those reports may be obtained by writing or calling the plans at the
following addresses or numbers:
Municipal Retired Employees
Healthcare Plan
101 Municipal Lane
Peaberry, GR 01001
(999) 999-9999
Fire and Police Retiree
Healthcare Plan
105 Municipal Lane
Peaberry, GR 01001
(999) 999-9998
Elected Officials Retiree
Life Insurance Plan
108 Municipal Lane
Peaberry, GR 01001
(999) 999-9997
Funding Policy and Annual OPEB Cost. For MREHP, contribution requirements of the plan members and the city
are established and may be amended through negotiations between the city and the union. For FPRHP, the board
of trustees of the plan establishes and may amend the contribution requirements of plan members and the city. For
EORLIP, contractual requirements for the city are established and may be amended by the city council. The city’s
annual other postemployment benefit (OPEB) cost (expense) for each plan is calculated based on the annual required
contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB
Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal
131
cost each year and to amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty
years. The city’s annual OPEB cost for the current year and the related information for each plan are as follows (dollar
amounts in thousands):
Contribution rates:
City
Plan members
Annual required contribution
Interest on net OPEB obligation
Adjustment to annual required contribution
Annual OPEB cost
Contributions made
Increase in net OPEB obligation
Net OPEB obligation—beginning of year
Net OPEB obligation—end of year
Municipal
Retired
Employees
Healthcare Plan
Fire and Police
Retiree
Healthcare Plan
Elected Officials
Retiree Life
Insurance Plan
Contractually
determined
7.0%
N/A
$ 433,664
65,325
(82,755)
416,234
(324,246)
91,988
1,126,298
$1,218,286
Actuarially
determined
10.0%
4.0%
$ 178,966
—
—
178,966
(178,966)
—
—
$
—
Pay-as-you-go
N/A
$ 1,750
331
(332)
1,749
(1,740)
9
6,014
$ 6,023
The city’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB
obligation for 20X2 and the two preceding years for each of the plans were as follows (dollar amounts in thousands):
Percentage of
OPEB Cost
Contributed
Net OPEB
Obligation
Year
Ended
Annual
OPEB Cost
Municipal Retired
Employees
Healthcare Plan
6/30/X0
6/30/X1
6/30/X2
$511,047
470,023
416,234
Fire and Police Retiree
Healthcare Plan
6/30/X0
6/30/X1
6/30/X2
173,561
171,991
178,966
100.0
100.0
100.0
—
—
—
Elected Officials Retiree
Life Insurance Plan
6/30/X0
6/30/X1
6/30/X2
1,685
1,712
1,749
43.2
0.0
99.5
4,302
6,014
6,023
132
65.6%
71.1
77.9
$ 990,462
1,126,298
1,218,286
Funded Status and Funding Progress. The funded status of the plans as of June 30, 20X2, was as follows (dollar
amounts in thousands):
Actuarial accrued liability (a)
Actuarial value of plan assets (b)
Unfunded actuarial accrued liability
(funding excess) (a) – (b)
Funded ratio (b) / (a)
Covered payroll (c)
Unfunded actuarial accrued liability
(funding excess) as a percentage
of covered payroll
([(a) – (b)] / (c))
Municipal
Retired
Employees
Healthcare Plan
Fire and Police
Retiree
Healthcare Plan*
Elected Officials
Retiree Life
Insurance Plan
$2,744,210
361,790
$1,972,660
1,982,749
$6,170
—
$2,382,420
$
$6,170
(10,089)
13.18%
$4,632,086
100.51%
$1,820,504
0%
$4,400
51.43%
(0.55)%
140.23%
*The aggregate actuarial cost method is used for funding purposes. However, because the aggregate actuarial cost method does not identify or
separately amortize unfunded actuarial liabilities, the entry age actuarial cost method has been used to provide required information about funded
status and funding progress. The information presented in this schedule is intended to approximate the funding progress of the plan based on the use
of the aggregate actuarial cost method.
Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of
events in the future. Amounts determined regarding the funded status of the plan and the annual required
contributions of the employer are subject to continual revision as actual results are compared to past expectations and
new estimates are made about the future. The required schedule of funding progress presented as required
supplementary information provides multi-year trend information that shows whether the actuarial value of plan
assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits.
Actuarial Methods and Assumptions. Projections of benefits are based on the substantive plan (the plan as
understood by the employer and plan members) and include the types of benefits in force at the valuation date and
the pattern of sharing benefit costs between the city and the plan members to that point. Actuarial calculations reflect
133
a long-term perspective and employ methods and assumptions that are designed to reduce short-term volatility in
actuarial accrued liabilities and the actuarial value of assets. Significant methods and assumptions were as follows:
Municipal
Retired
Employees
Healthcare Plan
Actuarial valuation date
Actuarial cost method
Amortization method
Remaining amortization period
Asset valuation method
Actuarial assumptions:
Investment rate of return*
Projected salary increases*
Healthcare inflation rate*
Fire and Police
Retiree
Healthcare Plan
Elected Officials
Retiree Life
Insurance Plan
6/30/X2
Aggregate
None†
6/30/X2
Entry age
Level percentage
of pay, open
20 years
5-year
smoothed market
6/30/X2
Entry age
Level percentage
of pay, open
15 years
5-year
smoothed market
None†
5-year
smoothed market
5.8%‡
4.9–7.5%
12% initial
5% ultimate
7.5%
6.2–10.1%
12% initial
5% ultimate
5.5%
5%
N/A
*Includes an inflation assumption of 4.5 percent.
†
The aggregate cost method does not identify or separately amortize unfunded actuarial liabilities.
‡
Determined as a blended rate of the expected long-term investment returns on plan assets and on the city’s own investments, based on the funded
level of the plan at the valuation date.
134
REQUIRED SUPPLEMENTARY INFORMATION
Schedules of Funding Progress
(dollar amounts in thousands)
Municipal Retired Employees Healthcare Plan
Actuarial
Valuation
Date
Actuarial
Value of
Assets
(a)
Actuarial
Accrued
Liability
(AAL)—
Entry Age
(b)
Unfunded
AAL
(UAAL)
(b – a)
6/30/X0
6/30/X1
6/30/X2
$202,060
298,400
361,790
$1,883,350
2,445,810
2,744,210
$1,681,290
2,147,410
2,382,420
Funded
Ratio
(a / b)
10.73%
12.20
13.18
Covered
Payroll
(c)
$4,789,238
4,774,084
4,632,086
UAAL as a
Percentage of
Covered
Payroll
((b – a) / c)
35.11%
44.98
51.43
Fire and Police Retiree Healthcare Plan
Actuarial
Valuation
Date
Actuarial
Value of
Assets
(a)
Actuarial
Accrued
Liability
(AAL)—
Entry Age*
(b)
Unfunded
AAL
(Funding
Excess)
(b – a)
Funded
Ratio
(a / b)
6/30/X0
6/30/X1
6/30/X2
$1,509,215
1,813,858
1,982,749
$1,712,803
1,919,724
1,972,660
$203,588
105,866
(10,089)
88.11%
94.49
100.51
Covered
Payroll
(c)
$1,681,001
1,758,820
1,820,504
Unfunded
AAL
(Funding
Excess)
as a
Percentage
of Covered
Payroll
((b – a) / c)
12.11%
6.02
(0.55)
*The aggregate actuarial cost method is used for funding purposes. However, because this method does not identify or separately amortize unfunded
actuarial liabilities, the entry age actuarial cost method has been used to provide required information about funded status and funding progress. The
information presented in this schedule is intended to approximate the funding progress of the plan based on the use of the aggregate actuarial cost
method.
Elected Officials Retiree Life Insurance Plan
Actuarial
Valuation
Date
Actuarial
Value of
Assets
(a)
Actuarial
Accrued
Liability
(AAL)—
Entry Age
(b)
Unfunded
AAL
(UAAL)
(b – a)
Funded
Ratio
(a / b)
Covered
Payroll
(c)
UAAL as a
Percentage of
Covered
Payroll
((b – a) / c)
6/30/X0
6/30/X1
6/30/X2
—
—
—
$5,041
5,531
6,170
$5,041
5,531
6,170
0.00%
0.00
0.00
$4,001
4,191
4,400
125.99%
131.97
140.23
135
Illustration 7—Notes to the Financial Statements and Schedule of Funding Progress for an Employer
Using the Alternative Measurement Method
[Note: This example assumes that there is no trust fund reported in the employer’s financial reporting entity. Therefore,
the employer is required to present a schedule of funding progress for the plan, in accordance with paragraph 26 of
[Statement 45].]
Town of Espresso
Notes to the Financial Statements
for the Year Ended June 30, 20X2
Note X. Postemployment Benefits Other Than Pensions
Plan Description. The town of Espresso administers a single-employer defined benefit healthcare plan (“the Retiree
Health Plan”). The plan provides lifetime healthcare insurance for eligible retirees and their spouses through the
town’s group health insurance plan, which covers both active and retired members. Benefit provisions are established
through negotiations between the town and the union representing town employees and are renegotiated each
three-year bargaining period. The Retiree Health Plan does not issue a publicly available financial report.
Funding Policy. Contribution requirements also are negotiated between the town and union representatives. The
town contributes 85 percent of the cost of current-year premiums for eligible retired plan members and their spouses.
For fiscal year 20X2, the town contributed $24,689 to the plan. Plan members receiving benefits contribute 15 percent
of their premium costs. In fiscal year 20X2, total member contributions were $4,359.
Annual OPEB Cost and Net OPEB Obligation. The town’s annual other postemployment benefit (OPEB) cost
(expense) is calculated based on the annual required contribution of the employer (ARC). The town has elected to
calculate the ARC and related information using the alternative measurement method permitted by GASB Statement
45 for employers in plans with fewer than one hundred total plan members. The ARC represents a level of funding
that, if paid on an ongoing basis, is projected to cover normal cost each year and to amortize any unfunded actuarial
liabilities (or funding excess) over a period not to exceed thirty years. The following table shows the components of
the town’s annual OPEB cost for the year, the amount actually contributed to the plan, and changes in the town’s net
OPEB obligation to the Retiree Health Plan:
Annual required contribution
Interest on net OPEB obligation
Adjustment to annual required contribution
Annual OPEB cost (expense)
Contributions made
Increase in net OPEB obligation
Net OPEB obligation—beginning of year
Net OPEB obligation—end of year
136
$ 60,231
3,565
(2,946)
60,850
(24,689)
36,161
64,815
$100,976
The town’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB
obligation for fiscal year 20X2 and the two preceding fiscal years were as follows:
Fiscal
Year
Ended
Annual
OPEB Cost
6/30/X0
6/30/X1
6/30/X2
$50,124
56,748
60,850
Percentage of
Annual OPEB
Cost Contributed
40.9%
38.0
40.6
Net
OPEB
Obligation
$ 29,628
64,815
100,976
Funded Status and Funding Progress. As of June 30, 20X1, the actuarial accrued liability for benefits was $636,997,
all of which was unfunded. The covered payroll (annual payroll of active employees covered by the plan) was
$581,435, and the ratio of the unfunded actuarial accrued liability to the covered payroll was 109.6 percent.
The projection of future benefit payments for an ongoing plan involves estimates of the value of reported amounts
and assumptions about the probability of occurrence of events far into the future. Examples include assumptions
about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status
of the plan and the annual required contributions of the employer are subject to continual revision as actual results
are compared with past expectations and new estimates are made about the future. The schedule of funding
progress, presented as required supplementary information following the notes to the financial statements, presents
multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time
relative to the actuarial accrued liabilities for benefits.
Methods and Assumptions. Projections of benefits for financial reporting purposes are based on the substantive
plan (the plan as understood by the employer and plan members) and include the types of benefits provided at the
time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members
to that point. The methods and assumptions used include techniques that are designed to reduce the effects of
short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term
perspective of the calculations.
The following simplifying assumptions were made:
Retirement age for active employees—Based on the historical average retirement age for the covered group, active
plan members were assumed to retire at age 62, or at the first subsequent year in which the member would qualify
for benefits.
Marital status—Marital status of members at the calculation date was assumed to continue throughout retirement.
Mortality—Life expectancies were based on mortality tables from the National Center for Health Statistics. The 19W9
United States Life Tables for Males and for Females were used.
Turnover—Non-group-specific age-based turnover data from GASB Statement 45 were used as the basis for
assigning active members a probability of remaining employed until the assumed retirement age and for developing
an expected future working lifetime assumption for purposes of allocating to periods the present value of total benefits
to be paid.
Healthcare cost trend rate—The expected rate of increase in healthcare insurance premiums was based on
projections of the Office of the Actuary at the Centers for Medicare & Medicaid Services. A rate of 9.5 percent initially,
reduced to an ultimate rate of 5.6 percent after six years, was used.
Health insurance premiums—20X1 health insurance premiums for retirees were used as the basis for calculation of
the present value of total benefits to be paid.
137
Inflation rate—The expected long-term inflation assumption of 3.3 percent was based on projected changes in the
Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) in The 20X1 Annual Report of the
Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds for an
intermediate growth scenario.
Payroll growth rate—The expected long-term payroll growth rate was assumed to equal the rate of inflation.
Based on the historical and expected returns of the town’s short-term investment portfolio, a discount rate of 5.5
percent was used. In addition, a simplified version of the entry age actuarial cost method was used. The unfunded
actuarial accrued liability is being amortized as a level percentage of projected payroll on an open basis. The
remaining amortization period at June 30, 20X1, was thirty years.
REQUIRED SUPPLEMENTARY INFORMATION
Schedule of Funding Progress
for the Retiree Health Plan
Actuarial
Valuation
Date
Actuarial
Value of
Assets
(a)
Actuarial
Accrued
Liability
(AAL)—
Simplified
Entry Age
(b)
Unfunded
AAL
(UAAL)
(b – a)
Funded
Ratio
(a / b)
Covered
Payroll
(c)
6/30/W9
6/30/X0
6/30/X1
$0
0
0
$581,802
608,254
636,997
$581,802
608,254
636,997
0.0%
0.0
0.0
$572,879
564,860
581,435
138
UAAL as a
Percentage of
Covered
Payroll
((b – a) / c)
101.6%
107.7
109.6
Appendix 6
ILLUSTRATIONS OF EQUIVALENT SINGLE AMORTIZATION PERIOD CALCULATIONS (FROM STATEMENTS
43 AND 45)
The following are examples of the calculations that, if applicable, are required by [paragraphs 34f(1) and 34f(2) of
Statement 43 and 13f(1) and 13f(2) of Statement 45]. When components of the total unfunded actuarial liability are
separately amortized over different periods, the individual periods are required to be selected so that the equivalent
single amortization period for all components combined does not exceed the maximum acceptable amortization
period. An equivalent single amortization period is a weighted average period calculated in accordance with
[paragraph 34f(2) of Statement 43 or paragraph 13f(2) of Statement 45]. For these illustrations, the maximum
acceptable period is thirty years. The data included in the examples are hypothetical and are not intended to indicate
endorsement of the amortization periods and methods shown. The amortization factors are based on the actuarial
assumptions and the amortization method and period. Use of a different formula for calculating the factors could
produce slightly different factors.
Example 1
Equivalent Single Amortization Period within the Maximum Acceptable Amortization Period
Example 2
Equivalent Single Amortization Period outside the Maximum Acceptable Amortization Period
Example 3
Recalculation of Example 2 So That the Equivalent Single Amortization Period Is within the
Maximum Acceptable Amortization Period
139
Example 1—Equivalent Single Amortization Period within the Maximum Acceptable Amortization Period
Lines 1, 2, and 3 of the example are given. The total unfunded actuarial liability (UAL) comprises three components
or bases (line 2). Each base is to be amortized as a level percentage of projected payroll over a different time period
(line 3). The assumptions are 8 percent investment return and 5 percent inflation; based on those assumptions, the level
percent discount rate is approximately 2.86 percent. Each amortization factor (line 4) incorporates that rate and the
period.
The amortization calculations for each of the three bases result in a total (net) amortization payment of 4.82 percent
of payroll (line 6, total column). If the employer continued to contribute at that rate and all else resulted as anticipated,
the total unfunded actuarial liability would be fully amortized in twenty-six years (equivalent single amortization period,
line 8). That period is within the maximum acceptable period of thirty years. Therefore, the amortization periods
selected for each base are acceptable.
1. Covered payroll
2. Amount of base
3. Remaining amortization
years
4. Amortization factor
based on (3)
5. Next year’s payment (2)/(4)
6. Payment as a level
percentage of payroll (5)/(1)
Base 1
Base 2
Base 3
Initial
UAL
Plan
Amendment
Cumulative
Loss (Gain)
$1,000,000
$400,000
$(100,000)
30
15
19.77
$50,582
11.94
$33,501
3.37%
2.23%
Total
$1,500,000
$1,300,000
10
8.51
$(11,751)
(0.78)%
$72,332
4.82%
Equivalent single period
7. Weighted average
amortization factor (2)/(5)
8. Equivalent single amortization
period (nearest whole year)*
17.97
26
*Number of years incorporated in the amortization factor (line 7) when the discount rate is 2.86 percent. An amortization factor incorporates a discount
rate and a period. When one is known, the other can be calculated.
140
Example 2—Equivalent Single Amortization Period outside the Maximum Acceptable Amortization Period
Lines 1, 2, and 3 of the example are given. The total unfunded actuarial liability (UAL) comprises three components
or bases (line 2). Each base is to be amortized as a level percentage of projected payroll over a different time period
(line 3). The assumptions are 8 percent investment return and 5 percent inflation; based on those assumptions, the level
percent discount rate is approximately 2.86 percent. Each amortization factor (line 4) incorporates that rate and the
period.
The amortization calculations for each of the three bases result in a total (net) amortization payment of 2.14 percent
of payroll (line 6, total column). If the employer continued to contribute at that rate and all else resulted as anticipated,
the total unfunded actuarial liability would be fully amortized in fifty-nine years (equivalent single amortization period,
line 8).
1. Covered payroll
2. Amount of base
3. Remaining amortization
years
4. Amortization factor
based on (3)
5. Next year’s payment (2)/(4)
6. Payment as a level
percentage of payroll (5)/(1)
Base 1
Base 2
Base 3
Initial
UAL
Plan
Amendment
Cumulative
Loss (Gain)
$1,000,000
$200,000
$(300,000)
30
15
19.77
$50,582
11.94
$16,750
3.37%
1.12%
Total
$1,500,000
$900,000
10
8.51
$(35,253)
(2.35)%
$32,079
2.14%
Equivalent single period
7. Weighted average
amortization factor (2)/(5)
8. Equivalent single amortization
period (nearest whole year)*
28.06
59
*Number of years incorporated in the amortization factor (line 7) when the discount rate is 2.86 percent. An amortization factor incorporates a discount
rate and a period. When one is known, the other can be calculated.
Based on the assumptions made, 2.14 percent of payroll is insufficient to amortize the total unfunded actuarial
liability in thirty years. One or more of the amortization periods selected for the individual bases should be changed.
One solution is to spread the cumulative gain over a longer period, thereby reducing the credit taken (lines 5 and 6,
base 3) and increasing the total (net) amortization payment. Example 3 presents that solution.
141
Example 3—Recalculation of Example 2 So That the Equivalent Single Amortization Period Is within the Maximum
Acceptable Amortization Period
Lines 1 through 8 are repeated from Example 2 and the same assumptions apply. Given those assumptions, the
minimum payment needed to pay off the total unfunded actuarial liability in thirty years (line 9) is $45,524, or
3.03 percent of payroll (lines 11 and 12).
One way to achieve the required minimum payment is to keep the amortization payments for the two loss bases
the same (line 13) and recalculate the maximum credit that can be taken for the cumulative gain (line 14). To achieve
that amount, the amortization factor for the cumulative gain should be 13.76 (line 15) instead of 8.51 (line 4). The
number of years incorporated in that factor when the discount rate is 2.86 percent is eighteen years (line 16); base 3
should be amortized over eighteen years, not ten years. Note that other solutions are possible, including various
combinations of shortening the periods for base 1 or base 2 and lengthening the period for base 3.
1. Covered payroll
2. Amount of base
3. Remaining amortization
years
4. Amortization factor
based on (3)
5. Next year’s payment (2)/(4)
6. Payment as a level
percentage of payroll (5)/(1)
Base 1
Base 2
Base 3
Initial
UAL
Plan
Amendment
Cumulative
Loss (Gain)
$1,000,000
$200,000
30
15
10
19.77
$50,582
11.94
$16,750
8.51
$(35,253)
3.37%
1.12%
$(300,000)
(2.35)%
Total
$1,500,000
$900,000
$32,079
2.14%
Equivalent single period
7. Weighted average
amortization factor (2)/(5)
8. Equivalent single amortization
period (nearest whole year)
28.06
59
Minimum payment
9. Maximum acceptable
average period
10. Amortization factor for (9)
11. Minimum next year’s
payment (2)/(10)
12. Minimum as a percentage
of payroll (11)/(1)
30
19.77
$45,524
3.03%
Adjusted amortization period for base 3
13. Payment for base 1
plus base 2 (5)
14. Maximum credit against
cumulative gain (11) – (13)
15. Base 3 amortization
factor (2)/(14)
16. Base 3 amortization years
$67,332
$(21,808)
13.76
18
142
Appendix 7
ILLUSTRATIONS OF CALCULATIONS USING THE ALTERNATIVE MEASUREMENT METHOD
This appendix illustrates calculations that, if applicable, are required for plans and employers that apply the
alternative measurement method provisions of paragraphs 38 through 40 of Statement 43 or paragraphs 33 through
35 of Statement 45. The facts assumed in the examples are illustrative only and are not intended to modify or limit the
requirements of this Statement or to indicate the Board’s endorsement of the policies or practices shown.
A single-employer or agent multiple-employer plan that meets the criteria in paragraph 38 of Statement 43 or a sole
or agent employer that meets any of the eligibility criteria in paragraph 11 of Statement 45 is permitted to apply the
alternative measurement method set forth in those Statements, which allows for certain simplifying modifications to
the selection of assumptions for purposes of measuring the annual required contribution of the employer (ARC) and
the plan’s actuarial accrued liabilities and funded status. The alternative measurement method includes the same
three broad measurement steps as an actuarial valuation:
1. Project future cash outflows for benefits. This step entails collecting and organizing in a spreadsheet format
essential information about the terms of the plan and the covered group. It also involves making and applying
assumptions about significant matters that will affect future cash flows. These include assumptions about future
employment and retirement, life expectancy, and healthcare cost trends. The result of this step will be a
spreadsheet of projected future cash outflows for benefits, by plan member (or by groups of plan members) and
in total, for each of the future years in which benefit payments are expected.
2. Discount projected benefits to their present value. This step involves discounting the projected future cash outflows
to present value, using as the discount rate the expected long-term rate of return on the assets expected to be
used to pay the benefits. For example, for a plan that is financed on a pay-as-you-go basis, for which no plan
assets have been set aside in a trust, or equivalent arrangement, the discount rate would be the expected
long-term rate of return on the employer government’s general investments.
3. Allocate the present value of projected benefits to periods using an actuarial cost method. This step involves the
allocation of the present value of benefits to financial reporting periods using one of the six actuarial cost methods
identified in paragraph 34d of Statement 43 or paragraph 13d of Statement 45. Through the allocation process, the
following elements are calculated:
a. The actuarial accrued liability, representing the portions of the present value of benefits attributed by the
actuarial cost method to prior periods
b. The ARC, which is the basis for calculating the employer’s annual OPEB cost (or expense) for the year.
This appendix includes an illustration of the projection of future benefit payments and the calculation of the present
value of total future benefit payments. Also illustrated are calculations of the ARC using combinations of actuarial cost
method and amortization method allowed by the Statements. Note that the following illustrations assume that the
same amortization method (level dollar or level percentage of payroll) is used in calculation of the normal cost and
amortization components of the ARC.
143
Illustration
Content
Illustration 1
Projection of future benefit payments and calculation of the present value of total
future benefit payments
Entry age—Level percentage of payroll
Entry age—Level dollar
Unit credit—Level percentage of payroll
Unit credit—Level dollar
Attained age—Level percentage of payroll
Attained age—Level dollar
Frozen entry age—Level percentage of payroll
Frozen entry age—Level dollar
Frozen attained age—Level percentage of payroll
Frozen attained age—Level dollar
Aggregate—Level percentage of payroll
Aggregate—Level dollar
Illustration
Illustration
Illustration
Illustration
Illustration
Illustration
Illustration
Illustration
Illustration
Illustration
Illustration
Illustration
2
3
4
5
6
7
8
9
10
11
12
13
The formats and methods illustrated are intended as illustrations of how the alternative measurement method might
be applied to particular facts and circumstances, including plan design, and might not be appropriate in other
circumstances. Similarly, the assumptions illustrated below would not necessarily be appropriate in circumstances
other than those assumed for purposes of illustration.
Facts and Assumptions
The following facts are assumed in the illustrations:
a. Plan terms—The plan is a single-employer defined benefit plan that pays 85 percent of the cost of healthcare
insurance premiums for qualified retirees and their spouses for the remainder of their lives. To qualify for
healthcare benefits under the plan, an employee is required to work for the town at least ten years and be at least
fifty-five years old when service with the town terminates. Insurance for retired individuals is provided through the
employer’s group plan, which covers both active and retired members. The health insurance coverage for retired
individuals has the same terms as the coverage for active employees, with the exception that the health insurance
coverage for retired individuals is secondary to Medicare.
b. Demographic information—The plan has eighteen members. There are a total of twenty-six plan members and
spouses, whose demographic information follows:
144
Member
#1
#2
#3
#4
#5
#6
#7
#8
#9
#10
#11
#12
#13
#14
#15
#16
#17
#18
Employment
Status
Gender
Number
of Years
Employed
Active
Active
Active
Active
Active
Active
Active
Active
Active
Active
Active
Active
Retired
Retired
Retired
Retired
Retired
Retired
M
F
F
M
M
M
M
M
F
F
F
M
F
M
M
F
M
M
10
3
6
1
25
12
8
2
13
4
2
1
20
35
25
30
18
32
Age at
Retirement
Current
Age*
Spouse’s
Current Age
42
30
38
26
50
52
56
66
65
62
60
63
46
28
40
34
58
52
40
33
36
30
25
22
60
68
75
71
64
deceased
62
70
81
*Current age is calculated as the difference between (1) the year as of the first day of the period for which the valuation is performed and (2) the
individual’s year of birth. For example, in this illustration the valuation is performed for the period beginning July 1, 2001, and Member #1 was born
in 1955. Therefore, the age of Member #1 is calculated as 2001 – 1955 = 46. In the calculations that follow, this age is assumed for the period
July 1, 2001, to June 30, 2002.
c. Expected point in time at which benefits will begin to be provided (Statement 43, paragraph 39b; Statement 45,
paragraph 34b)—Active employees are assumed to retire at age 62, which is the historical average age of
retirement for employees of this employer. If an employee would not yet qualify for benefits at age 62, the
employee is assumed to work until the year in which he or she becomes eligible, at which time the employee is
assumed to retire. Active employees age 62 or older who have qualified for postemployment benefits under the
plan are assumed to retire in the first projected year.
d. Marital status (Statement 43, paragraph 39c; Statement 45, paragraph 34c)—Members who currently have
spouses are assumed to be married to those spouses at retirement; those without spouses at the calculation date
are assumed to be single at and throughout retirement.
e. Mortality (Statement 43, paragraph 39d; Statement 45, paragraph 34d)—Life expectancies at the calculation date
are based on the most recent mortality tables published by the National Center for Health Statistics website
(www.cdc.gov). The 1999 United States Life Tables for Males and United States Life Tables for Females were used.
Life expectancies that included partial years were rounded to the nearest whole year. For example, 54.4 years was
rounded to 54 years. The calculation of postemployment health insurance coverage for each year is based on the
assumption that all participants will live until their expected age as displayed in the mortality tables.
145
Remaining Life Expectancy at Current Age
#1
#2
#3
#4
#5
#6
#7
#8
#9
Member
Spouse
31 years
53
41
42
21
26
37
43
45
39 years
46
38
54
32
30
Member
#10
#11
#12
#13
#14
#15
#16
#17
#18
51 years
55
53
23
14
10
15
17
deceased
Spouse
22 years
15
9
The average remaining life expectancy is calculated to be thirty-three years.
f. Turnover (Statement 43, paragraph 39e; Statement 45, paragraph 34e)—The probability that an employee will
remain employed until the assumed retirement age was determined using non-group-specific age-based turnover
data provided in Table 1 in paragraph 40b of Statement 43 or in paragraph 35b of Statement 45. In addition, the
expected future working lifetimes of employees were determined using Table 2 in paragraph 40c of Statement 43
or in paragraph 35c of Statement 45.
Member
Entry
Age
Probability
of Remaining
Employed from
Entry Age
until
Retirement
#1
#2
#3
#4
#5
#6
#7
#8
#9
#10
#11
#12
#13–#18
36
25
34
33
33
40
32
31
23
26
23
21
N/A
0.753
0.440
0.703
0.677
0.677
0.841
0.650
0.622
0.379
0.472
0.379
0.321
1.000
Expected
Future
Working
Lifetime at
Entry Age
21
21
22
22
22
19
22
22
20
21
20
19
N/A
Current
Age
Probability
of Remaining
Employed
from
Current Age
until
Retirement
Expected
Future
Working
Lifetime at
Current Age
46
28
40
34
58
52
40
33
36
30
25
22
N/A
0.943
0.534
0.841
0.703
1.000
1.000
0.841
0.677
0.753
0.593
0.440
0.349
1.000
15
22
19
22
4
10
19
22
21
22
21
19
N/A
g. Healthcare cost trend rate (Statement 43, paragraph 39f; Statement 45, paragraph 34f)—The expected rate of
increase in healthcare insurance premiums is based on the most recent projections as of the calculation date
made by the Office of the Actuary at the Centers for Medicare & Medicaid Services, as published in National Health
Care Expenditures Projections: 2000–2010, Table 3: National Health Expenditures, Aggregate & Per Capita
Amounts, Percent Distribution, and Average Annual Percent Change by Source of Funds: Selected Calendar Years
1980–2010, published in March 2001 by the Health Care Financing Administration (www.cms.hhs.gov). Healthcare insurance premiums are expected to increase as follows:
146
For the Year
Ended 6/30
Increase from
Previous Year
2002
2003
2004
2005
2006
2007
2008 and later
9.50%
9.30
8.30
7.60
6.70
6.10
5.60
h. Health insurance premiums (Statement 43, paragraph 39g; Statement 45, paragraph 34g)—Because the terms of
the plan cover a portion of the cost of healthcare insurance premiums for retired participants and premiums are
assessed separately for the retiree group, the amount of current healthcare insurance premiums has been used
as a basis for calculating the present value of benefits to be paid. For the year ended June 30, 2001, annual retiree
health insurance premiums were:
Category
Pre–Age 65 (Not Medicare eligible)
Single
Married (Employee and spouse under 65)
Ages 65 and Older (Medicare eligible)
Single
Married (Employee and spouse 65 or older)
Married (Employee or spouse 65 or older)
Total
Premium
Employer Portion
(85% of Total)
$ 5,266
10,913
$4,476
9,276
2,118
4,376
7,384
1,800
3,720
6,276
The employer pays premiums monthly. However, for purposes of the calculations, it is assumed that contributions
are made at the end of the year, and results are adjusted for interest on contributions made over the period.
i. Discount rate (Statement 43, paragraph 34c; Statement 45, paragraph 13c)—Because the town finances OPEB
using a pay-as-you-go approach, the discount rate is based on the historical (and expected future) returns of its
short-term investment portfolio (the current and expected investments that are expected to be used in financing
the payment of benefits). The town expects to earn an average of 5.5 percent on these investments in the future.
j. Other economic assumptions (Statement 43, paragraph 34c; Statement 45, paragraph 13c)—The expected
long-term inflation assumption of 3.3 percent is based on projected changes in the Consumer Price Index for
Urban Wage Earners and Clerical Workers (CPI-W) in The 2001 Annual Report of the Board of Trustees of the
Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds (the most recent projections made
as of the calculation date) for an intermediate growth scenario. The payroll growth rate is assumed to equal the
long-term inflation assumption.
k. Actuarial cost method (Statement 43, paragraph 34d; Statement 45, paragraph 13d)—The ARC in each illustration
is determined using one of six specified actuarial cost methods (aggregate, attained age, entry age, frozen
attained age, frozen entry age, and [projected] unit credit). When the aggregate actuarial cost method is used to
calculate the ARC, the entry age actuarial cost method is used to calculate information presented in the schedule
of funding progress.
l. Actuarial value of plan assets (Statement 43, paragraph 34e; Statement 45, paragraph 13e)—The town does not
accumulate assets in a dedicated trust, or equivalent arrangement, for purposes of funding its retiree healthcare
obligation. Therefore, the actuarial value of plan assets is zero.
147
m. Annual required contributions of the employer (ARC) (Statement 43, paragraph 34f; Statement 45, paragraph 13f)—In the illustration of the aggregate cost method, the frozen entry age cost method, and the frozen
attained age cost method, the present value of future normal costs is amortized on an open basis over the average
remaining service life of active plan members. In all other illustrations, the unfunded actuarial accrued liability is
amortized on an open basis over the average remaining life expectancy of all participants or thirty years,
whichever is shorter.
148
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Illustration 1
Projection of Future Benefit Payments and Calculation of Present Value of Total Future Benefits to Be Paid
Town of Espresso
Date of Calculation: 6/30/2001
See note 1.
See note 2.
Member
#1
#2
#3
#4
#5
#6
#7
#8
#9
#10
#11
#12
#13
#14
#15
#16
#17
#18
CURRENT-AGE TOTAL
BENEFITS TO BE PAID
$
2002
—
—
—
—
—
—
—
—
—
—
—
—
5,036
7,061
4,185
2,025
5,036
2,025
See note 8.
$ 25,368
$
Projected Future Benefit Payments for the Year Ending June 30,
2003
2004
2005
2006
2007
2008
—
—
—
—
—
—
—
—
—
—
—
—
5,504
7,718
4,575
2,214
2,214
2,214
$ 24,439
See note 9.
CURRENT-AGE INTEREST-DISCOUNTED
PRESENT VALUE OF TOTAL
BENEFITS TO BE PAID
$ 24,045 $ 21,957
$
— $
—
—
—
—
—
—
—
—
See—
note 4.
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5,961
6,414
8,358
5,331
4,954
5,331
2,397
2,579
2,397
2,579
2,397
2,579
$ 26,464 $ 24,813
$ 22,537
$ 20,029
$
$
—
—
—
—
15,891
—
—
—
—
—
—
—
3,084
6,373
6,373
3,084
3,084
3,084
$ 40,973
—
—
—
—
11,354
—
—
—
—
—
—
—
3,256
6,730
6,730
3,256
3,256
3,256
$ 37,838
$
31,110
$ 28,166
$ 24,655
$ 28,139
$
Notes:
1. The calculation is made using data as of June 30, 2001, to estimate the employer's required contribution for the
period from July 1, 2001, to June 30, 2002.
2. The amounts under columns labeled years 2002–2057 are the expected annual postemployment health
insurance premiums for plan members and their spouses, calculated by adjusting the current-year premium for
(a) the effects of assumed healthcare cost inflation, (b) the effects of changes in age and marital status (due to
death of a spouse) of participants, and (c) the implicit assumption that the premium payment is made at the end
of the year instead of on a monthly basis. (See note 4 for an example of the calculation.)
3. These values are calculated as the net present value at the calculation date of the series of projected
benefit payments at the assumed discount rate of 5.5 percent.
4. This amount is calculated as the premium for a member and spouse who are both pre-age 65, inflated to 2006
using the assumed healthcare inflation rates: $9,276 x (1.095 x 1.093 x 1.083 x 1.076 x 1.067) = $13,803, plus
1/2 year of interest at the assumed discount rate to adjust for interest on contributions made over the period
(see note 2(c)): $13,803 x (0.055 ÷ 2) = $380. The total amount equals $13,803 + $380 = $14,183.
5. Insurance premiums for a married couple are calculated (using the appropriate “married” insurance premium
rates) beginning with the year in which the plan member is assumed to retire.
150
$
2009
— $
—
—
—
—
—
—
—
14,183
15,049
—
—
—
—
—
—
—
—
6.
— See note —
—
—
—
—
6,844
2,920
5,688
6,035
5,688
6,035
2,752
2,920
2,752
2,920
2,752
2,920
40,659 $ 38,799
See note 3.
$
2010
$
2011
2012
2013
...
2057
—
$
— $
—
—
—
—
—
—
—
—
—
—
12,661
13,370
14,119
—
19,761
20,868
—
—
—
—
—
—
See note
— 5.
—
—
See
—
— note 7. —
—
—
—
—
—
—
3,631
3,835
4,049
7,505
7,925
8,369
7,505
3,835
4,049
3,631
3,835
4,049
3,631
3,835
4,049
—
—
—
$ 38,564 $ 56,396 $ 59,552
...
...
...
...
...
...
...
...
...
...
...
...
...
...
...
...
...
...
...
—
—
—
—
—
—
—
—
—
—
42,164
—
—
—
—
—
—
—
$ 42,164
$
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$ 24,680
$ 22,577
...
$
$
—
$ 31,295
$ 31,323
$
2056
—
—
—
—
11,990
—
—
—
—
—
—
—
3,439
7,107
7,107
3,439
3,439
3,439
$ 39,960
2,218
Current-Age
Total Benefits to
Be Paid
$
456,337
796,554
532,041
1,060,128
330,132
274,296
201,260
271,564
340,571
472,269
575,641
454,578
116,665
148,895
79,928
49,742
63,107
24,666
$ 6,248,374
Current-Age
Interest-Discounted
Present Value of
Total Benefits to
Be Paid
$
116,250
82,634
104,318
134,275
142,412
99,242
42,107
40,192
51,045
51,335
49,359
38,396
63,640
86,087
53,538
31,406
38,539
18,621
$ 1,243,396
6. In this year, the projected payment for Member #13 changes because the member turns 65 and the
plan's premium structure reflects different premiums for pre- and post-age 65.
7. Upon the assumed death of the married member, calculations continue to be made for the
surviving spouse, using the premiums for a single individual and reflecting the age of the spouse.
8. The amount reported for each year in the Current-age total benefits to be paid row is the sum of
projected payments for all plan members and spouses in that period.
9. The amount reported for each year in the Current-age interest-discounted present value of total
benefits to be paid row is the amount of total projected future benefit payments by year for that year,
discounted to the calculation date at the assumed discount rate of 5.5 percent per year. For example,
in 2002, the present value is calculated as $25,368 ÷ (1.055n ), where n equals the number of years
over which the amount is to be discounted. (In 2002, n = 1.) In 2003, n = 2, and the present value is
calculated as $24,439 ÷ (1.0552), or $21,957.
151
Illustration 2
Calculation of the ARC Using the Entry Age Cost Method
with Level Percentage of Payroll Normal Costs and the UAAL Amortized as a Level Percentage of Payroll
Town of Espresso
Date of Calculation 6/30/2001
See note 1.
Member
#1
#2
#3
#4
#5
#6
#7
#8
#9
#10
#11
#12
#13
#14
#15
#16
#17
#18
Years of
Past
Service
(a)
10
3
6
1
25
12
8
2
13
4
2
1
Current-Age
Interest-Discounted
Present Value of
Total Benefits to
Be Paid
(b)
$
116,250
82,634
104,318
134,275
142,412
99,242
42,107
40,192
51,045
51,335
49,359
38,396
63,640
86,087
53,538
31,406
38,539
18,621
$ 1,243,396
See note 2.
See note 3.
Probability
of Remaining
Employed
from Current
Age Until
Retirement Age
(c)
0.943
0.534
0.841
0.703
1.000
1.000
0.841
0.677
0.753
0.593
0.440
0.349
1.000
1.000
1.000
1.000
1.000
1.000
Probability
of Remaining
Employed
from Entry
Age Until
Retirement Age
(d)
0.753
0.440
0.703
0.677
0.677
0.841
0.650
0.622
0.379
0.472
0.379
0.321
0.753
0.622
0.841
0.650
0.879
0.622
See note 4.
Current-Age
Probability-Adjusted
Interest-Discounted
Present Value of Total
Benefits to Be Paid
(e) = (b) x (c)
$
109,624
44,127
87,731
94,395
142,412
99,242
35,412
27,210
38,437
30,442
21,718
13,400
63,640
86,087
53,538
31,406
38,539
18,621
$ 1,035,981
For explanation of notes, see pages 154 and 155.
152
See note 5.
Entry-Age
Probability-Adjusted
Interest-Discounted
Present Value of Total
Benefits to Be Paid
(f) = [(b) / (1 + discount
rate)(a)] x (d)
$ 51,246
30,964
53,186
86,165
25,283
43,900
17,834
22,461
9,645
19,559
16,807
11,683
See notes 6 and 7.
PV Factor of $1
per Year Over
Expected Future
Working Lifetime
(at Entry Age)
(g)
17.1486
17.1486
17.7910
17.7910
17.7910
15.8224
17.7910
17.7910
16.4925
17.1486
16.4925
15.8224
See note 8.
Normal Cost at
Entry Age
(h) = (f) / (g)
$ 2,988
1,806
2,989
4,843
1,421
2,775
1,002
1,262
585
1,141
1,019
738
Normal Cost at
Current Age
(i)
$ 4,134
1,991
3,632
5,003
3,200
4,097
1,299
1,347
892
1,299
1,087
762
See notes 6 and 9.
PV Factor of $1
per Year Over
Expected Future
Working Lifetime
(at Current Age)
(j)
12.9965
17.7910
15.8224
17.7910
3.8766
9.1119
15.8224
17.7910
17.1486
17.7910
17.1486
15.8224
Present Value of
Future Normal
Cost
(k) = (i) x (j)
$ 53,728
35,422
57,467
89,008
12,405
37,331
20,553
23,964
15,297
23,111
18,641
12,057
Because at the calculation date these members
have qualified to receive benefits, the entire
present value of benefits is allocated to past
periods (the AAL).
$
28,743
ARC Calculation
Normal Cost Component
Normal cost
Interest
Total normal cost
$
Amortization Component
AAL
Less: Assets
UAAL
Divided by PV factor
Amortization payment
Interest
Total amortization payment
Annual required contribution
153
28,743
1,581
30,324
636,997
—
636,997
22.4707
28,348
1,559
29,907
$
60,231
See note 10.
See notes 6 and 11.
See note 10.
AAL
(e) – (k)
$
55,896
8,705
30,264
5,387
130,007
61,911
14,859
3,246
23,140
7,331
3,077
1,343
63,640
86,087
53,538
31,406
38,539
18,621
$ 636,997
Notes to Illustration 2:
1. From Illustration 1.
2. Members who currently are receiving benefits are assigned a probability of 1.000. For other members, the
probability is obtained from Table 1 in paragraph 40b of Statement 43 or paragraph 35b of Statement 45. For
example, Member #2 currently is age 28, and plan members are assumed to retire at age 62. Therefore, using
Statement 43, paragraph 40b, or Statement 45, paragraph 35b, the member’s probability of remaining employed
from age 28 to age 62 is 0.534.
3. Each member’s probability of remaining employed until retirement age, calculated at entry age, is obtained from
Table 1 in paragraph 40b of Statement 43 or paragraph 35b of Statement 45. For example, Member #2 entered
service at age 25 and is assumed to retire at age 62. Therefore, using Statement 43, paragraph 40b, or Statement
45, paragraph 35b, the member’s probability of remaining employed from age 25 to age 62 is 0.440.
4. This column is the current-age interest-discounted present value of total benefits to be paid from column b for each
member, adjusted for the member’s probability of remaining employed from current age until retirement age from
column c. For example, the current-age probability-adjusted interest-discounted present value of total benefits to
be paid for Member #2 ($44,127) is calculated as the current-age interest-discounted present value of total benefits
to be paid ($82,634) multiplied by the member’s probability of remaining employed until retirement age calculated
at the member’s current age (0.534), or $82,634 × 0.534 = $44,127.
5. This column is the current-age interest-discounted present value of total benefits to be paid from column b for each
member, discounted to the member’s entry age and adjusted for the member’s probability of remaining employed
from entry age until retirement age from column d. For example, Member #2 began service at age 25 and currently
is age 28. Therefore, the entry-age probability-adjusted interest-discounted present value of total benefits to be
paid for Member #2 ($30,964) is calculated as follows:
a. The current-age interest-discounted present value of total benefits to be paid from column a ($82,634) is
discounted three years (the period from age 25 to age 28) at the assumed investment rate of return
(5.5 percent), or $82,634 ÷ (1 + 0.055)3 = $70,372.
b. The result of step a is multiplied by the member’s probability of remaining employed until retirement age
calculated at the member’s entry age from column d (0.440), or $70,372 × 0.440 = $30,964.
6. Present value factors can be obtained from a present value table for an annuity due (which assumes contributions
at the beginning of each period). The present value factor also can be derived from a present value table for an
ordinary annuity. Using an ordinary annuity table, the present value factor is determined as 1 + (PV of an ordinary
annuity over (n – 1) periods at the assumed discount rate (r ). Alternatively, the present value factor can be
calculated directly as 1 + [(1 – (1 + r )(–(n – 1))) ÷ r ].
When using the level percent of payroll method, the discount rate (r ) is calculated as (1 + investment rate of return)
÷ (1 + payroll growth rate)] – 1. The payroll growth rate has been set to the inflation rate. Therefore, in this example,
the discount rate is calculated to be [(1 + 0.055) ÷ (1 + 0.033)] – 1, or 2.12971 percent.
7. In the calculation in column g, the number of periods (n) is the member’s expected future working lifetime from
Table 2 in paragraph 40c of Statement 43 or paragraph 35c of Statement 45 at the member’s entry age. For
example, Member #2 entered service at age 25. Using Statement 43, paragraph 40c, or Statement 45, paragraph
35c, at age 25, the member’s expected future working lifetime is twenty-one years.
154
The assumed discount rate is calculated in note 6 as [(1 + 0.055) ÷ (1 + 0.033)] – 1, or 2.12971 percent. Therefore,
the PV factor is calculated using the formula in that note as 1 + [(1 – (1.0212971(–20))) ÷ 0.0212971] = 1 +
(0.343918 ÷ 0.0212971) = 17.1486.
8. This column is each member’s normal cost at entry age, inflated to current age using the payroll growth rate, which
has been set to the inflation rate (i). Normal cost at current age is calculated as normal cost at entry age ×
(1 + i)n, where n is the number of years from entry age to current age. In this example, the assumed inflation rate
is 3.3 percent, and Member #2 has three years of past service—she entered at age 25 and currently is age 28.
Therefore, normal cost at the member’s current age is calculated as $1,806 × (1 + 0.033)3, or $1,991.
9. In the calculation in column j, the number of periods (n) is the member’s expected future working lifetime from
Table 2 in paragraph 40c of Statement 43 or paragraph 35c of Statement 45 at the member’s current age. For
example, Member #2 currently is age 28. Using Statement 43, paragraph 40c, or Statement 45, paragraph 35c,
at age 28, the member’s expected future working lifetime is twenty-two years.
The assumed discount rate is calculated in note 6 as [(1 + 0.055) ÷ (1 + 0.033)] – 1, or 2.12971 percent. Therefore,
the PV is calculated as 1 + [(1 – (1.0212971(–21))) ÷ 0.0212971] = 1 + (0.357599 ÷ 0.0212971) = 17.7910.
10. The normal cost and amortization components are calculated as beginning-of-year amounts. This step adds
interest to the end of the period at the assumed investment rate of return (5.5 percent). Interest on the normal cost
component is calculated as $28,743 × 0.055 = $1,581, and interest on the amortization component is calculated
as $28,348 × 0.055 = $1,559.
11. In accordance with paragraph 34f(1) of Statement 43 or paragraph 13f(1) of Statement 45, the number of periods
(n) over which the UAAL is amortized should not exceed thirty years. In this example, the employer has chosen
to amortize the UAAL as a level percentage of payroll over the lesser of the average remaining life expectancy
of the group or thirty years. Because the average remaining life expectancy of the group is thirty-three
years, the UAAL is amortized over thirty years. Therefore, using the discount rate calculated in note 6 and the
present value formula in that note, the present value factor used to amortize the UAAL is calculated as
1 + [(1 – (1.0212971(–29))) ÷ 0.0212971] = 1 + (0.4572634 ÷ 0.0212971) = 22.4707.
155
Illustration 3
Calculation of the ARC Using the Entry Age Cost Method
with Level Dollar Normal Costs and the UAAL Amortized as a Level Dollar Amount
Town of Espresso
Date of Calculation 6/30/2001
See note 1.
Member
#1
#2
#3
#4
#5
#6
#7
#8
#9
#10
#11
#12
#13
#14
#15
#16
#17
#18
Years of
Past
Service
(a)
10
3
6
1
25
12
8
2
13
4
2
1
Current-Age
Interest-Discounted
Present Value of
Total Benefits to
Be Paid
(b)
$
116,250
82,634
104,318
134,275
142,412
99,242
42,107
40,192
51,045
51,335
49,359
38,396
63,640
86,087
53,538
31,406
38,539
18,621
$ 1,243,396
See note 2.
See note 3.
Probability
of Remaining
Employed
from Current
Age Until
Retirement Age
(c)
0.943
0.534
0.841
0.703
1.000
1.000
0.841
0.677
0.753
0.593
0.440
0.349
1.000
1.000
1.000
1.000
1.000
1.000
Probability
of Remaining
Employed
from Entry
Age Until
Retirement Age
(d)
0.753
0.440
0.703
0.677
0.677
0.841
0.650
0.622
0.379
0.472
0.379
0.321
0.753
0.622
0.841
0.650
0.879
0.622
See note 4.
Current-Age
Probability-Adjusted
Interest-Discounted
Present Value of Total
Benefits to Be Paid
(e) = (b) x (c)
$
109,624
44,127
87,731
94,395
142,412
99,242
35,412
27,210
38,437
30,442
21,718
13,400
63,640
86,087
53,538
31,406
38,539
18,621
$ 1,035,981
For explanation of notes, see pages 158 and 159.
156
See note 5.
Entry-Age
Probability-Adjusted
Interest-Discounted
Present Value of Total
Benefits to Be Paid
(f) = [(b) / (1 + discount
rate)(a)] x (d)
$ 51,246
30,964
53,186
86,165
25,283
43,900
17,834
22,461
9,645
19,559
16,807
11,683
See notes 6 and 7.
PV Factor of $1
per Year Over
Expected Future
Working Lifetime
(at Entry Age)
(g)
12.9504
12.9504
13.2752
13.2752
13.2752
12.2461
13.2752
13.2752
12.6077
12.9504
12.6077
12.2461
See notes 6 and 8.
PV Factor of $1
per Year Over
Expected Future
Working Lifetime
(at Current Age)
(i)
10.5896
13.2752
12.2461
13.2752
3.6979
7.9522
12.2461
13.2752
12.9504
13.2752
12.9504
12.2461
Normal Cost at
Current Age
(h) = (f) / (g)
$ 3,957
2,391
4,006
6,491
1,905
3,585
1,343
1,692
765
1,510
1,333
954
Present Value of
Future Normal
Cost
(j) = (h) x (i)
$
41,903
31,741
49,058
86,169
7,044
28,509
16,447
22,462
9,907
20,046
17,263
11,683
Because at the calculation date these members
have qualified to receive benefits, the entire present
value of benefits is allocated to past periods (the
AAL).
$ 29,932
AAL
(e) – (j)
$
67,721
12,386
38,673
8,226
135,368
70,733
18,965
4,748
28,530
10,396
4,455
1,717
63,640
86,087
53,538
31,406
38,539
18,621
$ 693,749
ARC Calculation
Normal Cost Component
Normal cost
Interest
Total normal cost
$
Amortization Component
AAL
Less: Assets
UAAL
Divided by PV factor
Amortization payment
Interest
Total amortization payment
Annual required contribution
157
29,932
1,646
31,578
693,749
—
693,749
15.3331
45,245
2,488
47,733
$
79,311
See note 9.
See notes 6 and 10.
See note 9.
Notes to Illustration 3:
1. From Illustration 1.
2. Members who currently are receiving benefits are assigned a probability of 1.000. For other members, the
probability is obtained from Table 1 in paragraph 40b of Statement 43 or paragraph 35b of Statement 45. For
example, Member #2 currently is age 28, and plan members are assumed to retire at age 62. Therefore, using
Statement 43, paragraph 40b, or Statement 45, paragraph 35b, the member’s probability of remaining employed
from age 28 to age 62 is 0.534.
3. Each member’s probability of remaining employed until retirement age, calculated at entry age, is obtained from
Table 1 in paragraph 40b of Statement 43 or paragraph 35b of Statement 45. For example, Member #2 entered
service at age 25 and is assumed to retire at age 62. Therefore, using Statement 43, paragraph 40b, or Statement
45, paragraph 35b, the member’s probability of remaining employed from age 25 to age 62 is 0.440.
4. This column is the current-age interest-discounted present value of total benefits to be paid from column b for each
member, adjusted for the member’s probability of remaining employed from current age until retirement age from
column c. For example, the current-age probability-adjusted interest-discounted present value of total benefits to
be paid for Member #2 ($44,127) is calculated as the current-age interest-discounted present value of total benefits
to be paid ($82,634) multiplied by the member’s probability of remaining employed until retirement age calculated
at the member’s current age (0.534), or $82,634 × 0.534 = $44,127.
5. This column is the current-age interest-discounted present value of total benefits to be paid from column b for each
member, discounted to the member’s entry age and adjusted for the member’s probability of remaining employed
from entry age until retirement age from column d. For example, Member #2 began service at age 25 and currently
is age 28. Therefore, the entry-age probability-adjusted interest-discounted present value of total benefits to be
paid for Member #2 ($30,964) is calculated as follows:
a. The current-age interest-discounted present value of total benefits to be paid from column a ($82,634) is
discounted three years (the period from age 25 to age 28) at the assumed investment rate of return
(5.5 percent), or $82,634 ÷ (1 + 0.055)3 = $70,372.
b. The result of step a is multiplied by the member’s probability of remaining employed until retirement age
calculated at the member’s entry age from column d (0.440), or $70,372 × 0.440 = $30,964.
6. Present value factors can be obtained from a present value table for an annuity due (which assumes contributions
at the beginning of each period). The present value factor also can be derived from a present value table for an
ordinary annuity. Using an ordinary annuity table, the present value factor is determined as 1 + (PV of an ordinary
annuity over (n – 1) periods at the assumed discount rate (r )). Alternatively, the present value factor can be
calculated directly as 1 + [(1 – (1 + r )(–(n – 1))) ÷ r ].
When using the level dollar method, the discount rate (r ) used to determine the PV factor is the assumed
investment rate of return. In this example, the assumed investment rate of return is 5.5 percent.
7. In the calculation in column g, the number of periods (n ) is the member’s expected future working lifetime from
Table 2 in paragraph 40c of Statement 43 or paragraph 35c of Statement 45 at the member’s entry age. For
example, Member #2 entered service at age 25. Using Statement 43, paragraph 40c, or Statement 45, paragraph
35c, at age 25, the member’s expected future working lifetime is twenty-one years.
The assumed discount rate is 5.5 percent; therefore, the PV factor is calculated using the formula in note 6 as
1 + [(1 – (1.055(–20))) ÷ 0.055] = 1 + (0.6572710 ÷ 0.055) = 12.9504.
158
8. In the calculation in column i, the number of periods (n ) is the member’s expected future working lifetime from
paragraph 40c of Statement 43 or paragraph 35c of Statement 45 at the member’s current age. For example,
Member #2 currently is age 28. Using Statement 43, paragraph 40c, or Statement 45, paragraph 35c, at age 28,
the member’s expected future working lifetime is twenty-two years.
The assumed discount rate is 5.5 percent; therefore, the PV factor is calculated using the formula in note 6 as
1 + [(1 – (1.055(–21))) ÷ 0.055] = 1 + (0.6751384 ÷ 0.055) = 13.2752.
9. The normal cost and amortization components are calculated as beginning-of-year amounts. This step adds
interest to the end of the period at the assumed investment rate of return (5.5 percent). Interest on the normal cost
component is calculated as $29,932 × 0.055 = $1,646, and interest on the amortization component is calculated
as $45,245 × 0.055 = $2,488.
10. In accordance with paragraph 34f(1) of Statement 43 or paragraph 13f(1) of Statement 45, the number of periods
(n ) over which the UAAL is amortized should not exceed thirty years. In this example, the employer has chosen
to amortize the UAAL as a level dollar amount over the lesser of the average remaining life expectancy of the
group or thirty years. Because the average remaining life expectancy of the group is thirty-three years, the UAAL
is amortized over thirty years. Therefore, using the discount rate of 5.5% and the present value formula in note 6,
the present value factor used to amortize the UAAL is calculated as 1 + [(1 – (1.055(–29))) ÷ 0.055] =
1 + (0.7883206 ÷ 0.055) = 15.3331.
159
Illustration 4
Calculation of the ARC Using the Unit Credit Cost Method
with the UAAL Amortized as a Level Percentage of Payroll
Town of Espresso
Date of Calculation 6/30/2001
Member
#1
#2
#3
#4
#5
#6
#7
#8
#9
#10
#11
#12
#13
#14
#15
#16
#17
#18
Years of
Past
Service
(a)
10
3
6
1
25
12
8
2
13
4
2
1
Current
Age
(b)
46
28
40
34
58
52
40
33
36
30
25
22
Assumed Age
at Retirement
(c)
62
62
62
62
62
62
62
62
62
62
62
62
See note 1.
See note 2.
Current-Age
Interest-Discounted
Present Value of
Total Benefits to
Be Paid
(d)
Probability
of Remaining
Employed from
Current Age
Until Assumed
Retirement Age
(e)
$
116,250
82,634
104,318
134,275
142,412
99,242
42,107
40,192
51,045
51,335
49,359
38,396
63,640
86,087
53,538
31,406
38,539
18,621
$ 1,243,396
ARC Calculation
Normal Cost Component
Normal cost
Interest
Total normal cost
$
Amortization Component
AAL
Less: Assets
UAAL
Divided by PV factor
Amortization payment
Interest
Total amortization payment
Annual required contribution
25,993
1,430
27,423
565,369
—
565,369
22.4707
25,160
1,384
26,544
$
53,967
160
See note 4.
See notes 5 and 6.
See note 4.
0.943
0.534
0.841
0.703
1.000
1.000
0.841
0.677
0.753
0.593
0.440
0.349
1.000
1.000
1.000
1.000
1.000
1.000
See note 3.
Current-Age
Probability-Adjusted
Interest-Discounted
Present Value of
Total Benefits to
Be Paid
(f) = (d) x (e)
$
$
109,624
44,127
87,731
94,395
142,412
99,242
35,412
27,210
38,437
30,442
21,718
13,400
63,640
86,087
53,538
31,406
38,539
18,621
1,035,981
Projected Service
Years
at Retirement
(g) = (c) – (b) + (a)
26
37
28
29
29
22
30
31
39
36
39
41
Normal Cost at
Current Age
(h) = (f) / (g)
$
4,216
1,193
3,133
3,255
4,911
4,511
1,180
878
986
846
557
327
Because at the calculation date
these members have qualified to
receive benefits, the entire
present value of benefits is
allocated to past periods (the
AAL).
$ 25,993
For explanation of notes, see page 162.
161
$
AAL
(h) x (a)
42,160
3,579
18,798
3,255
122,775
54,132
9,440
1,756
12,818
3,384
1,114
327
63,640
86,087
53,538
31,406
38,539
18,621
$ 565,369
Notes to Illustration 4:
1. From Illustration 1.
2. Members who currently are receiving benefits are assigned a probability of 1.000. For other members, the
probability is obtained from Table 1 in paragraph 40b of Statement 43 or paragraph 35b of Statement 45. For
example, Member #2 currently is age 28, and plan members are assumed to retire at age 62. Therefore, using
Statement 43, paragraph 40b, or Statement 45, paragraph 35b, the member’s probability of remaining employed
from age 28 to age 62 is 0.534.
3. This column is the current-age interest-discounted present value of total benefits to be paid from column d for each
member, adjusted for the member’s probability of remaining employed from current age until retirement age from
column e. For example, the current-age probability-adjusted interest-discounted present value of total benefits to
be paid for Member #2 ($44,127) is calculated as the current-age interest-discounted present value of total benefits
to be paid ($82,634) multiplied by the member’s probability of remaining employed until retirement age calculated
at the member’s current age (0.534), or $82,634 × 0.534 = $44,127.
4. The normal cost and amortization components are calculated as beginning-of-year amounts. This step adds
interest to the end of the period at the assumed investment rate of return (5.5 percent). Interest on the normal cost
component is calculated as $25,993 × 0.055 = $1,430, and interest on the amortization component is calculated
as $25,160 × 0.055 = $1,384.
5. Present value factors can be obtained from a present value table for an annuity due (which assumes contributions
at the beginning of each period). The present value factor also can be derived from a present value table for an
ordinary annuity. Using an ordinary annuity table, the present value factor is determined as 1 + (PV of an ordinary
annuity over (n – 1) periods at the assumed discount rate (r )). Alternatively, the present value factor can be
calculated directly as 1 + [(1 – (1 + r )(–(n – 1))) ÷ r ]. When using the level percent of payroll method, the discount
rate (r ) is calculated as [(1 + investment rate of return) ÷ (1 + payroll growth rate)] – 1. The payroll growth rate has
been set to the inflation rate. Therefore, in this example, the discount rate is calculated to be [(1 + 0.055) ÷
(1 + 0.033)] – 1, or 2.12971 percent.
6. In accordance with paragraph 34f(1) of Statement 43 or paragraph 13f(1) of Statement 45, the number of periods
(n ) over which the UAAL is amortized should not exceed thirty years. In this example, the employer has chosen
to amortize the UAAL as a level percentage of payroll over the lesser of the average remaining life expectancy of
the group or thirty years. Because the average remaining life expectancy of the group is thirty-three years, the
UAAL is amortized over thirty years. Therefore, using the discount rate calculated in note 5 and the present value
formula in that note, the present value factor used to amortize the UAAL is calculated as 1 + [(1 – (1.0212971(–29)))
÷ 0.0212971] = 1 + (0.4572634 ÷ 0.0212971) = 22.4707.
162
(This page intentionally left blank.)
#1
#2
#3
#4
#5
#6
#7
#8
#9
#10
#11
#12
#13
#14
#15
#16
#17
#18
Member
164
10
3
6
1
25
12
8
2
13
4
2
1
Years of
Past
Service
(a)
46
28
40
34
58
52
40
33
36
30
25
22
Current
Age
(b)
62
62
62
62
62
62
62
62
62
62
62
62
Assumed
Age at
Retirement
(c)
116,250
82,634
104,318
134,275
142,412
99,242
42,107
40,192
51,045
51,335
49,359
38,396
63,640
86,087
53,538
31,406
38,539
18,621
$ 1,243,396
$
Current-Age
Interest-Discounted
Present Value of
Total Benefits to
Be Paid
(d)
See note 1.
0.943
0.534
0.841
0.703
1.000
1.000
0.841
0.677
0.753
0.593
0.440
0.349
1.000
1.000
1.000
1.000
1.000
1.000
Probability
of Remaining
Employed from
Current Age
Until Assumed
Retirement Age
(e)
See note 2.
$
109,624
44,127
87,731
94,395
142,412
99,242
35,412
27,210
38,437
30,442
21,718
13,400
63,640
86,087
53,538
31,406
38,539
18,621
1,035,981
$
Current-Age
Probability-Adjusted
Interest-Discounted
Present Value of
Total Benefits to
Be Paid
(f) = (d) x (e)
Town of Espresso
Date of Calculation 6/30/2001
Illustration 5
Calculation of the ARC Using the Unit Credit Cost Method
with the UAAL Amortized as a Level Dollar Amount
$
4,216
1,193
3,133
3,255
4,911
4,511
1,180
878
986
846
557
327
Normal Cost at
Current Age
(h) = (f) / (g)
$ 25,993
Because at the calculation date
these members have qualified
to receive benefits, the entire
present value of benefits is
allocated to past periods (the
AAL).
26
37
28
29
29
22
30
31
39
36
39
41
Projected Service
Years
at Retirement
(g) = (c) – (b) + (a)
42,160
3,579
18,798
3,255
122,775
54,132
9,440
1,756
12,818
3,384
1,114
327
63,640
86,087
53,538
31,406
38,539
18,621
$ 565,369
$
AAL
(h) x (a)
See note 3.
See note 4.
See note 3.
2. Members who currently are receiving benefits are assigned a probability of 1.000. For other members, the probability is obtained from Table 1 in paragraph 40b
of Statement 43 or paragraph 35b of Statement 45. For example, Member #2 currently is age 28, and plan members are assumed to retire at age 62. Therefore,
using Statement 43, paragraph 40b, or Statement 45, paragraph 35b, the member's probability of remaining employed from age 28 to age 62 is 0.534.
Notes:
1. From Illustration 1.
66,323
$
Annual required contribution
25,993
1,430
27,423
565,369
—
565,369
15.3331
36,872
2,028
38,900
$
Amortization Component
AAL
Less: Assets
UAAL
Divided by PV factor
Amortization payment
Interest
Total amortization payment
Normal Cost Component
Normal cost
Interest
Total normal cost
ARC Calculation
In accordance with paragraph 34f(1) of Statement 43 or paragraph 13f(1) of Statement 45, the number of periods n ) over which the UAAL is amortized should
not exceed thirty years. In this example, the employer has chosen to amortize the UAAL as a level dollar amount over the lesser of the average remaining life
expectancy of the group or thirty years. Because the average remaining life expectancy of the group is thirty-three years, the UAAL is amortized over thirty years.
Therefore, the present value factor is calculated as 1 + [(1 – (1.055(–29))) ÷ 0.055] = 1 + (0.7883206 ÷ 0.055) = 15.3331.
When using the level dollar method, the discount rate (r ) used to determine the PV factor is the assumed investment rate of return. In this example, the assumed
investment rate of return is 5.5 percent.
4. Present value factors can be obtained from a present value table for an annuity due (which assumes contributions at the beginning of each period). The present
value factor also can be derived from a present value table for an ordinary annuity. Using an ordinary annuity table, the present value factor is determined
as 1 + (PV of an ordinary annuity over (n – 1) periods at the assumed discount rate (r )). Alternatively, the present value factor can be calculated directly as
1 + [(1 – (1 + r )(–(n – 1))) ÷ r ].
3. The normal cost and amortization components are calculated as beginning-of-year amounts. This step adds interest to the end of the period at the assumed
investment rate of return (5.5 percent). Interest on the normal cost component is calculated as $25,993 x 0.055 = $1,430, and interest on the amortization
component is calculated as $36,872 x 0.055 = $2,028.
165
Illustration 6
Calculation of the ARC Using the Attained Age Cost Method
with Level Percentage of Payroll Normal Costs and the UAAL Amortized as a Level Percentage of Payroll
Town of Espresso
Date of Calculation 6/30/2001
Member
#1
#2
#3
#4
#5
#6
#7
#8
#9
#10
#11
#12
#13
#14
#15
#16
#17
#18
Years of
Past
Service
(a)
10
3
6
1
25
12
8
2
13
4
2
1
Current
Age
(b)
46
28
40
34
58
52
40
33
36
30
25
22
Assumed Age
at Retirement
(c)
62
62
62
62
62
62
62
62
62
62
62
62
See note 1.
See note 2.
See note 3.
Current-Age
Interest-Discounted
Present Value of
Total Benefits to
Be Paid
(d)
Probability
of Remaining
Employed from
Current Age
Until Assumed
Retirement Age
(e)
Current-Age
Probability-Adjusted
Interest-Discounted
Present Value of
Total Benefits to
Be Paid
(f) = (d) x (e)
$
116,250
82,634
104,318
134,275
142,412
99,242
42,107
40,192
51,045
51,335
49,359
38,396
63,640
86,087
53,538
31,406
38,539
18,621
$ 1,243,396
ARC Calculation
Normal Cost Component
Normal cost
Interest
Total normal cost
$
Amortization Component
AAL
Less: Assets
UAAL
Divided by PV factor
Amortization payment
Interest
Total amortization payment
Annual required contribution
35,081
1,929
37,010
See note 6.
565,369
—
565,369
22.4707
25,160
1,384
26,544
$
See notes 4 and 7.
See note 6.
63,554
166
0.943
0.534
0.841
0.703
1.000
1.000
0.841
0.677
0.753
0.593
0.440
0.349
1.000
1.000
1.000
1.000
1.000
1.000
$
$
109,624
44,127
87,731
94,395
142,412
99,242
35,412
27,210
38,437
30,442
21,718
13,400
63,640
86,087
53,538
31,406
38,539
18,621
1,035,981
See notes 4 and 5.
Projected Service
Years
at Retirement
(g) = (c) – (b) + (a)
26
37
28
29
29
22
30
31
39
36
39
41
Unit Credit
Normal Cost
(h) = (f) / (g)
$
4,216
1,193
3,133
3,255
4,911
4,511
1,180
878
986
846
557
327
Because at the calculation date
these members have qualified to
receive benefits, the entire
present value of benefits is
allocated to past periods (the
AAL).
AAL
(i) = (h) x (a)
$
42,160
3,579
18,798
3,255
122,775
54,132
9,440
1,756
12,818
3,384
1,114
327
63,640
86,087
53,538
31,406
38,539
18,621
$ 565,369
Present Value
of Future
Normal Costs
(j) = (f) – (i)
$
67,464
40,548
68,933
91,140
19,637
45,110
25,972
25,454
25,619
27,058
20,604
13,073
PV Factor of $1 per
Year Over
Expected Future
Working Lifetime
(at Current Age)
(k)
12.9965
17.7910
15.8224
17.7910
3.8766
9.1119
15.8224
17.7910
17.1486
17.7910
17.1486
15.8224
For explanation of notes, see page 168.
167
Current Year
Normal Cost
(j) / (k)
$
5,191
2,279
4,357
5,123
5,066
4,951
1,641
1,431
1,494
1,521
1,201
826
$ 35,081
Notes to Illustration 6:
1. From Illustration 1.
2. Members who currently are receiving benefits are assigned a probability of 1.000. For other members, the
probability is obtained from Table 1 in paragraph 40b of Statement 43 or paragraph 35b of Statement 45. For
example, Member #2 currently is age 28, and plan members are assumed to retire at age 62. Therefore, using
Statement 43, paragraph 40b, or Statement 45, paragraph 35b, the member’s probability of remaining employed
from age 28 to age 62 is 0.534.
3. This column is the current-age interest-discounted present value of total benefits to be paid from column d for each
member, adjusted for the member’s probability of remaining employed from current age until retirement age from
column c. For example, the current-age probability-adjusted interest-discounted present value of total benefits to
be paid for Member #2 ($44,127) is calculated as the current-age interest-discounted present value of total benefits
to be paid ($82,634) multiplied by the member’s probability of remaining employed until retirement age calculated
at the member’s current age (0.534), or $82,634 × 0.534 = $44,127.
4. Present value factors can be obtained from a present value table for an annuity due (which assumes contributions
at the beginning of each period). The present value factor also can be derived from a present value table for an
ordinary annuity. Using an ordinary annuity table, the present value factor is determined as 1 + (PV of an ordinary
annuity over (n – 1) periods at the assumed discount rate (r )). Alternatively, the present value factor can be
calculated directly as 1 + [(1 – (1 + r )(–(n – 1))) ÷ r ].
When using the level percent of payroll method, the discount rate (r ) is calculated as [(1 + investment rate of
return) ÷ (1 + payroll growth rate)] – 1. The payroll growth rate has been set to the inflation rate. Therefore, in this
example, the discount rate is calculated to be [(1 + 0.055) ÷ (1 + 0.033)] – 1, or 2.12971 percent.
5. In the calculation in column j, the number of periods (n ) is the member’s expected future working lifetime from
Table 2 in paragraph 40c of Statement 43 or paragraph 35c of Statement 45 at the member’s current age. For
example, Member #2 currently is age 28. Using Statement 43, paragraph 40c, or Statement 45, paragraph 35c,
at age 28, the member’s expected future working lifetime is twenty-two years.
The assumed discount rate is calculated in note 4 as [(1 + 0.055) ÷ (1 + 0.033)] – 1, or 2.12971 percent. Therefore,
the PV factor is calculated using the formula in that note as 1 + [(1 – (1.0212971(–21))) ÷ 0.0212971] = 1 +
(0.357599 ÷ 0.0212971) = 17.7910.
6. The normal cost and amortization components are calculated as beginning-of-year amounts. This step adds
interest to the end of the period at the assumed investment rate of return (5.5 percent). Interest on the normal cost
component is calculated as $35,081 × 0.055 = $1,929, and interest on the amortization component is calculated
as $25,160 × 0.055 = $1,384.
7. In accordance with paragraph 34f(1) of Statement 43 or paragraph 13f(1) of Statement 45, the number of periods
(n ) over which the UAAL is amortized should not exceed thirty years. In this example, the employer has chosen
to amortize the UAAL as a level percentage of payroll over the lesser of the average remaining life expectancy of
the group or thirty years. Because the average remaining life expectancy of the group is thirty-three years, the
UAAL is amortized over thirty years. Therefore, using the discount rate calculated in note 5 and the present value
formula in that note, the present value factor used to amortize the UAAL is calculated as 1 + [(1 – (1.0212971(–29)))
÷ 0.0212971] = 1 + (0.4572634 ÷ 0.0212971) = 22.4707.
168
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Illustration 7
Calculation of the ARC Using the Attained Age Cost Method
with Level Dollar Normal Costs and the UAAL Amortized as a Level Dollar Amount
Town of Espresso
Date of Calculation 6/30/2001
Member
#1
#2
#3
#4
#5
#6
#7
#8
#9
#10
#11
#12
#13
#14
#15
#16
#17
#18
Years of
Past
Service
(a)
10
3
6
1
25
12
8
2
13
4
2
1
Current
Age
(b)
46
28
40
34
58
52
40
33
36
30
25
22
Assumed Age
at Retirement
(c)
62
62
62
62
62
62
62
62
62
62
62
62
See note 1.
See note 2.
See note 3.
Current-Age
Interest-Discounted
Present Value of
Total Benefits to
Be Paid
(d)
Probability
of Remaining
Employed from
Current Age
Until Assumed
Retirement Age
(e)
Current-Age
Probability-Adjusted
Interest-Discounted
Present Value of
Total Benefits to
Be Paid
(f) = (d) x (e)
$
116,250
82,634
104,318
134,275
142,412
99,242
42,107
40,192
51,045
51,335
49,359
38,396
63,640
86,087
53,538
31,406
38,539
18,621
$ 1,243,396
ARC Calculation
Normal Cost Component
Normal cost
Interest
Total normal cost
$
Amortization Component
AAL
Less: Assets
UAAL
Divided by PV factor
Amortization payment
Interest
Total amortization payment
Annual required contribution
43,615
2,399
46,014
See note 6.
565,369
—
565,369
15.3331
36,872
2,028
38,900
$
See notes 4 and 7.
See note 6.
84,914
170
0.943
0.534
0.841
0.703
1.000
1.000
0.841
0.677
0.753
0.593
0.440
0.349
1.000
1.000
1.000
1.000
1.000
1.000
$
$
109,624
44,127
87,731
94,395
142,412
99,242
35,412
27,210
38,437
30,442
21,718
13,400
63,640
86,087
53,538
31,406
38,539
18,621
1,035,981
See notes 4 and 6.
Projected Service
Years
at Retirement
(g) = (c) – (b) + (a)
26
37
28
29
29
22
30
31
39
36
39
41
Unit Credit
Normal Cost
(h) = (f) / (g)
$
4,216
1,193
3,133
3,255
4,911
4,511
1,180
878
986
846
557
327
Because at the calculation date
these members have qualified to
receive benefits, the entire
present value of benefits is
allocated to past periods (the
AAL).
AAL
(i) = (h) x (a)
$
42,160
3,579
18,798
3,255
122,775
54,132
9,440
1,756
12,818
3,384
1,114
327
63,640
86,087
53,538
31,406
38,539
18,621
$ 565,369
Present Value
of Future
Normal Costs
(j) = (f) – (i)
$
67,464
40,548
68,933
91,140
19,637
45,110
25,972
25,454
25,619
27,058
20,604
13,073
PV Factor of $1 per
Year Over
Expected Future
Working Lifetime
(at Current Age)
(k)
10.5896
13.2752
12.2461
13.2752
3.6979
7.9522
12.2461
13.2752
12.9504
13.2752
12.9504
12.2461
For explanation of notes, see page 172.
171
Current Year
Normal Cost
(j) / (k)
$
6,371
3,054
5,629
6,865
5,310
5,673
2,121
1,917
1,978
2,038
1,591
1,068
$ 43,615
Notes to Illustration 7:
1. From Illustration 1.
2. Members who currently are receiving benefits are assigned a probability of 1.000. For other members, the
probability is obtained from Table 1 in paragraph 40b of Statement 43 or paragraph 35b of Statement 45. For
example, Member #2 currently is age 28, and plan members are assumed to retire at age 62. Therefore, using
Statement 43, paragraph 40b, or Statement 45, paragraph 35b, the member’s probability of remaining employed
from age 28 to age 62 is 0.534.
3. This column is the current-age interest-discounted present value of total benefits to be paid from column d for each
member, adjusted for the member’s probability of remaining employed from current age until retirement age from
column c. For example, the current-age probability-adjusted interest-discounted present value of total benefits to
be paid for Member #2 ($44,127) is calculated as the current-age interest-discounted present value of total benefits
to be paid ($82,634) multiplied by the member’s probability of remaining employed until retirement age calculated
at the member’s current age (0.534), or $82,634 × 0.534 = $44,127.
4. Present value factors can be obtained from a present value table for an annuity due (which assumes contributions
at the beginning of each period). The present value factor also can be derived from a present value table for an
ordinary annuity. Using an ordinary annuity table, the present value factor is determined as 1 + (PV of an ordinary
annuity over (n – 1) periods at the assumed discount rate (r )). Alternatively, the present value factor can be
calculated directly as 1 + [(1 – (1 + r )(–(n – 1))) ÷ r ].
When using the level dollar method, the discount rate (r ) used to determine the PV factor is the assumed
investment rate of return. In this example, the assumed investment rate of return is 5.5 percent.
5. In the calculation in column i, the number of periods (n ) is the member’s expected future working lifetime from
paragraph 40c of Statement 43 or paragraph 35c of Statement 45 at the member’s current age. For example,
Member #2 currently is age 28. Using paragraph 35c, at age 28, the member’s expected future working lifetime
is twenty-two years.
The assumed discount rate is 5.5 percent; therefore, the PV factor is calculated using the formula in note 4 as
1 + [(1 – (1.055(–21))) ÷ 0.055] = 1 + (0.6751384 ÷ 0.055) = 13.2752.
6. The normal cost and amortization components are calculated as beginning-of-year amounts. This step adds
interest to the end of the period at the assumed investment rate of return (5.5 percent). Interest on the normal cost
component is calculated as $43,615 × 0.055 = $2,399, and interest on the amortization component is calculated
as $36,872 × 0.055 = $2,028.
7. In accordance with paragraph 34f(1) of Statement 43 or paragraph 13f(1) of Statement 45, the number of periods
(n ) over which the UAAL is amortized should not exceed thirty years. In this example, the employer has chosen
to amortize the UAAL as a level dollar amount over the lesser of the average remaining life expectancy of the
group or thirty years. Because the average remaining life expectancy of the group is thirty-three years, the UAAL
is amortized over thirty years. Therefore, the present value factor is calculated as 1 + [(1 – [1.055(–29)]) ÷ 0.055]
= 1 + (0.7883206 ÷ 0.055) = 15.3331.
172
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Illustration 8
Calculation of the ARC Using the Frozen Entry Age Cost Method
with Level Percentage of Payroll Normal Costs and the UAAL Amortized as a Level Percentage of Payroll
Town of Espresso
Date of Calculation 6/30/2001
See note 1.
Member
#1
#2
#3
#4
#5
#6
#7
#8
#9
#10
#11
#12
#13
#14
#15
#16
#17
#18
Years of
Past
Service
(a)
10
3
6
1
25
12
8
2
13
4
2
1
Current-Age
Interest-Discounted
Present Value of
Total Benefits to
Be Paid
(b)
$
116,250
82,634
104,318
134,275
142,412
99,242
42,107
40,192
51,045
51,335
49,359
38,396
63,640
86,087
53,538
31,406
38,539
18,621
$ 1,243,396
ARC Calculation—Initial Year
Normal Cost Component
Current age probability-adjusted
present value of benefits to be paid
Less: Assets
Less: Frozen UAAL
Divided by PV factor
Normal cost
Interest
Total normal cost
See note 3.
Probability
of Remaining
Employed
from Current
Age Until
Retirement Age
(c)
0.943
0.534
0.841
0.703
1.000
1.000
0.841
0.677
0.753
0.593
0.440
0.349
1.000
1.000
1.000
1.000
1.000
1.000
Probability
of Remaining
Employed
from Entry
Age Until
Retirement Age
(d)
0.753
0.440
0.703
0.677
0.677
0.841
0.650
0.622
0.379
0.472
0.379
0.321
0.753
0.622
0.841
0.650
0.879
0.622
See note 13.
$ 1,035,981
—
636,997
398,984
15.1381
26,356
1,450
27,806
Amortization Component
AAL
Less: Assets
Frozen UAAL
Divided by PV factor
Amortization payment
Interest
Total amortization payment
Annual required contribution
See note 2.
636,997
—
636,997
22.4707
28,348
1,559
29,907
$
57,713
174
See notes 6 and 10.
See note 11.
See notes 6 and 12.
See note 11.
See note 4.
Current-Age
Probability-Adjusted
Interest-Discounted
Present Value of Total
Benefits to Be Paid
(e) = (b) x (c)
$
109,624
44,127
87,731
94,395
142,412
99,242
35,412
27,210
38,437
30,442
21,718
13,400
63,640
86,087
53,538
31,406
38,539
18,621
$ 1,035,981
See note 5.
See notes 6 and 7.
Entry-Age
Probability-Adjusted
Interest-Discounted
Present Value of Total
Benefits to Be Paid
(f) = [(b) / (1 + discount
rate)(a)] x (d)
$ 51,246
30,964
53,186
86,165
25,283
43,900
17,834
22,461
9,645
19,559
16,807
11,683
PV Factor of $1
per Year Over
Expected Future
Working Lifetime
(at Entry Age)
(g)
17.1486
17.1486
17.7910
17.7910
17.7910
15.8224
17.7910
17.7910
16.4925
17.1486
16.4925
15.8224
Entry Age
Cost Method
Normal Cost at
Entry Age
(h) = (f) / (g)
$ 2,988
1,806
2,989
4,843
1,421
2,775
1,002
1,262
585
1,141
1,019
738
See note 5.
See notes 6 and 9.
Entry Age
Cost Method
Normal Cost at
Current Age
(i) = [(h) /
discount rate (a)]
$
4,134
1,991
3,632
5,003
3,200
4,097
1,299
1,347
892
1,299
1,087
762
PV Factor of $1
per Year Over
Expected Future
Working Lifetime
(at Current Age)
(j)
12.9965
17.7910
15.8224
17.7910
3.8766
9.1119
15.8224
17.7910
17.1486
17.7910
17.1486
15.8224
Present Value
of Future
Normal Cost
(k) = (i) x (j)
$
53,728
35,422
57,467
89,008
12,405
37,331
20,553
23,964
15,297
23,111
18,641
12,057
Because at the calculation date these members have qualified to receive
benefits, the entire present value of benefits is allocated to past periods (the
AAL).
For explanation of notes, see pages 176–178.
175
AAL
(e) – (k)
$
55,896
8,705
30,264
5,387
130,007
61,911
14,859
3,246
23,140
7,331
3,077
1,343
63,640
86,087
53,538
31,406
38,539
18,621
$ 636,997
Notes to Illustration 8:
1. From Illustration 1.
2. Members who currently are receiving benefits are assigned a probability of 1.000. For other members, the
probability is obtained from Table 1 in paragraph 40b of Statement 43 or paragraph 35b of Statement 45. For
example, Member #2 currently is age 28, and plan members are assumed to retire at age 62. Therefore, using
Statement 43, paragraph 40b, or Statement 45, paragraph 35b, the member’s probability of remaining employed
from age 28 to age 62 is 0.534.
3. Each member’s probability of remaining employed until retirement age, calculated at entry age, is obtained from
Table 1 in paragraph 40b of Statement 43 or paragraph 35b of Statement 45. For example, Member #2 entered
service at age 25 and is assumed to retire at age 62. Therefore, using Statement 43, paragraph 40b, or Statement
45, paragraph 35b, the member’s probability of remaining employed from age 25 to age 62 is 0.440.
4. This column is the current-age interest-discounted present value of total benefits to be paid from column b for each
member, adjusted for the member’s probability of remaining employed from current age until retirement age from
column c. For example, the current-age probability-adjusted interest-discounted present value of total benefits to
be paid for Member #2 ($44,127) is calculated as the current-age interest-discounted present value of total benefits
to be paid ($82,634) multiplied by the member’s probability of remaining employed until retirement age calculated
at the member’s current age (0.534), or $82,634 × 0.534 = $44,127.
5. This column is the current-age interest-discounted present value of total benefits to be paid from column b for each
member, discounted to the member’s entry age and adjusted for the member’s probability of remaining employed
from entry age until retirement age from column d. For example, Member #2 began service at age 25 and currently
is age 28. Therefore, the entry-age probability-adjusted interest-discounted present value of total benefits to be
paid for Member #2 ($30,964) is calculated as follows:
a. The current-age interest-discounted present value of total benefits to be paid from column a ($82,634) is
discounted three years (the period from age 25 to age 28) at the assumed investment rate of return
(5.5 percent), or $82,634 ÷ (1 + 0.055)3 = $70,372.
b. The result of step a is multiplied by the member’s probability of remaining employed until retirement age
calculated at the member’s entry age from column d (0.440), or $70,372 × 0.440 = $30,964.
6. Present value factors can be obtained from a present value table for an annuity due (which assumes contributions
at the beginning of each period). The present value factor also can be derived from a present value table for an
ordinary annuity. Using an ordinary annuity table, the present value factor is determined as 1 + (PV of an ordinary
annuity over (n – 1) periods at the assumed discount rate (r )). Alternatively, the present value factor can be
calculated directly as 1 + [(1 – (1 + r )(–(n – 1))) ÷ r ].
When using the level percent of payroll method, the discount rate (r ) is calculated as [(1 + investment rate of
return) ÷ (1 + payroll growth rate)] – 1. The payroll growth rate has been set to the inflation rate. Therefore, in this
example, the discount rate is calculated to be [(1 + 0.055) ÷ (1 + 0.033)] – 1, or 2.12971%.
7. In the calculation in column g, the number of periods (n ) is the member’s expected future working lifetime from
Table 2 in paragraph 40c of Statement 43 or paragraph 35c of Statement 45 at the member’s entry age. For
example, Member #2 entered service at age 25. Using Statement 43, paragraph 40c, or Statement 45, paragraph 35c, at age 25, the member’s expected future working lifetime is twenty-one years.
176
The assumed discount rate is calculated in note 6 as [(1 + 0.055) ÷ (1 + 0.033)] – 1, or 2.12971%. Therefore, the
PV factor is calculated using the formula in that note as 1 + [(1 – (1.0212971(–20))) ÷ 0.0212971] = 1 + (0.343918
÷ 0.0212971) = 17.1486.
8. This column is each member’s normal cost at entry age, inflated to current age using the payroll growth rate, which
has been set to the inflation rate (i ). Normal cost at current age is calculated as normal cost at entry age ×
(1 + i )n, where n is the number of years from entry age to current age. In this example, the assumed inflation rate
is 3.3 percent, and Member #2 has three years of past service—she entered at age 25 and currently is age 28.
Therefore, normal cost at the member’s current age is calculated as $1,806 × (1 + 0.033)3, or $1,991.
9. In the calculation in column j, the number of periods (n ) is the member’s expected future working lifetime from
Table 2 in paragraph 40c of Statement 43 or paragraph 35c of Statement 45 at the member’s current age. For
example, Member #2 currently is age 28. Using Statement 43, paragraph 40c, or Statement 45, paragraph 35c,
at age 28, the member’s expected future working lifetime is twenty-two years.
The assumed discount rate is calculated in note 6 as [(1 + 0.055) ÷ (1 + 0.033)] – 1, or 2.12971 percent. Therefore,
the PV factor is calculated using the formula in that note as 1 + [(1 – (1.0212971(–21))) ÷ 0.0212971] = 1 +
(0.357599 ÷ 0.0212971) = 17.7910.
10. In accordance with paragraph 34f(1) of Statement 43 or paragraph 13f(1) of Statement 45, the number of periods
(n ) over which the UAAL is amortized should not exceed thirty years. For purposes of the frozen entry age cost
method, the calculation of the normal cost component of the ARC is made using a present value factor that
reflects the average remaining service life of the group or thirty years, whichever is shorter. In this example, the
remaining service life of each active plan member is determined using Table 2 in paragraph 40c of Statement 43
or paragraph 35c of Statement 45, assuming an expected retirement age of 62. The average remaining service
life of active plan members is calculated to be eighteen years. Therefore, the present value factor is calculated as
1 + [(1 – (1.0212971(–17))) ÷ 0.0212971] = 1 + (0.3011012 ÷ 0.0212971) = 15.1381.
11. The normal cost and amortization components are calculated as beginning-of-year amounts. This step adds
interest to the end of the period at the assumed investment rate of return (5.5 percent). Interest on the normal cost
component is calculated as $26,356 × 0.055 = $1,450, and interest on the amortization component is calculated
as $28,348 × 0.055 = $1,559.
12. In accordance with paragraph 34f(1) of Statement 43 or paragraph 13f(1) of Statement 45, the number of periods
(n ) over which the UAAL is amortized should not exceed thirty years. In this example, the employer has chosen
to amortize the UAAL as a level percentage of payroll over the lesser of the average remaining life expectancy
of the group or thirty years. Because the average remaining life expectancy of the group is thirty-three years, the
UAAL is amortized over thirty years. Therefore, using the discount rate calculated in note 6 and the present
value formula in that note, the present value factor used to amortize the UAAL is calculated as 1 + [(1 –
(1.0212971(–29))) ÷ 0.0212971] = 1 + (0.4572634 ÷ 0.0212971) = 22.4707.
13. The calculation shown is for the initial measurement. At each measurement date, the ARC should be calculated
using the process shown on page 173. As part of that process, at each measurement date subsequent to the initial
measurement, the current-age probability-adjusted interest-discounted present value of total benefits to be paid
(shown in column e) should be recalculated. That is, the projection of future benefit payments and calculation of
the present value of total future benefits to be paid (shown in Illustration 1) and steps b through e of this illustration
177
should be recalculated using information and assumptions current as of the measurement date. In addition, the
beginning frozen UAAL at the measurement date should be recalculated by applying the following adjustment
methodology for each year between valuations:
Frozen UAAL at beginning of previous year
Multiplied by: interest at the assumed rate of return for one year
Frozen UAAL at end of previous year
Plus: Normal cost at end of previous year
Less: Contributions made during the previous year (adjusted for interest to the end of the year)
Frozen UAAL at beginning of subsequent year
For example, if the ARC is remeasured at June 30, 2003, the frozen UAAL at June 30, 2001, first should be
adjusted to June 30, 2002; the frozen UAAL at June 30, 2002 then should be adjusted to June 30, 2003, to
determine the beginning frozen UAAL for purposes of the June 30, 2003, measurement.
178
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Illustration 9
Calculation of the ARC Using the Frozen Entry Age Cost Method
with Level Dollar Normal Costs and the UAAL Amortized as a Level Dollar Amount
Town of Espresso
Date of Calculation 6/30/2001
See note 1.
Member
#1
#2
#3
#4
#5
#6
#7
#8
#9
#10
#11
#12
#13
#14
#15
#16
#17
#18
Years of
Past
Service
(a)
10
3
6
1
25
12
8
2
13
4
2
1
Normal Cost Component
Current age probability-adjusted
present value of benefits to be paid
Less: Assets
Less: Frozen UAAL
Divided by PV factor
Normal cost
Interest
Total normal cost
Probability
of Remaining
Employed
from Current
Age Until
Retirement Age
(c)
0.943
0.534
0.841
0.703
1.000
1.000
0.841
0.677
0.753
0.593
0.440
0.349
1.000
1.000
1.000
1.000
1.000
1.000
Current-Age
Interest-Discounted
Present Value of
Total Benefits to
Be Paid
(b)
$
116,250
82,634
104,318
134,275
142,412
99,242
42,107
40,192
51,045
51,335
49,359
38,396
63,640
86,087
53,538
31,406
38,539
18,621
$ 1,243,396
ARC Calculation—Initial Year
Probability
of Remaining
Employed
from Entry
Age Until
Retirement Age
(d)
0.753
0.440
0.703
0.677
0.677
0.841
0.650
0.622
0.379
0.472
0.379
0.321
0.753
0.622
0.841
0.650
0.879
0.622
See note 12.
$ 1,035,981
—
693,749
342,232
11.8646
28,845
1,586
30,431
Amortization Component
AAL
Less: Assets
Frozen UAAL
Divided by PV factor
Amortization payment
Interest
Total amortization payment
Annual required contribution
See note 3.
See note 2.
693,749
—
693,749
15.3331
45,245
2,488
47,733
$
78,164
180
See notes 6 and 9.
See note 10.
See notes 6 and 11.
See note 10.
See note 4.
Current-Age
Probability-Adjusted
Interest-Discounted
Present Value of Total
Benefits to Be Paid
(e) = (b) x (c)
$
109,624
44,127
87,731
94,395
142,412
99,242
35,412
27,210
38,437
30,442
21,718
13,400
63,640
86,087
53,538
31,406
38,539
18,621
$ 1,035,981
See note 5.
See notes 6 and 7.
Entry-Age
Probability-Adjusted
Interest-Discounted
Present Value of Total
Benefits to Be Paid
(f) = [(b) / (1 + discount
rate)(a)] x (d)
$ 51,246
30,964
53,186
86,165
25,283
43,900
17,834
22,461
9,645
19,559
16,807
11,683
PV Factor of $1
per Year Over
Expected Future
Working Lifetime
(at Entry Age)
(g)
12.9504
12.9504
13.2752
13.2752
13.2752
12.2461
13.2752
13.2752
12.6077
12.9504
12.6077
12.2461
See notes 6 and 8.
Entry Age Cost
Method Normal
Cost at
Current Age
(h) = (f) / (g)
$ 3,957
2,391
4,006
6,491
1,905
3,585
1,343
1,692
765
1,510
1,333
954
PV Factor of $1
per Year Over
Expected Future
Working Lifetime
(at Current Age)
(i)
10.5896
13.2752
12.2461
13.2752
3.6979
7.9522
12.2461
13.2752
12.9504
13.2752
12.9504
12.2461
Present Value of
Future Normal
Cost
(j) = (h) x (i)
$
41,903
31,741
49,058
86,169
7,044
28,509
16,447
22,462
9,907
20,046
17,263
11,683
Because at the calculation date these members have
qualified to receive benefits, the entire present value
of benefits is allocated to past periods (the AAL).
$ 29,932
For explanation of notes, see pages 182 and 183.
181
AAL
(e) – (j)
$
67,721
12,386
38,673
8,226
135,368
70,733
18,965
4,748
28,530
10,396
4,455
1,717
63,640
86,087
53,538
31,406
38,539
18,621
$ 693,749
Notes to Illustration 9:
1. From Illustration 1.
2. Members who currently are receiving benefits are assigned a probability of 1.000. For other members, the
probability is obtained from Table 1 in paragraph 40b of Statement 43 or paragraph 35b of Statement 45. For
example, Member #2 currently is age 28, and plan members are assumed to retire at age 62. Therefore, using
Statement 43, paragraph 40b, or Statement 45, paragraph 35b, the member’s probability of remaining employed
from age 28 to age 62 is 0.534.
3. Each member’s probability of remaining employed until retirement age, calculated at entry age, is obtained from
Table 1 in paragraph 40b of Statement 43 or paragraph 35b of Statement 45. For example, Member #2 entered
service at age 25 and is assumed to retire at age 62. Therefore, using Statement 43, paragraph 40b, or
Statement 45, paragraph 35b, the member’s probability of remaining employed from age 25 to age 62 is 0.440.
4. This column is the current-age interest-discounted present value of total benefits to be paid from column b for each
member, adjusted for the member’s probability of remaining employed from current age until retirement age from
column c. For example, the current-age probability-adjusted interest-discounted present value of total benefits to
be paid for Member #2 ($44,127) is calculated as the current-age interest-discounted present value of total benefits
to be paid ($82,634) multiplied by the member’s probability of remaining employed until retirement age calculated
at the member’s current age (0.534), or $82,634 × 0.534 = $44,127.
5. This column is the current-age interest-discounted present value of total benefits to be paid from column b for each
member, discounted to the member’s entry age and adjusted for the member’s probability of remaining employed
from entry age until retirement age from column d. For example, Member #2 began service at age 25 and currently
is age 28. Therefore, the entry-age probability-adjusted interest-discounted present value of total benefits to be
paid for Member #2 ($30,964) is calculated as follows:
a. The current-age interest-discounted present value of total benefits to be paid from column a ($82,634) is
discounted three years (the period from age 25 to age 28) at the assumed investment rate of return
(5.5 percent), or $82,634 ÷ (1 + 0.055)3 = $70,372.
b. The result of step a is multiplied by the member’s probability of remaining employed until retirement age
calculated at the member’s entry age from column d (0.440), or $70,372 × 0.440 = $30,964.
6. Present value factors can be obtained from a present value table for an annuity due (which assumes contributions
at the beginning of each period). The present value factor also can be derived from a present value table for an
ordinary annuity. Using an ordinary annuity table, the present value factor is determined as 1 + (PV of an ordinary
annuity over (n – 1) periods at the assumed discount rate (r )). Alternatively, the present value factor can be
calculated directly as 1 + [(1 – (1 + r )(–(n – 1))) ÷ r ].
When using the level dollar method, the discount rate (r ) used to determine the PV factor is the assumed
investment rate of return. In this example, the assumed investment rate of return is 5.5 percent.
7. In the calculation in column g, the number of periods (n ) is the member’s expected future working lifetime from
Table 2 in paragraph 40c of Statement 43 or paragraph 35c of Statement 45 at the member’s entry age. For
example, Member #2 entered service at age 25. Using Statement 43, paragraph 40c, or Statement 45, paragraph 35c, at age 25, the member’s expected future working lifetime is twenty-one years.
The assumed discount rate is 5.5 percent; therefore, the PV factor is calculated using the formula in note 6 as
1 + [(1 – (1.055(–20))) ÷ 0.055] = 1 + (0.6572710 ÷ 0.055) = 12.9504.
182
8. In the calculation in column i, the number of periods (n ) is the member’s expected future working lifetime from
Table 2 in paragraph 40c of Statement 43 or paragraph 35c of Statement 45 at the member’s current age. For
example, Member #2 currently is age 28. Using Statement 43, paragraph 40c, or Statement 45, paragraph 35c,
at age 28, the member’s expected future working lifetime is twenty-two years.
The assumed discount rate is 5.5 percent; therefore, the PV factor is calculated using the formula in note 6 as
1 + [(1 – (1.055(–21))) ÷ 0.055] = 1 + (0.6751384 ÷ 0.055) = 13.2752.
9. In accordance with paragraph 34f(1) of Statement 43 or paragraph 13f(1) of Statement 45, the number of periods
(n ) over which the UAAL is amortized should not exceed thirty years. For purposes of the frozen entry age cost
method, the calculation of the normal cost component of the ARC is made using a present value factor that
reflects the average remaining service life of the group or thirty years, whichever is shorter. In this example, the
remaining service life of each active plan member is determined using Table 2 in paragraph 40c of Statement 43
or paragraph 35c of Statement 45, assuming an expected retirement age of 62. The average remaining service
life of active plan members is calculated to be eighteen years. Therefore, the present value factor is calculated as
1 + [(1 – (1.055(–17))) ÷ 0.055] = 1 + (0.5975535 ÷ 0.055) = 11.8646.
10. The normal cost and amortization components are calculated as beginning-of-year amounts. This step adds
interest to the end of the period at the assumed investment rate of return (5.5 percent). Interest on the normal cost
component is calculated as $28,845 × 0.055 = $1,586, and interest on the amortization component is calculated
as $45,245 × 0.055 = $2,488.
11. In accordance with paragraph 34f(1) of Statement 43 or paragraph 13f(1) of Statement 45, the number of periods
(n ) over which the UAAL is amortized should not exceed thirty years. In this example, the employer has chosen
to amortize the UAAL as a level dollar amount over the lesser of the average remaining life expectancy of the
group or thirty years. Because the average remaining life expectancy of the group is thirty-three years, the UAAL
is amortized over thirty years. Therefore, using the discount rate of 5.5 percent and the present value formula in
note 6, the present value factor used to amortize the UAAL is calculated as 1 + [(1 – (1.055(–29))) ÷ 0.055] = 1
+ (0.7883206 ÷ 0.055) = 15.3331.
12. The calculation shown is for the initial measurement. At each measurement date, the ARC should be calculated
using the process shown on page 178. As part of that process, at each measurement date subsequent to the initial
measurement, the current-age probability-adjusted interest-discounted present value of total benefits to be paid
(shown in column e) should be recalculated. That is, the projection of future benefit payments and calculation of
the present value of total future benefits to be paid (shown in Illustration 1) and steps b through e of this illustration
should be recalculated using information and assumptions current as of the measurement date. In addition, the
beginning frozen UAAL at the measurement date should be recalculated by applying the following adjustment
methodology for each year between valuations:
Frozen UAAL at beginning of previous year
Multiplied by: interest at the assumed rate of return for one year
Frozen UAAL at end of previous year
Plus: Normal cost at end of previous year
Less: Contributions made during the previous year (adjusted for interest to the end of the year)
Frozen UAAL at beginning of subsequent year
For example, if the ARC is remeasured at June 30, 2003, the frozen UAAL at June 30, 2001, first should be
adjusted to June 30, 2002; the frozen UAAL at June 30, 2002, then should be adjusted to June 30, 2003, to
determine the beginning frozen UAAL for purposes of the June 30, 2003, measurement.
183
184
#1
#2
#3
#4
#5
#6
#7
#8
#9
#10
#11
#12
#13
#14
#15
#16
#17
#18
Member
10
3
6
1
25
12
8
2
13
4
2
1
Years of
Past
Service
(a)
46
28
40
34
58
52
40
33
36
30
25
22
Current
Age
(b)
62
62
62
62
62
62
62
62
62
62
62
62
Assumed
Age at
Retirement
(c)
$
116,250
82,634
104,318
134,275
142,412
99,242
42,107
40,192
51,045
51,335
49,359
38,396
63,640
86,087
53,538
31,406
38,539
18,621
1,243,396
0.943
0.534
0.841
0.703
1.000
1.000
0.841
0.677
0.753
0.593
0.440
0.349
1.000
1.000
1.000
1.000
1.000
1.000
$
$
109,624
44,127
87,731
94,395
142,412
99,242
35,412
27,210
38,437
30,442
21,718
13,400
63,640
86,087
53,538
31,406
38,539
18,621
1,035,981
Current-Age
Probability-Adjusted
Interest-Discounted
Present Value of
Total Benefits to
Be Paid
(f) = (d) x (e)
Probability
of Remaining
Employed from
Current Age
Until Assumed
Retirement Age
(e)
Current-Age
Interest-Discounted
Present Value of
Total Benefits to
Be Paid
(d)
$
See note 3.
See note 2.
See note 1.
Town of Espresso
Date of Calculation 6/30/2001
$
4,216
1,193
3,133
3,255
4,911
4,511
1,180
878
986
846
557
327
Unit Credit
Normal Cost
(h) = (f) / (g)
Because at the calculation date
these members have qualified
to receive benefits, the entire
present value of benefits is
allocated to past periods (the
AAL).
26
37
28
29
29
22
30
31
39
36
39
41
Projected Service
Years
at Retirement
(g) = (c) – (b) + (a)
Illustration 10
Calculation of the ARC Using the Frozen Attained Age Cost Method
with Level Percentage of Payroll Normal Costs and the UAAL Amortized as a Level Percentage of Payroll
42,160
3,579
18,798
3,255
122,775
54,132
9,440
1,756
12,818
3,384
1,114
327
63,640
86,087
53,538
31,406
38,539
18,621
$ 565,369
$
AAL
(h) x (a)
185
59,342
1,035,981
—
565,369
470,612
15.1381
31,088
1,710
32,798
Annual required contribution
$
$
565,369
—
565,369
22.4707
25,160
1,384
26,544
See note 8.
Amortization Component
AAL
Less: Assets
Frozen UAAL
Divided by PV factor
Amortization payment
Interest
Total amortization payment
Divided by PV factor
Normal cost
Interest
Total normal cost
Normal Cost Component
Current age probability-adjusted
present value of benefits to be paid
Less: Assets
Less: Frozen UAAL
ARC Calculation—Initial Year
See note 4.
See notes 5 and 7.
See note 4.
See notes 5 and 6.
For explanation of notes, see pages 186 and 187.
Notes to Illustration 10:
1. From Illustration 1.
2. Members who currently are receiving benefits are assigned a probability of 1.000. For other members, the
probability is obtained from Table 1 in paragraph 40b of Statement 43 or paragraph 35b of Statement 45. For
example, Member #2 currently is age 28, and plan members are assumed to retire at age 62. Therefore, using
Statement 43, paragraph 40b, or Statement 45, paragraph 35b, the member’s probability of remaining employed
from age 28 to age 62 is 0.534.
3. This column is the current-age interest-discounted present value of total benefits to be paid from column d for each
member, adjusted for the member’s probability of remaining employed from current age until retirement age from
column c. For example, the current-age probability-adjusted interest-discounted present value of total benefits to
be paid for Member #2 ($44,127) is calculated as the current-age interest-discounted present value of total benefits
to be paid ($82,634) multiplied by the member’s probability of remaining employed until retirement age calculated
at the member’s current age (0.534), or $82,634 × 0.534 = $44,127.
4. The normal cost and amortization components are calculated as beginning-of-year amounts. This step adds
interest to the end of the period at the assumed investment rate of return (5.5 percent).
Interest on the normal cost component is calculated as $31,088 × 0.055 = $1,710, and interest on the amortization
component is calculated as $25,160 × 0.055 = $1,384.
5. Present value factors can be obtained from a present value table for an annuity due (which assumes contributions
at the beginning of each period). The present value factor also can be derived from a present value table for an
ordinary annuity. Using an ordinary annuity table, the present value factor is determined as 1 + (PV of an ordinary
annuity over (n – 1) periods at the assumed discount rate (r )). Alternatively, the present value factor can be
calculated directly as 1 + [(1 – (1 + r )(–(n – 1))) ÷ r ].
When using the level percent of payroll method, the discount rate (r ) is calculated as [(1 + investment rate of
return) ÷ (1 + payroll growth rate)] – 1. The payroll growth rate has been set to the inflation rate. Therefore, in this
example, the discount rate is calculated to be [(1 + 0.055) ÷ (1 + 0.033)] – 1, or 2.12971 percent.
6. In accordance with paragraph 34f(1) of Statement 43 or paragraph 13f(1) of Statement 45, the number of periods
(n ) over which the UAAL is amortized should not exceed thirty years. For purposes of the frozen attained age cost
method, the calculation of the normal cost component of the ARC is made using a present value factor that reflects
the average remaining service life of the group or thirty years, whichever is shorter. In this example, the remaining
service life of each active plan member is determined using Table 2 in paragraph 40c of Statement 43 or paragraph
35c of Statement 45, assuming an expected retirement age of 62. The average remaining service life of active plan
members is calculated to be eighteen years. Therefore, the present value factor is calculated as 1 + [(1 –
(1.0212971(–17))) ÷ 0.0212971] = 1 + (0.3011012 ÷ 0.0212971) = 15.1381.
7. In accordance with paragraph 34f(1) of Statement 43 or paragraph 13f(1) of Statement 45, the number of periods
(n ) over which the UAAL is amortized should not exceed thirty years. In this example, the employer has chosen
to amortize the UAAL as a level percentage of payroll over the lesser of the average remaining life expectancy of
the group or thirty years. Because the average remaining life expectancy of the group is thirty-three years, the
UAAL is amortized over thirty years. Therefore, using the discount rate calculated in note 5 and the present value
formula in that note, the present value factor used to amortize the UAAL is calculated as 1 + [(1 – (1.0212971(–29)))
÷ 0.0212971] = 1 + (0.4572634 ÷ 0.0212971) = 22.4707.
186
8. The calculation shown is for the initial measurement. At each measurement date, the ARC should be calculated
using the process shown on page 183. As part of that process, at each measurement date subsequent to the initial
measurement, the current-age probability-adjusted interest-discounted present value of total benefits to be paid
(shown in column f) should be recalculated. That is, the projection of future benefit payments and calculation of the
present value of total future benefits to be paid (shown in Illustration 1) and steps d through f of this illustration
should be recalculated using information and assumptions current as of the measurement date. In addition, the
beginning frozen UAAL at the measurement date should be recalculated by applying the following adjustment
methodology for each year between valuations:
Frozen UAAL at beginning of previous year
Multiplied by: interest at the assumed rate of return for one year
Frozen UAAL at end of previous year
Plus: Normal cost at end of previous year
Less: Contributions made during the previous year (adjusted for interest to the end of the year)
Frozen UAAL at beginning of subsequent year
For example, if the ARC is remeasured at June 30, 2003, the frozen UAAL at June 30, 2001, first should be
adjusted to June 30, 2002; the frozen UAAL at June 30, 2002, then should be adjusted to June 30, 2003, to
determine the beginning frozen UAAL for purposes of the June 30, 2003, measurement.
187
189
80,747
1,035,981
—
565,369
470,612
11.8646
39,665
2,182
41,847
Annual required contribution
$
$
565,369
—
565,369
15.3331
36,872
2,028
38,900
See note 8.
Amortization Component
AAL
Less: Assets
Frozen UAAL
Divided by PV factor
Amortization payment
Interest
Total amortization payment
Divided by PV factor
Normal cost
Interest
Total normal cost
Normal Cost Component
Current age probability-adjusted
present value of benefits to be paid
Less: Assets
Less: Frozen UAAL
ARC Calculation—Initial Year
See note 4.
See notes 5 and 7.
See note 4.
See notes 5 and 6.
For explanation of notes, see pages 190 and 191.
Notes to Illustration 11:
1. From Illustration 1.
2. Members who currently are receiving benefits are assigned a probability of 1.000. For other members, the
probability is obtained from Table 1 in paragraph 40b of Statement 43 or paragraph 35b of Statement 45. For
example, Member #2 currently is age 28, and plan members are assumed to retire at age 62. Therefore, using
Statement 43, paragraph 40b, or Statement 45, paragraph 35b, the member’s probability of remaining employed
from age 28 to age 62 is 0.534.
3. This column is the current-age interest-discounted present value of total benefits to be paid from column d for each
member, adjusted for the member’s probability of remaining employed from current age until retirement age from
column c. For example, the current-age probability-adjusted interest-discounted present value of total benefits to
be paid for Member #2 ($44,127) is calculated as the current-age interest-discounted present value of total benefits
to be paid ($82,634) multiplied by the member’s probability of remaining employed until retirement age calculated
at the member’s current age (0.534), or $82,634 × 0.534 = $44,127.
4. The normal cost and amortization components are calculated as beginning-of-year amounts. This step adds
interest to the end of the period at the assumed investment rate of return (5.5 percent). Interest on the normal cost
component is calculated as $39,665 × 0.055 = $2,182, and interest on the amortization component is calculated
as $36,872 × 0.055 = $2,028.
5. Present value factors can be obtained from a present value table for an annuity due (which assumes contributions
at the beginning of each period). The present value factor also can be derived from a present value table for an
ordinary annuity. Using an ordinary annuity table, the present value factor is determined as 1 + (PV of an ordinary
annuity over (n – 1) periods at the assumed discount rate (r )). Alternatively, the present value factor can be
calculated directly as 1 + [(1 – (1 + r )(–(n – 1))) ÷ r ].
When using the level dollar method, the discount rate (r ) used to determine the PV factor is the assumed
investment rate of return. In this example, the assumed investment rate of return is 5.5 percent.
6. In accordance with paragraph 34f(1) of Statement 43 or paragraph 13f(1) of Statement 45, the number of periods
(n ) over which the UAAL is amortized should not exceed thirty years. For purposes of the frozen attained age cost
method, the calculation of the normal cost component of the ARC is made using a present value factor that reflects
the average remaining service life of the group or thirty years, whichever is shorter. In this example, the remaining
service life of each active plan member is determined using Table 2 in paragraph 40c of Statement 43 or
paragraph 35c of Statement 45, assuming an expected retirement age of 62. The average remaining service life
of active plan members is calculated to be eighteen years. Therefore, the present value factor is calculated as
1 + [(1 – (1.055(–17))) ÷ 0.055] = 1 + (0.5975535 ÷ 0.055) = 11.8646.
7. In accordance with paragraph 34f(1) of Statement 43 or paragraph 13f(1) of Statement 45, the number of periods
(n ) over which the UAAL is amortized should not exceed thirty years. In this example, the employer has chosen
to amortize the UAAL as a level dollar amount over the lesser of the average remaining life expectancy of the
group or thirty years. Because the average remaining life expectancy of the group is thirty-three years, the UAAL
is amortized over thirty years. Therefore, the present value factor is calculated as 1 + [(1 – (1.055(–29))) ÷ 0.055]
= 1 + (0.7883206 ÷ 0.055) = 15.3331.
8. The calculation shown is for the initial measurement. At each measurement date, the ARC should be calculated
using the process shown on page 187. As part of that process, at each measurement date subsequent to the initial
measurement, the current-age probability-adjusted interest-discounted present value of total benefits to be paid
190
(shown in column f) should be recalculated. That is, the projection of future benefit payments and calculation of the
present value of total future benefits to be paid (shown in Illustration 1) and steps d through f of this illustration
should be recalculated using information and assumptions current as of the measurement date.
In addition, the beginning frozen UAAL at the measurement date should be recalculated by applying the following
adjustment methodology for each year between valuations:
Frozen UAAL at beginning of previous year
Multiplied by: interest at the assumed rate of return for one year
Frozen UAAL at end of previous year
Plus: Normal cost at end of previous year
Less: Contributions made during the previous year (adjusted for interest to the end of the year)
Frozen UAAL at beginning of subsequent year
For example, if the ARC is remeasured at June 30, 2003, the frozen UAAL at June 30, 2001, first should be
adjusted to June 30, 2002; the frozen UAAL at June 30, 2002, then should be adjusted to June 30, 2003, to
determine the beginning frozen UAAL for purposes of the June 30, 2003, measurement.
191
Illustration 12
Calculation of the ARC Using the Aggregate Cost Method
with the Present Value of Future Normal Costs Amortized as a Level Percentage of Payroll
Town of Espresso
Date of Calculation 6/30/2001
See note 1.
Member
#1
#2
#3
#4
#5
#6
#7
#8
#9
#10
#11
#12
#13
#14
#15
#16
#17
#18
Current
Age
ARC Calculation
46
28
40
34
58
52
40
33
36
30
25
22
Current-Age
Interest-Discounted
Present Value of
Total Benefits to
Be Paid
(d)
$
116,250
82,634
104,318
134,275
142,412
99,242
42,107
40,192
51,045
51,335
49,359
38,396
63,640
86,087
53,538
31,406
38,539
18,621
$ 1,243,396
See note 2.
Probability
of Remaining
Employed from
Current Age
Until Assumed
Retirement Age
(e)
0.943
0.534
0.841
0.703
1.000
1.000
0.841
0.677
0.753
0.593
0.440
0.349
1.000
1.000
1.000
1.000
1.000
1.000
See note 3.
Current-Age
Probability-Adjusted
Interest-Discounted
Present Value of
Total Benefits to
Be Paid
(f) = (d) x (e)
$
$
109,624
44,127
87,731
94,395
142,412
99,242
35,412
27,210
38,437
30,442
21,718
13,400
63,640
86,087
53,538
31,406
38,539
18,621
1,035,981
See note 6.
Current-age probability-adjusted
present value of benefits to be paid
Less: Assets
Present value of future normal costs
Divided by PV factor
Normal cost
Interest
Total normal cost (annual required contribution)
$
$
192
1,035,981
—
1,035,981
15.1381
68,435
3,764
72,199
See note 4.
See note 5.
Notes to Illustration 12:
1. From Illustration 1.
2. Members who currently are receiving benefits are assigned a probability of 1.000. For other members, the
probability is obtained from Table 1 in paragraph 40b of Statement 43 or paragraph 35b of Statement 45. For
example, Member #2 currently is age 28, and plan members are assumed to retire at age 62. Therefore, using
Statement 43, paragraph 40b, or Statement 45, paragraph 35b, the member’s probability of remaining employed
from age 28 to age 62 is 0.534.
3. This column is the current-age interest-discounted present value of total benefits to be paid from column a for each
member, adjusted for the member’s probability of remaining employed from current age until retirement age from
column b. For example, the current-age probability-adjusted interest-discounted present value of total benefits to
be paid for Member #2 ($44,127) is calculated as the current-age interest-discounted present value of total benefits
to be paid ($82,634) multiplied by the member’s probability of remaining employed until retirement age calculated
at the member’s current age (0.534), or $82,634 × 0.534 = $44,127.
4. Present value factors can be obtained from a present value table for an annuity due (which assumes contributions
at the beginning of each period). The present value factor also can be derived from a present value table for an
ordinary annuity. Using an ordinary annuity table, the present value factor is determined as 1 + (PV of an ordinary
annuity over (n – 1) periods at the assumed discount rate (r )). Alternatively, the present value factor can be
calculated directly as 1 + [(1 – (1 + r )(–(n – 1))) ÷ r ].
When using the level percent of payroll method, the discount rate (r ) is calculated as [(1 + investment rate of
return) ÷ (1 + payroll growth rate)] – 1. The payroll growth rate has been set to the inflation rate. Therefore, in this
example, the discount rate is calculated to be [(1 + 0.055) ÷ (1 + 0.033)] – 1, or 2.12971%.
In accordance with paragraph 34f(1) of Statement 43 or paragraph 13f(1) of Statement 45, the number of periods
(n ) over which the UAAL is amortized should not exceed thirty years. In this example, the employer has chosen
to amortize the UAAL as a level percentage of payroll over the lesser of the average remaining service life of active
plan members or thirty years. The remaining service life of each active plan member is determined using Table 2
in paragraph 40c of Statement 43 or paragraph 35c of Statement 45, assuming an expected retirement age of 62.
The average remaining service life of active plan members is calculated to be eighteen years. Therefore, the
present value factor is calculated as 1 + [(1 – (1.0212971(–17))) ÷ 0.0212971] = 1 + (0.3011012 ÷ 0.0212971) =
15.1381.
5. The normal cost is calculated as a beginning-of-year amount. This step adds interest to the end of the period at
the assumed investment rate of return (5.5 percent). Interest on the normal cost is calculated as $68,435 × 0.055
= $3,764.
6. Paragraph 34d of Statement 43 and paragraph 13d of Statement 45 require that if the aggregate actuarial cost
method is used to calculate the ARC, information for the schedule of funding progress should be calculated using
the entry age actuarial cost method.
193
Illustration 13
Calculation of the ARC Using the Aggregate Cost Method
with the Present Value of Future Normal Costs Amortized as a Level Dollar Amount
Town of Espresso
Date of Calculation 6/30/2001
See note 1.
Member
#1
#2
#3
#4
#5
#6
#7
#8
#9
#10
#11
#12
#13
#14
#15
#16
#17
#18
Current
Age
ARC Calculation
46
28
40
34
58
52
40
33
36
30
25
22
See note 2.
Current-Age
Interest-Discounted
Present Value of
Total Benefits to
Be Paid
(d)
$
116,250
82,634
104,318
134,275
142,412
99,242
42,107
40,192
51,045
51,335
49,359
38,396
63,640
86,087
53,538
31,406
38,539
18,621
$ 1,243,396
Probability
of Remaining
Employed from
Current Age
Until Assumed
Retirement Age
(e)
0.943
0.534
0.841
0.703
1.000
1.000
0.841
0.677
0.753
0.593
0.440
0.349
1.000
1.000
1.000
1.000
1.000
1.000
See note 3.
Current-Age
Probability-Adjusted
Interest-Discounted
Present Value of
Total Benefits to
Be Paid
(f) = (d) x (e)
$
$
109,624
44,127
87,731
94,395
142,412
99,242
35,412
27,210
38,437
30,442
21,718
13,400
63,640
86,087
53,538
31,406
38,539
18,621
1,035,981
See note 6.
Current-age probability-adjusted
present value of benefits to be paid
Less: Assets
Present value of future normal costs
Divided by PV factor
Normal cost
Interest
Total normal cost (annual required contribution)
194
$
$
1,035,981
—
1,035,981
11.8646
87,317
4,802
92,119
See note 4.
See note 5.
Notes to Illustration 13:
1. From Illustration 1.
2. Members who currently are receiving benefits are assigned a probability of 1.000. For other members, the
probability is obtained from Table 1 in paragraph 40b of Statement 43 or paragraph 35b of Statement 45. For
example, Member #2 currently is age 28, and plan members are assumed to retire at age 62. Therefore, using
Statement 43, paragraph 40b, or Statement 45, paragraph 35b, the member’s probability of remaining employed
from age 28 to age 62 is 0.534.
3. This column is the current-age interest-discounted present value of total benefits to be paid from column a for each
member, adjusted for the member’s probability of remaining employed from current age until retirement age from
column b. For example, the current-age probability-adjusted interest-discounted present value of total benefits to
be paid for Member #2 ($44,127) is calculated as the current-age interest-discounted present value of total benefits
to be paid ($82,634) multiplied by the member’s probability of remaining employed until retirement age calculated
at the member’s current age (0.534), or $82,634 × 0.534 = $44,127.
4. Present value factors can be obtained from a present value table for an annuity due (which assumes contributions
at the beginning of each period). The present value factor also can be derived from a present value table for an
ordinary annuity. Using an ordinary annuity table, the present value factor is determined as 1 + (PV of an ordinary
annuity over (n – 1) periods at the assumed discount rate (r )). Alternatively, the present value factor can be
calculated directly as 1 + [(1 – (1 + r )(–(n – 1))) ÷ r ].
When using the level dollar method, the discount rate (r ) used to determine the PV factor is the assumed
investment rate of return. In this example, the assumed investment rate of return is 5.5 percent.
In accordance with paragraph 34f(1) of Statement 43 or paragraph 13f(1) of Statement 45, the number of periods
(n ) over which the UAAL is amortized should not exceed thirty years. In this example, the employer has chosen
to amortize the UAAL as a level dollar amount over the lesser of the average remaining service life of active plan
members or thirty years. The remaining service life of each active plan member is determined using Table 2 in
paragraph 40c of Statement 43 or paragraph 35c of Statement 45, assuming an expected retirement age of 62.
The average remaining service life of active plan members is calculated to be eighteen years. Therefore, the
present value factor is calculated as 1 + [(1 – (1.055(–17))) ÷ 0.055] = 1 + (0.5975535 ÷ 0.055) = 11.8646.
5. The normal cost is calculated as a beginning-of-year amount. This step adds interest to the end of the period at
the assumed investment rate of return (5.5 percent). Interest on the normal cost is calculated as $87,317 × 0.055
= $4,802.
6. Paragraph 34d of Statement 43 and paragraph 13d of Statement 45 require that if the aggregate actuarial cost
method is used to calculate the ARC, information for the schedule of funding progress should be calculated using
the entry age actuarial cost method.
195
Appendix 8
INTRODUCTION AND STANDARDS SECTIONS (FROM STATEMENT 43)
Introduction
1. The objective of this Statement is to establish uniform standards of financial reporting by state and local
governmental entities for other postemployment1 benefit plans (OPEB plans). The term other postemployment
benefits (OPEB) refers to postemployment benefits other than pension benefits and includes (a) postemployment
healthcare benefits and (b) other types of postemployment benefits (for example, life insurance) if provided
separately from a pension plan. The term plans, in this context, refers to trust or other funds through which assets are
accumulated to finance OPEB, and benefits are paid as they come due. This Statement provides standards for
measurement, recognition, and display of the assets, liabilities, and, where applicable, net assets and changes in net
assets of such funds and for related disclosures. The requirements of this Statement apply whether an OPEB plan is
reported as a trust or agency fund or a fiduciary component unit of a participating employer or plan sponsor, or the
plan is separately reported by a public employee retirement system (PERS) or other entity that administers the
plan.
2. The approach adopted in this Statement generally is consistent with that of Statement No. 25, Financial Reporting
for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, and results in a common
overall approach to financial reporting for all postemployment benefit plans. However, certain requirements of this
Statement differ from the requirements of Statement 25 to reflect differences between pension benefits and OPEB.
3. A related Statement, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than
Pensions (referred to as the related Statement), establishes standards for accounting and financial reporting of OPEB
costs and obligations by state and local governmental employers that offer OPEB. The effective dates and many of
the measurement and disclosure requirements of the two Statements are closely related, and certain provisions of this
Statement refer to the related Statement. The two Statements include provisions to coordinate disclosures to avoid
duplication when a government that participates in an OPEB plan also reports the plan as a fiduciary fund or
component unit, or when a separately issued plan report, prepared in accordance with the requirements of this
Statement, is publicly available.
Standards of Governmental Accounting and Financial Reporting
Scope and Applicability of This Statement
4. This Statement establishes financial reporting standards for OPEB plans of all state and local governments.
Paragraphs 16 through 40 discuss reporting requirements for OPEB plans that are administered as trusts, or
equivalent arrangements, through which assets are accumulated and benefits are paid as they come due in
accordance with an agreement between the employer(s) and plan members and their beneficiaries (the substantive
plan), and in which:
a. Employer contributions to the plan are irrevocable
b. Plan assets are dedicated to providing benefits to their retirees and their beneficiaries in accordance with the terms
of the plan
c. Plan assets are legally protected from creditors of the employer(s) or the plan administrator.
1Consistent
with previous GASB pronouncements, the glossary and actuarial terminology presented in paragraphs 46 and 47 are authoritative
elements of this Statement. Terms defined in those paragraphs are printed in boldface type when they first appear.
197
For such plans, this Statement provides standards for (a) financial reporting of the plan assets, liabilities, net
assets, and changes in net assets held in trust for payment of benefits and (b) disclosure of actuarial information
about the funded status and funding progress of the plan (the extent to which resources have been accumulated in
comparison to actuarially accrued liabilities for benefits) and the contributions made to the plan by participating
employers in comparison to annual required contributions of the employer(s) (ARC).
5. This Statement also applies to financial reporting for funds that are used to accumulate assets and to pay benefits
in a multiple-employer OPEB plan that does not meet the criteria stated in the preceding paragraph. Paragraph 41
discusses reporting requirements for such plans. This Statement does not apply to assets that an employer earmarks
for OPEB purposes within its governmental or proprietary funds by designation of fund balance(s) or net assets or to
assets that an employer transfers to and accumulates in a separate governmental or proprietary fund for that purpose.
6. OPEB plans are plans that provide:
a. Postemployment healthcare benefits, either separately or through a defined benefit pension plan. Postemployment healthcare benefits include medical, dental, vision, hearing, and other health-related benefits. For financial
reporting purposes, postemployment healthcare benefits provided through a defined benefit pension plan, and the
assets accumulated by the plan for the payment of postemployment healthcare benefits, are considered, in
substance, a postemployment healthcare plan administered by, but not part of, the pension plan.
b. Other forms of postemployment benefits, when provided separately from a defined benefit pension plan. Examples
include life insurance, disability, long-term care, and other benefits if provided as compensation for employee
services rendered. Such forms of benefits are considered pensions when provided through a defined benefit
pension plan.
7. The requirements of this Statement address financial reporting by defined benefit OPEB plans and defined
contribution plans. Defined benefit OPEB plans are plans having terms that specify the benefits to be provided at
or after separation from employment. The benefits may be specified in dollars (for example, a flat dollar payment or
an amount based on one or more factors such as age, years of service, and compensation), or as a type or level of
coverage (for example, prescription drugs or a percentage of healthcare insurance premiums). In contrast, a defined
contribution plan is a plan having terms that (a) provide an individual account for each plan member and (b) specify
how contributions to an active plan member’s account are to be determined, rather than the income or other benefits
the member or his or her beneficiaries are to receive at or after separation from employment. In a defined contribution
plan, those benefits will depend only on the amounts contributed to the member’s account, earnings on investments
of those contributions, and forfeitures of contributions made for other members that may be allocated to the member’s
account. An OPEB plan may have both defined benefit and defined contribution characteristics. If the plan provides
a defined benefit in some form—that is, if the benefit to be provided is a function of factors other than the amounts
contributed and amounts earned on contributed assets—the provisions of this Statement for defined benefit plans
apply.
8. The provisions of this Statement apply whether the plan is a single-employer, agent multiple-employer, or
cost-sharing multiple-employer plan and regardless of how or when OPEB provided by the plan is financed. The
requirements apply whether:
a. The plan’s financial statements are included in a separate financial report issued by the plan or by the PERS or
other entity that administers the plan (stand-alone plan financial report)
b. The plan is included as a trust or agency fund or a fiduciary component unit in the statement of fiduciary net assets
and statement of changes in fiduciary net assets of the plan sponsor or employer.
9. OPEB arises from an exchange of salaries and benefits for employee services, and it is part of the compensation
that employers offer for services received. In contrast, termination offers and benefits are inducements offered by
employers to employees to hasten the termination of services, or payments made in consequence of the early
198
termination of services. Because they are different in nature from OPEB, termination offers and benefits—including
special termination benefits as defined in National Council on Governmental Accounting (NCGA) Interpretation 8,
Certain Pension Matters, early-retirement incentive programs, and other termination-related benefits—are generally
excluded from the scope of this Statement, regardless of who provides or administers them. However, the effects, if
any, of an employee’s acceptance of a special termination offer on OPEB obligations incurred through an existing
defined benefit plan (for example, an increase in the employer’s obligation to provide postemployment healthcare
benefits) should be accounted for in accordance with the requirements of this Statement and the related Statement.
10. Conversion of a terminating employee’s unused sick leave credits to an individual account to be used for payment
of postemployment benefits on that person’s behalf is a termination payment, as the term is used in Statement
No. 16, Accounting for Compensated Absences. The portion of sick leave expected to be compensated in that manner
should be accounted for as a compensated absence in accordance with the requirements of that Statement. However,
when a terminating employee’s unused sick leave credits are converted to provide or to enhance a defined benefit
OPEB (for example, postemployment healthcare benefits), the resulting benefit or increase in benefit should be
accounted for in accordance with the requirements of this Statement and the related Statement.
11. This Statement supersedes footnote 3 of GASB Statement 25; GASB Statement No. 26, Financial Reporting for
Postemployment Healthcare Plans Administered by Defined Benefit Pension Plans; and footnote 18 of GASB
Statement No. 27, Accounting for Pensions by State and Local Governmental Employers. In addition, it amends the
authoritative guidance in paragraph 5 of NCGA Interpretation No. 6, Notes to the Financial Statements Disclosure;
paragraph 81 of GASB Statement No. 14, The Financial Reporting Entity; paragraphs 4, 26, 42, and 44 and footnotes
5 and 16 of GASB Statement 25; paragraph 2 of GASB Statement 27; paragraph 4 of GASB Statement No. 31,
Accounting and Financial Reporting for Certain Investments and for External Investment Pools; and paragraphs 106
through 109, 140, and 141 and footnotes 43 and 44 of GASB Statement No. 34, Basic Financial Statements—and
Management’s Discussion and Analysis—for State and Local Governments, with regard to financial reporting for
OPEB plans.
Public Employee Retirement Systems
12. Many PERS administer more than one employee benefit plan, including defined benefit OPEB plans, as well as,
for example, defined benefit pension plans, defined contribution plans, and deferred compensation plans. As used in
this Statement, the term public employee retirement system refers to a state or local governmental fiduciary entity
entrusted with administering a plan (or plans), and not to the plan itself. This Statement does not address the financial
reports of PERS, except to the extent that the systems’ reports include financial statements for defined benefit OPEB
plans and defined contribution plans. Financial reporting requirements for special-purpose governments engaged
only in fiduciary activities (including the requirement to present management’s discussion and analysis, or MD&A) are
discussed in Statement 34, as amended.
13. When the financial report of a PERS includes more than one defined benefit OPEB plan, the provisions of this
Statement apply separately to each plan administered. That is, the system’s report should present combining financial
statements and required schedules for all defined benefit OPEB plans administered by the system. If the system
administers one or more agent multiple-employer plans (agent plans), the provisions of this Statement apply at the
aggregate plan level for each plan administered. The system is not required to include financial statements and
schedules for the individual plans of the participating employers.2
14. The principles described in this paragraph should be applied in determining whether a PERS is administering a
single plan or more than one plan for which paragraph 13 requires separate reporting.
2Throughout
this Statement, the terms agent multiple-employer plan and agent plan refer to the aggregate of the individual plans of all participating
employers. For agent plans, references to plan, single plan, each plan, and so forth, should be interpreted in that context.
199
a. A PERS is administering a single plan if, on an ongoing basis, all assets accumulated for the payment of benefits
may legally be used to pay benefits, including refunds of member contributions, to any of the plan members or
beneficiaries, as defined by the terms of the plan. If this criterion is met, the plan is considered a single plan for
financial reporting even if (1) the system is required by law or administrative policy to maintain separate reserves,
funds, or accounts for specific groups of plan members, employers, or types of benefits (for example, a reserve for
plan member contributions, a reserve for disability benefits, or separate accounts for the contributions of state
government versus local government employers) or (2) separate actuarial valuations are performed for different
classes of covered employees or groups (tiers) within a class because different contribution rates may apply for
each class or group depending on the applicable benefit structures, benefit formulas, or other factors.
b. A PERS is administering more than one plan if any portion of the total assets administered by the system is
accumulated solely for the payment of benefits to certain classes of employees or to employees of certain entities
(for example, public safety employees or state government employees) and may not legally be used to pay benefits
to other classes of employees or other entities’ employees (for example, general employees or local government
employees). That portion of the total assets and the associated benefits constitutes a separate plan for which
separate financial reporting is required, even if the assets are pooled with other assets for investment purposes.
15. The requirements of paragraph 13 also apply for the annual financial reports of a sponsor or employer when,
based on the principles described in paragraph 14, the report includes more than one defined benefit OPEB plan.
Financial statements for individual defined benefit OPEB plans should be presented in the notes to the financial
statements of the sponsor or employer if separate financial statements prepared in conformity with generally accepted
accounting principles (GAAP) and, if applicable, required supplementary information (RSI) have not been issued.
If separate financial reports meeting those specifications have been issued, the notes should include information
about how to obtain those separate reports.
OPEB Plans That Are Administered as Trusts (or Equivalent Arrangements)
16. A defined benefit OPEB plan that meets the requirements of paragraph 4 should be reported in conformity with
the requirements of paragraphs 17 through 40. (For reporting requirements applicable to a defined benefit OPEB plan
that does not meet the preceding criteria, see paragraph 41.)
Financial Reporting Framework
17. The financial report of a defined benefit OPEB plan that meets the criteria in paragraph 4 should include two
financial statements and two schedules of historical trend information, as summarized in this paragraph. The
schedules should be presented as RSI immediately after the notes to the financial statements. The requirements for
the recognition, measurement, and display of information in the financial statements and required schedules and for
the notes to the financial statements and schedules are addressed in subsequent paragraphs. The financial
statements and required schedules are:
a. A statement of plan net assets that includes information about the plan assets, liabilities, and net assets as of the
end of the plan’s fiscal year (reporting date). The statement of plan net assets should provide information about
the fair value and composition of net assets.
b. A statement of changes in plan net assets that includes information about the additions to, deductions from, and
net increase (or decrease) for the year in plan net assets. The statement should provide information about
significant year-to-year changes in plan net assets.
c. A required schedule of funding progress that includes historical trend information about the actuarially determined
funded status of the plan from a long-term, ongoing plan perspective and whether and to what extent progress is
being made in accumulating sufficient assets to pay benefits when due.
200
d. A required schedule of employer contributions that includes historical trend information about the ARC and the
contributions made by the employer(s) in relation to the ARC. The schedule should provide information that
contributes to understanding the changes over time in the funded status of the plan.
Financial Statements
Statement of plan net assets
Assets
18. The statement of plan net assets should be prepared on the accrual basis of accounting. Accordingly, purchases
and sales of investments should be recorded on a trade-date basis.
19. Plan assets should be subdivided into (a) the major categories of assets held (for example, cash and cash
equivalents, receivables, investments, and assets used in plan operations) and (b) the principal components of the
receivables and investments categories.
Receivables
20. Plan receivables generally are short term and include contributions due as of the reporting date from the
employer(s), plan members, and other contributors, and interest and dividends on investments. Amounts recognized
as receivables should include those due pursuant to formal commitments as well as statutory or contractual
requirements. With respect to an employer’s contributions, evidence of a formal commitment may include (a) an
appropriation by the employer’s governing body of a specified contribution or (b) a consistent pattern of making
payments after the plan’s reporting date pursuant to an established funding policy that attributes those payments
to the preceding plan year. When combined with either (a) or (b), the recognition in the employer’s financial
statements of a contribution payable to the plan may be supporting evidence of a formal commitment. However, the
plan should not recognize a receivable based solely on the employer’s recognition of a liability for contributions to the
plan.
21. Receivables and additions for contributions payable to the plan more than one year after the reporting date
(pursuant to, for example, installment contracts) should be recognized in full in the year the contract is made.3
Investments
22. Plan investments, whether equity or debt securities, real estate, or other investments (excluding insurance
contracts), should be reported at their fair value at the reporting date. The fair value of an investment is the amount
that the plan could reasonably expect to receive for it in a current sale between a willing buyer and a willing seller—that
is, other than in a forced or liquidation sale.4 Fair value should be measured by the market price if there is an active
market for the investment. If such prices are not available, fair value should be estimated. Unallocated insurance
contracts may be reported at contract value. Allocated insurance contracts should be excluded from plan
assets.5
3Paragraph 30c(4) requires disclosure of the terms of the contract and the outstanding balances. When a contract is recognized at its discounted
present value, interest should be accrued using the effective interest method, unless use of the straight-line method would not produce significantly
different results.
4The
fair value of an investment should reflect brokerage commissions and other costs normally incurred in a sale, if determinable.
5Paragraphs
24, 29, and 34a(4) include provisions for excluding benefits covered by allocated insurance contracts from benefit amounts reported by
the plan and from the actuarially determined information required by this Statement.
201
Assets Used in Plan Operations
23. Plan assets used in plan operations (for example, buildings, equipment, furniture and fixtures, and leasehold
improvements) should be reported at historical cost less accumulated depreciation or amortization.
Liabilities
24. Plan liabilities generally consist of benefits and refunds due to plan members and beneficiaries and accrued
investment and administrative expenses. All plan liabilities should be recognized on the accrual basis. Plan liabilities
for benefits and refunds should be recognized when due and payable in accordance with the terms of the plan.
Benefits payable from contracts excluded from plan assets for which payments to the insurance company have been
made should be excluded from plan liabilities.
Net assets held in trust for OPEB
25. The difference between total plan assets and total plan liabilities at the reporting date should be captioned net
assets held in trust for OPEB.
Statement of changes in plan net assets
26. The statement of changes in plan net assets should be prepared on the accrual basis, consistent with the
requirements of paragraphs 20, 21, and 24 for the recognition of plan receivables and liabilities. The information
should be presented in two principal sections: additions and deductions. The difference between total additions and
deductions should be reported as the net increase (or decrease) for the year in plan net assets.
Additions
27. The additions section of the statement of changes in plan net assets should include the information in these four
categories, separately displayed:
a. Contributions from the employer(s), determined in a manner consistent with the requirements for recognition of
receivables in paragraphs 20 and 21
b. Contributions from plan members, including those transmitted by the employer(s)
c. Contributions from sources other than the employer(s) and plan members (for example, state government
contributions to a local government plan)
d. Net investment income, including (1) the net appreciation (depreciation) in the fair value of plan investments,6
(2) interest income, dividend income, and other income not included in (1),7 and (3) total investment expense,
separately displayed, including investment management and custodial fees and all other significant investmentrelated costs.8
6The net appreciation (depreciation) in the fair value of investments should include realized gains and losses on investments that were both bought
and sold during the year. Realized and unrealized gains and losses should not be separately displayed in the financial statements. Plans may disclose
realized gains and losses in the notes to the financial statements, provided that the amounts disclosed include all realized gains and losses for the
year, computed as the difference between the proceeds of sale and the original cost of the investments sold. The disclosure also should state that (a)
the calculation of realized gains and losses is independent of the calculation of net appreciation (depreciation) in the fair value of plan investments and
(b) unrealized gains and losses on investments sold in the current year that had been held for more than one year were included in the net appreciation
(depreciation) reported in the prior year(s) and the current year.
7Consistent with reporting investments at their fair value, interest income should be reported at the stated interest rate; any premiums or discounts
on debt securities should not be amortized. Components (1) and (2) of net investment income may be separately displayed or may be combined and
reported as one amount.
8Plans
are not required to include in the reported amount of investment expense those investment-related costs that are not readily separable from
(a) investment income (the income is reported net of related expenses) or (b) the general administrative expenses of the plan.
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Deductions
28. The deductions section of the statement of changes in plan net assets should include (a) benefits and refunds
paid to plan members and beneficiaries and (b) total administrative expense, separately displayed.
29. Benefits paid should not include payments made by an insurance company in accordance with a contract that is
excluded from plan assets. However, amounts paid by the plan to an insurance company pursuant to such a contract,
including purchases of annuities with amounts allocated from existing investments with the insurance company,
should be included in benefits paid. (The amounts reported may be net of the plan’s dividend income for the year on
excluded contracts.)
Notes to the financial statements
30. The notes to the financial statements of a defined benefit OPEB plan should include all disclosures required by this
paragraph when the financial statements are presented (a) in a stand-alone plan financial report or (b) solely in the
financial report of an employer (that is, as an other employee benefit trust fund). When a plan’s financial statements are
presented in both an employer’s report and a publicly available stand-alone plan financial report that complies with this
Statement, the employer may limit its plan disclosures to those required by paragraphs 30a(1), 30b, and 30c(4), provided
that the employer discloses information about how to obtain the stand-alone plan financial report.9
a. Plan description
(1) Identification of the plan as a single-employer, agent multiple-employer, or cost-sharing multiple-employer
defined benefit OPEB plan and disclosure of the number of participating employers and other contributing
entities.
(2) Classes of employees covered (for example, general employees and public safety employees) and the number
of plan members, including employees in active service, terminated employees who have accumulated
benefits but are not yet receiving them, and retired employees and beneficiaries currently receiving benefits.
If the plan is closed to new entrants, that fact should be disclosed.
(3) Brief description of benefit provisions, including the types of benefits, the provisions or policies with respect to
automatic and ad hoc postretirement benefit increases, and the authority under which benefit provisions
are established or may be amended.
b. Summary of significant accounting policies
(1) Basis of accounting, including the policy with respect to the recognition in the financial statements of
contributions, benefits paid, and refunds paid.
(2) Brief description of how the fair value of investments is determined, including the methods and significant
assumptions used to estimate the fair value of investments, if that fair value is based on other than quoted
market prices.
c. Contributions and reserves
(1) Authority under which the obligations of the plan members, employer(s), and other contributing entities to
contribute to the plan are established or may be amended.
(2) Funding policy, including a brief description of how the contributions of the plan members, employer(s), and
other contributing entities are determined (for example, by statute, through an actuarial valuation, or in some
other manner) and how the costs of administering the plan are financed. Legal or contractual maximum
contribution rates should be disclosed, if applicable.
(3) Required contribution rate(s) of active or retired plan members, as applicable, in accordance with the funding
policy.10 The required contribution rate(s) should be expressed as a rate (amount) per member or as a
percentage of covered payroll.
9The
related Statement includes the requirements for notes to the employer’s financial statements concerning the employer’s OPEB expense/
expenditures.
10Information that should be reported about contributions from the employer(s) and from other contributing entities, if applicable, is addressed in the
required supplementary information section (paragraphs 31–37) of this Statement.
203
(4) Brief description of the terms of any long-term contracts for contributions to the plan and disclosure of the
amounts outstanding at the reporting date.
(5) The balances in the plan’s legally required reserves at the reporting date. Amounts of net assets designated
by the plan’s board of trustees or other governing body for a specific purpose(s) also may be disclosed but
should be captioned designations, rather than reserves.11 Also include a brief description of the purpose of
each reserve and designation disclosed and whether the reserve is fully funded.
d. Funded status and funding progress
(1) Information about the funded status of the plan as of the most recent valuation date, including the actuarial
valuation date, the actuarial value of assets, the actuarial accrued liability, the total unfunded actuarial
accrued liability, the actuarial value of assets as a percentage of the actuarial accrued liability (funded ratio),
the annual covered payroll, and the ratio of the unfunded actuarial liability to annual covered payroll.12 The
information should be calculated in accordance with the parameters set forth in paragraphs 33 and 34.
However, plans with fewer than one hundred plan members, as defined in paragraph 30a(2), may elect to use
the alternative measurement method discussed in paragraphs 38 through 40. Plans that use the aggregate
actuarial cost method should prepare this information using the entry age actuarial cost method for that
purpose only.
(2) Disclosure of information about actuarial methods and assumptions used in valuations on which reported
information about the ARC and the funded status and funding progress of OPEB plans are based, including
the following:
(a) Disclosure that actuarial valuations involve estimates of the value of reported amounts and assumptions
about the probability of events far into the future, and that actuarially determined amounts are subject to
continual revision as actual results are compared to past expectations and new estimates are made about
the future.
(b) Disclosure that the required schedule of funding progress immediately following the notes to the financial
statements presents multi-year trend information about whether the actuarial value of plan assets is
increasing or decreasing over time relative to the actuarial accrued liability for benefits.
(c) Disclosure that calculations are based on the benefits provided under the terms of the substantive plan in
effect at the time of each valuation and on the pattern of sharing of costs between the employer and plan
members to that point. In addition, if applicable, the plan should disclose that the projection of benefits for
financial reporting purposes does not explicitly incorporate the potential effects of legal or contractual
funding limitations on the pattern of cost sharing between the employer and plan members in the future.13
(d) Disclosure that actuarial calculations reflect a long-term perspective. In addition, if applicable, disclosure
that, consistent with that perspective, actuarial methods and assumptions used include techniques that
are designed to reduce short-term volatility in actuarial accrued liabilities and the actuarial value of assets.
(e) Identification of the actuarial methods and significant assumptions used to determine the ARC for the
current year and the information required by paragraph 30d(1). The disclosures should include:
i. The actuarial cost method.
ii. The method(s) used to determine the actuarial value of assets.
iii. The assumptions with respect to the inflation rate, investment return (discount rate) (including the
method used to determine a blended rate for a partially funded plan, if applicable), projected salary
increases if relevant to determination of the level of benefits, and, for postemployment healthcare
plans, the healthcare cost trend rate. If the economic assumptions contemplate different rates for
successive years (year-based or select and ultimate rates), the rates that should be disclosed are the
initial and ultimate rates.
11
Paragraphs 118 and 120 of NCGA Statement 1, Governmental Accounting and Financial Reporting Principles, address the distinction between
reserves and designations.
12Paragraph 35 requires plans to disclose the same elements of information for each of the three most recent actuarial valuations of the plan as RSI
(schedule of funding progress).
13If
a plan also elects to include in the annual financial report pro forma quantitative information about postemployment healthcare benefits (for
example, pro forma calculations of the ARC, annual OPEB cost, or the funded status of the plan) recalculated to take into consideration a funding
limitation, that information should be presented as supplementary information.
204
iv. The amortization method (level dollar or level percentage of projected payroll) and the amortization period (equivalent single amortization period, for plans that use multiple periods) for the most
recent actuarial valuation and whether the period is closed or open. Plans that use the aggregate
actuarial cost method should disclose that because the method does not identify or separately amortize
unfunded actuarial accrued liabilities, information about the plan’s funded status and funding progress
has been prepared using the entry age actuarial cost method for that purpose, and that the information
presented is intended to approximate the funding progress of the plan.
Required Supplementary Information
31. Except as indicated in paragraph 32, a schedule of funding progress and a schedule of employer contributions
should be presented immediately after the notes to the financial statements. Paragraphs 33 and 34 include the
requirements for measuring the actuarially determined information to be reported in the schedules and related note
disclosures (the parameters). However, plans with fewer than one hundred plan members may elect to use the
alternative measurement method discussed in paragraphs 38 through 40. Paragraphs 35 through 37 include the
requirements for the content of the schedules and related notes.
32. When a cost-sharing or agent plan’s financial statements are included in an employer’s financial report (that is,
as an other employee benefit trust fund), the employer is not required to present schedules of RSI for that plan if both
of these situations exist:
a. The required schedules are included with the plan’s financial statements in a publicly available, stand-alone plan
financial report.
b. The employer includes in its notes to the financial statements information about how to obtain the stand-alone plan
financial report.
When the financial statements of a single-employer plan are included in the employer’s report, the employer should
disclose the availability of the stand-alone plan report and present the information required for the schedule of funding
progress for the three most recent actuarial valuations. (The employer should not present the schedule of employer
contributions for the plan.) If the financial statements and required schedules of the plan (whether single-employer,
agent, or cost-sharing) are not publicly available in a stand-alone plan financial report, the employer should present
both schedules for each plan included in the employer’s report for all years required by this Statement.14
The parameters
33. For financial reporting purposes, an actuarial valuation should be performed in accordance with this paragraph
and paragraph 34 at the following minimum frequency:
a. For plans with a total membership of 200 or more—at least biennially
b. For plans with a total membership of fewer than 200—at least triennially.
The actuarial valuation date need not be the plan’s reporting date, but generally should be the same date each year
(or other applicable interval). However, a new valuation should be performed if, since the previous valuation,
significant changes have occurred that affect the results of the valuation, including significant changes in benefit
provisions, the size or composition of the population covered by the plan, or other factors that impact long-term
assumptions. All actuarially determined information reported for the current year in the schedule of funding progress
should be based on the results of the most recent actuarial valuation, performed in accordance with the parameters
as of a date not more than two years before the plan’s reporting date for that year, if valuations are biennial, and not
more than three years before the plan’s reporting date for that year, if valuations are triennial.
14
The related Statement includes the requirements for RSI that should be presented in relation to the employer’s OPEB expense/expenditures.
205
34. For financial reporting purposes, all actuarially determined OPEB information should be calculated in accordance
with this paragraph, consistently applied. The actuarial methods and assumptions applied for financial reporting
should be the same methods and assumptions applied in determining the plan’s funding requirements, unless
compliance with this paragraph requires the use of different methods or assumptions. A plan and its participating
employer(s) should apply the same actuarial methods and assumptions in determining similar or related information
included in their respective financial reports.15
a. Benefits to be included:
(1) The actuarial present value of total projected benefits should include all benefits to be provided by the plan
to plan members or beneficiaries in accordance with the current substantive plan (the plan terms as
understood by the employer and plan members) at the time of each valuation, including any changes to plan
terms that have been made and communicated to employees. Usually, the written plan is the best evidence
of the terms of the exchange; however, in some cases the substantive plan may differ from the written plan.
Accordingly, other information also should be taken into consideration in determining the benefits to be
provided, including other communications between the employer and employees and an established pattern
of practice with regard to the sharing of benefit costs between the employer and plan members. Calculations
should be made based on the benefits in force at the time of the valuation and the pattern of sharing of benefit
costs to that point.
(2) When benefits are provided to both active employees and retirees through the same plan, the benefits to
retirees should be segregated for actuarial measurement purposes, and the projection of future retiree benefits
should be based on claims costs, or age-adjusted premiums approximating claims costs, for retirees, in
accordance with actuarial standards issued by the Actuarial Standards Board.16 However, when benefits are
provided through a community-rated plan, in which premium rates reflect the projected health claims experience of all participating employers, rather than that of any single participating employer, and the insurer or
provider organization charges the same unadjusted premiums for both active employees and retirees, it is
appropriate to use the unadjusted premiums as the basis for projection of retiree benefit, to the extent
permitted by actuarial standards.17
(3) A legal or contractual cap on the employer’s share of the benefits to be provided to retirees and beneficiaries
each period should be considered in projecting benefits to be provided by the employer(s) in future periods, if
the cap is assumed to be effective taking into consideration the employer’s record of enforcing the cap in the
past and other relevant factors and circumstances.
(4) Benefits to be provided by means of allocated insurance contracts for which payments to an insurance
company (a) have been made and (b) have irrevocably transferred to the insurer the responsibility for providing
the benefits, should be excluded (and allocated insurance contracts should be excluded from plan assets).
b. Actuarial assumptions—The selection of all actuarial assumptions, including the healthcare cost trend rate in
valuations of postemployment healthcare plans, should be guided by actuarial standards. Accordingly, actuarial
assumptions should be based on the actual experience of the covered group, to the extent that credible
15
The related Statement includes the same parameters for measuring OPEB expense/expenditures and related actuarially determined information to
be disclosed by the employer(s). The related Statement also requires the employer(s) and the plan to use the same methods and assumptions when
reporting similar or related OPEB information.
16
See Actuarial Standard of Practice No. 6 (ASOP 6), Measuring Retiree Group Benefit Obligations, revised edition (Washington, DC: Actuarial
Standards Board, December 2001), or its successor documents.
17ASOP
6, as revised in December 2001, discusses the issue as follows:
Use of Premium Rates—Although an analysis of the plan sponsor’s actual claims experience is preferable, the actuary may use
premium rates as the basis for initial per capita health care rates, with appropriate analysis and adjustment for the premium rate basis.
The actuary who uses premium rates for this purpose should adjust them for changes in benefit levels, covered population, or program
administration. The actuary should consider that the actual cost of health insurance varies by age . . . , but the premium rates paid by
the plan sponsor may not. For example, the actuary may use a single unadjusted premium rate applicable to both active employees and
non-Medicare-eligible retirees if the actuary has determined that the insurer would offer the same premium rate if only non-Medicareeligible retirees were covered. [paragraph 3.4.5]
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c.
d.
e.
f.
experience data are available, but should emphasize expected long-term future trends rather than give undue
weight to recent past experience. The reasonableness of each actuarial assumption should be considered
independently based on its own merits, its consistency with each other assumption, and the combined impact of
all assumptions.
Economic assumptions—In addition to complying with the guidance in subparagraph b of this paragraph, the
investment return assumption (discount rate) should be the estimated long-term investment yield on the investments that are expected to be used to finance the payment of benefits, with consideration given to the nature and
mix of current and expected investments and the basis used to determine the actuarial value of assets (subparagraph e). For this purpose, the investments expected to be used to finance the payment of benefits are (1) plan
assets for plans for which the employer’s funding policy is to contribute consistently an amount at least equal to the
ARC, (2) assets of the employer for plans that have no plan assets, or (3) a combination of the two for plans that
are being partially funded. The discount rate for a partially funded plan should be a blended rate that reflects the
proportionate amounts of plan and employer assets expected to be used. The investment return assumption and
other economic assumptions should include the same assumption with respect to inflation.
Actuarial cost method—One of the following actuarial cost methods should be used: entry age, frozen entry age,
attained age, frozen attained age, projected unit credit,18 or aggregate, as described in paragraph 47,
Section B. A plan that uses the aggregate actuarial cost method should prepare a schedule of funding progress
following the requirements of paragraph 35 using the entry age actuarial cost method for that purpose and should
follow the related disclosure requirement of that paragraph.
Actuarial value of assets—Plan assets should be valued using methods and techniques that are consistent with the
class and anticipated holding period of the assets, the investment return assumption, other assumptions used in
determining the actuarial present value of total projected benefits, and current actuarial standards for asset
valuation.19 Accordingly, the actuarial value of plan assets generally should be market related.
Annual required contributions of the employer (ARC)—The ARC should be actuarially determined in accordance
with the parameters. The amount should include the employer’s normal cost and a provision(s) for amortizing
the total unfunded actuarial accrued liability (unfunded actuarial liability), in accordance with the following requirements:20
(1) Maximum amortization period—The maximum acceptable amortization period for the total unfunded actuarial
liability is thirty years. The total unfunded actuarial liability may be amortized as one amount, or components
of the total may be separately amortized. When components are amortized over different periods, the
individual amortization periods should be selected so that the equivalent single amortization period for all
components combined does not exceed the maximum acceptable period.
(2) Equivalent single amortization period—The equivalent single amortization period is the number of years
incorporated in a weighted average amortization factor for all components of the total UAL combined and
should be calculated as follows:
(a) Determine the amortization factor for each component of the total UAL using its associated amortization
period and the discount rate selected in accordance with subparagraphs b and c of this paragraph.
(b) Calculate next year’s amortization payment for each of the components by dividing each component by its
associated amortization factor.
(c) Calculate the weighted average amortization factor by dividing the total UAL by the sum of next year’s
individual amortization payments.
(d) Calculate the equivalent single amortization period as the number of years incorporated in the weighted
average amortization factor (from c) at the discount rate used in subparagraph f(2)(a) of this paragraph.
18
Unprojected unit credit is acceptable for plans in which benefits already accumulated for years of service are not affected by future salary levels.
19See
footnote 16.
20The
total unfunded actuarial liability may be positive (actuarial accrued liability greater than the actuarial value of assets) or negative (actuarial
accrued liability less than the actuarial value of assets, or funding excess). The term unfunded actuarial liability refers to either situation. Separate
determination and amortization of the unfunded actuarial liability are not part of the aggregate actuarial cost method and are not required when that
method is used, with regard to the computation of the ARC; however, the disclosure requirements of paragraphs 30d(1), 30d(2)(e)(iv), and 35 are
applicable when that method is used.
207
(3) Minimum amortization period—A significant decrease in the total unfunded actuarial liability generated by a
change from one of the actuarial cost methods specified in subparagraph d of this paragraph to another of those
methods, or by a change in the method(s) used to determine the actuarial value of assets (for example, a change
from a method that spreads increases or decreases in market value over five years to a method that uses current
market value), should be amortized over a period of not less than ten years. The minimum amortization period
is not required when a plan is closed to new entrants and all or almost all of the plan members have retired.
(4) Amortization method—The provision(s) for amortizing the total unfunded actuarial liability may be determined in
level dollar amounts or as a level percentage of the projected payroll of active plan members. If the level
percentage of projected payroll method is used, the assumed payroll growth rate should not include an
assumed increase in the number of active plan members; however, projected decreases in that number should
be included if no new members are permitted to enter the plan (for example, a plan that covers only employees
hired before a certain date).
g. Contribution deficiencies or excess contributions of the employer—A contribution deficiency or excess contribution is the difference between the ARC for a given year and the employer’s contributions in relation to the ARC.
For the purposes of this Statement, an employer has made a contribution in relation to the ARC if the employer has
(1) made payments of benefits directly to or on behalf of a retiree or beneficiary, (2) made premium payments to an
insurer, or (3) irrevocably transferred assets to a trust, or an equivalent arrangement, in which plan assets are
dedicated to providing benefits to retirees and their beneficiaries in accordance with the terms of the plan and are
legally protected from creditors of the employer(s) or plan administrator. Earmarking of employer assets or other
means of financing that do not meet the conditions in the preceding sentence do not constitute contributions in
relation to the ARC, and the assets earmarked or otherwise accumulated should be considered employer assets for
the purposes of this Statement. Amortization of a contribution deficiency or excess contribution should begin at the
next actuarial valuation, unless settlement is expected not more than one year after the deficiency or excess
occurred. If settlement has not occurred by the end of that term, amortization should begin at the next actuarial
valuation.
Schedule of funding progress
35. The schedule of funding progress should present information about the funding progress of each plan for the most
recent valuation and the two preceding valuations, including, for each valuation, each of the elements of information
listed in paragraph 30d(1). All actuarially determined information reported should be calculated in accordance with the
parameters and should be presented as of the actuarial valuation date.21 Plans that use the aggregate actuarial cost
method should prepare the information using the entry age actuarial cost method and should disclose that fact and
that the purpose of this disclosure is to provide information that approximates the funding progress of the plan.
Schedule of employer contributions
36. The schedule of employer contributions should present the following information for the most recent valuation
and the two preceding valuations, at a minimum: (a) the dollar amount of the ARC applicable to that year, calculated
in accordance with paragraph 34f, and (b) the percentage of that ARC that was recognized in the plan’s statement of
changes in plan net assets for that year as contributions from the employer(s), in accordance with paragraphs 26
and 27.22 When the plan’s funding policy includes contributions from sources other than the plan members and the
21A funding excess (and related ratios) should be reported in the same manner as a positive unfunded actuarial liability. Plans with biennial or triennial
valuations need not present duplicate information for the intervening years.
22The actuarial determination of the ARC generally is based on a projection of covered payroll for the period to which the ARC will apply. Some
employers make contributions based on projected covered payroll; others contribute based on budgeted or actual covered payroll for the year. Any
of those measures of covered payroll, consistently applied, is acceptable for the schedule of employer contributions. That is, comparisons between
the ARC and contributions made should be based on the same measure of covered payroll, consistently applied, whether that measure is projected,
budgeted, or actual covered payroll.
208
employer(s) (for example, contributions from a state government to a local government plan), the required contributions of those other contributing entities and the percentage recognized as made should be included in the schedule
of employer contributions. The schedule should be titled schedule of contributions from the employer(s) and other
contributing entities.
Notes to the required schedules
37. The schedules of RSI should be accompanied by disclosure of factors that significantly affect the identification of
trends in the amounts reported in the required schedules, including, for example, changes in benefit provisions, the
size or composition of the population covered by the plan, or the actuarial methods and assumptions used. (The
amounts reported for prior years should not be restated.)
Alternative Measurement Method for Plans with Fewer Than One Hundred Plan Members
38. The parameters of paragraphs 33 and 34 concerning the measurement of actuarially determined OPEB
information, including the requirements of paragraph 33 regarding the minimum frequency of actuarial valuations and
the requirement of paragraph 34b that the selection of actuarial assumptions should be guided by actuarial standards,
generally are applicable to all defined benefit plans. However, defined benefit plans with fewer than one hundred plan
members may elect to apply certain simplifying modifications for the selection of actuarial assumptions, as stated in
paragraph 39.
39. Plans that meet the eligibility test in paragraph 38 may elect either to apply the parameters of paragraphs 33 and
34 in their entirety or to apply the parameters with one or more of the following specific modifications. Plans that apply
these modifications should disclose that they have used the alternative measurement method permitted by this
Statement and should disclose in the notes to the financial statements the source or basis of all significant
assumptions or methods selected in accordance with this paragraph, in addition to all other disclosure requirements
of this Statement.
a. General considerations—The projection of benefits should include assumptions regarding all significant factors
affecting the amount and timing of projected future benefit payments, including, where applicable, the factors listed
below. Additional assumptions may be needed depending upon the benefits being provided. Assumptions
generally should be based on the actual experience of the covered group, to the extent that credible experience
data are available, but should emphasize expected long-term future trends rather than give undue weight to recent
past experience. However, grouping techniques that base the selection of assumptions on combined experience
data for similar plans may be used, as discussed in subparagraph i of this paragraph. The reasonableness of each
assumption should be considered independently based on its own merits and its consistency with each other
assumption. For example, each assumption of which general inflation is a component should include the same
assumption with regard to that component. In addition, consideration should be given to the reasonableness of the
combined impact of all assumptions.
b. Expected point in time at which benefits will begin to be provided—The assumption should reflect past experience
and future expectations for the covered group. The assumption may incorporate a single assumed retirement age
for all active employees or an assumption that all active employees will retire upon attaining a certain number of
years of service.
c. Marital and dependency status—The plan may base these assumptions on the current status of active and retired
plan members or historical demographic data for retirees in the covered group.
d. Mortality—The plan should base this assumption on current published mortality tables.
e. Turnover—The plan generally should base both the assumed probability that an active plan member will remain
employed until the assumed retirement age and the expected future working lifetime of plan members, for
purposes of allocating the present value of expected benefits to periods, on the historical age-based turnover
209
f.
g.
h.
i.
experience of the covered group using the calculation method in paragraph 40a. However, if experience data are
not available, the plan should assign the probability of remaining employed until the assumed retirement age using
Table 1 in paragraph 40b, and should determine the expected future working lifetime of plan members using the
calculation table in Table 2 of paragraph 40c.
Healthcare cost trend rate—The plan should derive select and ultimate assumptions about healthcare cost trends
in future years for which benefits are projected from an objective source.
Use of health insurance premiums—A plan that provides benefits through premium payments to an insurer or other
service provider may use the plan’s current premium structure as the initial per capita healthcare rates for the
purpose of projecting future healthcare benefit payments. However, if the same premium rates are given for both
active employees and retirees, and the plan is not a community rated plan, as discussed in paragraph 34a(2), the
employer should (1) obtain from the insurer age-adjusted premium rates for retirees or, if that information cannot
be obtained from the insurer, (2) estimate age-adjusted premiums for retirees using the method provided in Tables
3 through 5 of paragraph 40d, as appropriate.
Plans with coverage options—When a postemployment benefit plan provides plan members more than one
coverage option, the plan should base assumptions regarding members’ coverage choices on the experience of
the covered group, considering differences, if any, in the choices of pre- and post-Medicare-eligible members.
Use of grouping—Plans may use grouping techniques. One such technique is to group participants based on
common demographic characteristics (for example, participants within a range of ages or years of service), where
the obligation for each participant in the group is expected to be similar for commonly grouped individuals. Another
technique is to group plans with similar expected costs and benefits.
40. This paragraph includes calculation methods and default values for use with the alternative measurement
method in determining (a) the probability that active plan members will remain employed until retirement age, (b) the
expected future working lifetime of plan members, and (c) age-adjusted premiums for retirees in certain situations.
a. Plans that use historical age-based turnover experience of the covered group when applying the alternative
measurement method, as discussed in paragraph 39e, should use the following methodology to calculate the
probability of remaining employed until retirement age and the expected future working lifetime of plan members:
Age
Probability
of
Termination
in Next Year
(a)
Probability
of
Remaining
Employed
from Earliest
Entry Age to
Beginning
of Year
(c)
Probability
of
Remaining
Employed
for
Next Year
(b)
Probability
of
Remaining
Employed
from Age
Shown to
Assumed
Retirement
Age
(d)
Expected
Future
Working
Lifetime for
Assumed
Retirement
Age
(e)
Column a: For each age (n) from the earliest entry age to assumed retirement age, list the age-based probabilities
of termination in the next year for the covered group.
Column b: Compute the probability at each age of remaining employed for the next year. This value should be
calculated as 1 – a.
Column c: Set the initial value in column c to equal 1.000. For each subsequent age (n), column c values should be
calculated as: c(n – 1) × b(n – 1).
Column d: For each age (n), these values should be calculated as the product of the values in column b from age n
to the year prior to the assumed retirement age.
Column e: These values should be calculated as the sum of c from age (n) to the year prior to the assumed retirement
age, divided by the value of c at age (n). At the assumed retirement age, this value should be set to 0.
210
b. Plans that are not using historical age-based turnover experience of the covered group when applying the
alternative measurement method, as discussed in paragraph 39e, should use the following table to determine the
probability of remaining employed until the assumed retirement age:
Table 1—Probability of Remaining Employed until Assumed Retirement Age,
by Age 23—Default Values24
Age
Assumed Retirement Age
48
47
50 and over
49
46
45
20
21
22
0.296
0.321
0.349
0.300
0.326
0.354
0.304
0.330
0.359
0.309
0.335
0.364
0.314
0.340
0.370
0.319
0.346
0.376
23
24
25
0.379
0.410
0.440
0.384
0.416
0.446
0.389
0.421
0.453
0.395
0.428
0.460
0.401
0.434
0.467
0.408
0.441
0.474
26
27
28
0.472
0.503
0.534
0.478
0.510
0.541
0.485
0.517
0.549
0.493
0.525
0.558
0.500
0.533
0.566
0.508
0.542
0.575
29
30
31
0.564
0.593
0.622
0.572
0.602
0.631
0.580
0.610
0.640
0.589
0.620
0.650
0.598
0.629
0.660
0.607
0.639
0.670
32
33
34
0.650
0.677
0.703
0.659
0.687
0.713
0.669
0.696
0.723
0.679
0.707
0.734
0.689
0.718
0.745
0.700
0.730
0.758
35
36
37
0.729
0.753
0.777
0.739
0.764
0.788
0.749
0.775
0.799
0.761
0.787
0.811
0.772
0.799
0.824
0.785
0.812
0.837
38
39
40
0.799
0.821
0.841
0.811
0.832
0.853
0.822
0.844
0.865
0.835
0.857
0.878
0.847
0.870
0.891
0.861
0.884
0.906
41
42
43
0.860
0.879
0.896
0.873
0.891
0.909
0.885
0.904
0.922
0.899
0.918
0.936
0.912
0.932
0.950
0.927
0.947
0.965
44
45
46
0.912
0.928
0.943
0.925
0.941
0.957
0.938
0.955
0.970
0.953
0.969
0.985
0.967
0.984
1.000
0.983
1.000
1.000
47
48
49
0.958
0.972
0.986
0.971
0.986
1.000
0.985
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
50+
23Age
For ages 50+, the probability of remaining employed until retirement age is 1.000.
could be the entry age or the attained (current) age of the plan member, depending upon the calculation being made.
24These
default probabilities were adapted from data maintained by the U.S. Office of Personnel Management regarding the experience of the
employee group covered by the Federal Employees Retirement System.
211
c. Plans that are not using historical age-based turnover experience of the covered group when applying the
alternative measurement method, as discussed in paragraph 39e, should use the following table to determine the
expected future working lifetime of plan members:
Table 2—Expected Future Working Lifetimes of Employees, by Age25
—Default Values26
Age
Assumed Retirement Age
75
74
73
72
71
70
69
68
67
66
65
64
63
62
61
20
22
22
21
21
21
21
20
20
20
19
19
19
19
18
18
21
23
23
22
22
22
21
21
21
20
20
20
19
19
19
18
22
24
23
23
23
22
22
22
21
21
21
20
20
20
19
19
23
25
24
24
24
23
23
22
22
22
21
21
21
20
20
19
24
26
25
25
24
24
24
23
23
22
22
22
21
21
20
20
25
26
26
26
25
25
24
24
23
23
23
22
22
21
21
20
26
27
27
26
26
25
25
24
24
24
23
23
22
22
21
21
27
28
28
27
27
26
26
25
25
24
24
23
23
22
21
21
28
29
28
28
27
27
26
25
25
24
24
23
23
22
22
21
29
29
29
28
28
27
26
26
25
25
24
24
23
22
22
21
30
30
29
29
28
27
27
26
26
25
24
24
23
23
22
21
31
30
30
29
28
28
27
26
26
25
25
24
23
23
22
21
32
30
30
29
28
28
27
27
26
25
25
24
23
23
22
21
33
31
30
29
29
28
27
27
26
25
25
24
23
23
22
21
34
31
30
29
29
28
27
27
26
25
24
24
23
22
22
21
35
31
30
29
29
28
27
27
26
25
24
24
23
22
21
21
36
31
30
29
29
28
27
26
26
25
24
23
23
22
21
20
37
31
30
29
28
28
27
26
25
25
24
23
22
22
21
20
38
31
30
29
28
27
27
26
25
24
23
23
22
21
20
19
39
30
30
29
28
27
26
26
25
24
23
22
21
21
20
19
40
30
29
29
28
27
26
25
24
23
23
22
21
20
19
18
41
30
29
28
27
26
26
25
24
23
22
21
20
20
19
18
42
30
29
28
27
26
25
24
23
22
22
21
20
19
18
17
43
29
28
27
26
25
25
24
23
22
21
20
19
18
17
17
44
29
28
27
26
25
24
23
22
21
20
19
19
18
17
16
45
28
27
26
25
24
23
22
22
21
20
19
18
17
16
15
46
27
27
26
25
24
23
22
21
20
19
18
17
16
15
14
47
27
26
25
24
23
22
21
20
19
18
17
16
15
14
13
48
26
25
24
23
22
21
20
19
19
18
17
16
15
14
13
49
26
25
24
23
22
21
20
19
18
17
16
15
14
13
12
50+
25See
For ages 50+, expected future working lifetime equals assumed retirement age minus age.
footnote 23.
26
See footnote 24.
212
Assumed Retirement Age
60
59
58
57
56
55
54
53
52
51
50
49
48
47
46
45
18
17
17
17
16
16
16
16
15
15
15
14
14
14
13
13
18
18
17
17
17
16
16
16
15
15
15
15
14
14
14
13
19
18
18
17
17
17
16
16
16
15
15
15
14
14
14
13
19
19
18
18
18
17
17
16
16
16
15
15
14
14
14
13
19
19
19
18
18
17
17
17
16
16
15
15
15
14
14
13
20
19
19
19
18
18
17
17
16
16
15
15
15
14
14
13
20
20
19
19
18
18
17
17
16
16
16
15
15
14
14
13
20
20
19
19
18
18
17
17
16
16
15
15
14
14
13
13
21
20
20
19
19
18
17
17
16
16
15
15
14
14
13
13
21
20
20
19
19
18
17
17
16
16
15
15
14
13
13
12
21
20
20
19
18
18
17
17
16
15
15
14
14
13
12
12
21
20
20
19
18
18
17
16
16
15
15
14
13
13
12
11
21
20
19
19
18
17
17
16
15
15
14
14
13
12
11
11
21
20
19
18
18
17
16
16
15
14
14
13
12
12
11
10
20
20
19
18
17
17
16
15
15
14
13
13
12
11
10
10
20
19
18
18
17
16
16
15
14
13
13
12
11
10
10
9
20
19
18
17
17
16
15
14
14
13
12
11
11
10
9
8
19
18
18
17
16
15
15
14
13
12
11
11
10
9
8
7
19
18
17
16
16
15
14
13
12
12
11
10
9
8
7
7
18
17
17
16
15
14
13
12
12
11
10
9
8
7
7
6
18
17
16
15
14
13
13
12
11
10
9
8
7
7
6
5
17
16
15
14
14
13
12
11
10
9
8
8
7
6
5
4
16
15
15
14
13
12
11
10
9
8
8
7
6
5
4
3
16
15
14
13
12
11
10
9
8
8
7
6
5
4
3
2
15
14
13
12
11
10
9
9
8
7
6
5
4
3
2
1
14
13
12
11
10
9
9
8
7
6
5
4
3
2
1
0
13
12
11
11
10
9
8
7
6
5
4
3
2
1
0
0
13
12
11
10
9
8
7
6
5
4
3
2
1
0
0
0
12
11
10
9
8
7
6
5
4
3
2
1
0
0
0
0
11
10
9
8
7
6
5
4
3
2
1
0
0
0
0
0
For ages 50+, expected future working lifetime equals assumed retirement age minus age.
d. When the same premiums are charged to active employees and retirees, and the employer or plan sponsor is
unable to obtain age-adjusted premium information for retirees from the insurer or service provider, the following
approach should be used to age-adjust premiums for purposes of projecting future benefits for retirees:
(1) To adjust premiums for ages under 65:
(a) Identify the premium charged for active and retired plan members under age 65.
(b) Calculate the average age of plan members (actives and retirees or beneficiaries) to which the premium
identified in step a applies.
(c) For each active plan member, and each retired member or beneficiary under age 65, identify the greater
of expected retirement age or current age.
(d) Calculate the average of the ages identified in step c.
(e) Calculate the midpoint age between the result of step d and age 65: result of step d + (0.5 × [65 – result
of step d]).
(f) Using the results of steps b and e, locate the appropriate factor in Table 3. The factor also can be calculated
directly as 1.04(result of step e – result of step b).
(g) Multiply the factor identified in step f by the premium identified in step a. The result is the current-year
age-adjusted premium that should be used as the basis for projecting future benefits for ages under age 65.
213
Table 3—Default Factors for Calculating Age-Adjusted Premiums for
Ages under 65
Average
Age of
Plan
Members
Midpoint Age (from paragraph 40d(1)(e))
52
53
54
55
56
57
58
59
60
61
62
63
64
25
2.88
3.00
3.12
3.24
3.37
3.51
3.65
3.79
3.95
4.10
4.27
4.44
4.62
26
2.77
2.88
3.00
3.12
3.24
3.37
3.51
3.65
3.79
3.95
4.10
4.27
4.44
27
2.67
2.77
2.88
3.00
3.12
3.24
3.37
3.51
3.65
3.79
3.95
4.10
4.27
28
2.56
2.67
2.77
2.88
3.00
3.12
3.24
3.37
3.51
3.65
3.79
3.95
4.10
29
2.46
2.56
2.67
2.77
2.88
3.00
3.12
3.24
3.37
3.51
3.65
3.79
3.95
30
2.37
2.46
2.56
2.67
2.77
2.88
3.00
3.12
3.24
3.37
3.51
3.65
3.79
31
2.28
2.37
2.46
2.56
2.67
2.77
2.88
3.00
3.12
3.24
3.37
3.51
3.65
32
2.19
2.28
2.37
2.46
2.56
2.67
2.77
2.88
3.00
3.12
3.24
3.37
3.51
33
2.11
2.19
2.28
2.37
2.46
2.56
2.67
2.77
2.88
3.00
3.12
3.24
3.37
34
2.03
2.11
2.19
2.28
2.37
2.46
2.56
2.67
2.77
2.88
3.00
3.12
3.24
35
1.95
2.03
2.11
2.19
2.28
2.37
2.46
2.56
2.67
2.77
2.88
3.00
3.12
36
1.87
1.95
2.03
2.11
2.19
2.28
2.37
2.46
2.56
2.67
2.77
2.88
3.00
37
1.80
1.87
1.95
2.03
2.11
2.19
2.28
2.37
2.46
2.56
2.67
2.77
2.88
38
1.73
1.80
1.87
1.95
2.03
2.11
2.19
2.28
2.37
2.46
2.56
2.67
2.77
39
1.67
1.73
1.80
1.87
1.95
2.03
2.11
2.19
2.28
2.37
2.46
2.56
2.67
40
1.60
1.67
1.73
1.80
1.87
1.95
2.03
2.11
2.19
2.28
2.37
2.46
2.56
41
1.54
1.60
1.67
1.73
1.80
1.87
1.95
2.03
2.11
2.19
2.28
2.37
2.46
42
1.48
1.54
1.60
1.67
1.73
1.80
1.87
1.95
2.03
2.11
2.19
2.28
2.37
43
1.42
1.48
1.54
1.60
1.67
1.73
1.80
1.87
1.95
2.03
2.11
2.19
2.28
44
1.37
1.42
1.48
1.54
1.60
1.67
1.73
1.80
1.87
1.95
2.03
2.11
2.19
45
1.32
1.37
1.42
1.48
1.54
1.60
1.67
1.73
1.80
1.87
1.95
2.03
2.11
46
1.27
1.32
1.37
1.42
1.48
1.54
1.60
1.67
1.73
1.80
1.87
1.95
2.03
47
1.22
1.27
1.32
1.37
1.42
1.48
1.54
1.60
1.67
1.73
1.80
1.87
1.95
48
1.17
1.22
1.27
1.32
1.37
1.42
1.48
1.54
1.60
1.67
1.73
1.80
1.87
49
1.12
1.17
1.22
1.27
1.32
1.37
1.42
1.48
1.54
1.60
1.67
1.73
1.80
50
1.08
1.12
1.17
1.22
1.27
1.32
1.37
1.42
1.48
1.54
1.60
1.67
1.73
51
1.04
1.08
1.12
1.17
1.22
1.27
1.32
1.37
1.42
1.48
1.54
1.60
1.67
52
1.00
1.04
1.08
1.12
1.17
1.22
1.27
1.32
1.37
1.42
1.48
1.54
1.60
53
0.96
1.00
1.04
1.08
1.12
1.17
1.22
1.27
1.32
1.37
1.42
1.48
1.54
54
0.92
0.96
1.00
1.04
1.08
1.12
1.17
1.22
1.27
1.32
1.37
1.42
1.48
55
0.89
0.92
0.96
1.00
1.04
1.08
1.12
1.17
1.22
1.27
1.32
1.37
1.42
56
0.85
0.89
0.92
0.96
1.00
1.04
1.08
1.12
1.17
1.22
1.27
1.32
1.37
57
0.82
0.85
0.89
0.92
0.96
1.00
1.04
1.08
1.12
1.17
1.22
1.27
1.32
58
0.79
0.82
0.85
0.89
0.92
0.96
1.00
1.04
1.08
1.12
1.17
1.22
1.27
59
0.76
0.79
0.82
0.85
0.89
0.92
0.96
1.00
1.04
1.08
1.12
1.17
1.22
60
0.73
0.76
0.79
0.82
0.85
0.89
0.92
0.96
1.00
1.04
1.08
1.12
1.17
(2) To adjust premiums for ages 65 or older:27
(a) Identify the premium charged for active and retired plan members age 65 or older.
(b) Calculate the average age of plan members (actives and retirees or beneficiaries) to which the premium
identified in step a applies.
(c) For each active plan member, and each retired member or beneficiary (whether age pre-65 or age 65 or
older), identify the greater of current age or age 65.
(d) Calculate the average of the ages identified in step c.
27
The procedures described in paragraph 40d(2) would be applied only in cases in which retirees age 65 or older are included in a single, blended
premium rate assessed by the insurer or service provider. If separate premium rates are assessed for retirees age 65 or older, preparers would follow
the steps in paragraph 40d(1) for age-adjusting blended premiums for under age 65 and would use the separately assessed premium rates (without
additional age adjustment) for age 65 or older.
214
(e) Calculate the average life expectancy of all plan members (actives and retirees or beneficiaries).
(f) Calculate the midpoint age between the result of step d and the result of step e: result of step d + (0.5 × [result
of step e – result of step d]).
(g) Using the results of steps b and f, locate the appropriatefactor in Table 4 (for plans with no Medicare
coordination) or Table 5 (for plans with Medicare coordination). The factor in Table 4 also can be calculated
directly as 1.04(64 – result of step b) × 1.03(result of step f – 64). The factor in Table 5 also can be calculated directly
as 0.5 × 1.04(64 – result of step b) × 1.03(result of step f – 64).
(h) Multiply the factor identified in step g by the premium identified in step a. The result is the current-year
age-adjusted premium that should be used as the basis for projecting future benefits for ages 65 or older.
Table 4—Default Factors for Calculating Age-Adjusted Premiums for Ages 65
or Older (No Medicare Coordination)
Average
Age of
Plan
Members
Midpoint Age (from paragraph 40d(2)(f))
65
66
67
68
69
70
71
72
73
74
75
25
4.75
4.90
5.04
5.20
5.35
5.51
5.68
5.85
6.02
6.20
6.39
26
4.57
4.71
4.85
5.00
5.15
5.30
5.46
5.62
5.79
5.97
6.14
27
4.40
4.53
4.66
4.80
4.95
5.10
5.25
5.41
5.57
5.74
5.91
28
4.23
4.35
4.48
4.62
4.76
4.90
5.05
5.20
5.35
5.52
5.68
29
4.06
4.19
4.31
4.44
4.57
4.71
4.85
5.00
5.15
5.30
5.46
30
3.91
4.03
4.15
4.27
4.40
4.53
4.67
4.81
4.95
5.10
5.25
31
3.76
3.87
3.99
4.11
4.23
4.36
4.49
4.62
4.76
4.90
5.05
32
3.61
3.72
3.83
3.95
4.07
4.19
4.31
4.44
4.58
4.71
4.86
33
3.47
3.58
3.69
3.80
3.91
4.03
4.15
4.27
4.40
4.53
4.67
34
3.34
3.44
3.54
3.65
3.76
3.87
3.99
4.11
4.23
4.36
4.49
35
3.21
3.31
3.41
3.51
3.62
3.72
3.84
3.95
4.07
4.19
4.32
36
3.09
3.18
3.28
3.38
3.48
3.58
3.69
3.80
3.91
4.03
4.15
37
2.97
3.06
3.15
3.25
3.34
3.44
3.55
3.65
3.76
3.88
3.99
38
2.86
2.94
3.03
3.12
3.21
3.31
3.41
3.51
3.62
3.73
3.84
39
2.75
2.83
2.91
3.00
3.09
3.18
3.28
3.38
3.48
3.58
3.69
40
2.64
2.72
2.80
2.89
2.97
3.06
3.15
3.25
3.34
3.44
3.55
41
2.54
2.61
2.69
2.77
2.86
2.94
3.03
3.12
3.22
3.31
3.41
42
2.44
2.51
2.59
2.67
2.75
2.83
2.91
3.00
3.09
3.18
3.28
43
2.35
2.42
2.49
2.56
2.64
2.72
2.80
2.89
2.97
3.06
3.15
44
2.26
2.32
2.39
2.47
2.54
2.62
2.69
2.78
2.86
2.94
3.03
45
2.17
2.24
2.30
2.37
2.44
2.52
2.59
2.67
2.75
2.83
2.92
46
2.09
2.15
2.21
2.28
2.35
2.42
2.49
2.57
2.64
2.72
2.80
47
2.01
2.07
2.13
2.19
2.26
2.33
2.40
2.47
2.54
2.62
2.70
48
1.93
1.99
2.05
2.11
2.17
2.24
2.30
2.37
2.44
2.52
2.59
49
1.85
1.91
1.97
2.03
2.09
2.15
2.21
2.28
2.35
2.42
2.49
50
1.78
1.84
1.89
1.95
2.01
2.07
2.13
2.19
2.26
2.33
2.40
51
1.72
1.77
1.82
1.87
1.93
1.99
2.05
2.11
2.17
2.24
2.30
52
1.65
1.70
1.75
1.80
1.86
1.91
1.97
2.03
2.09
2.15
2.22
53
1.59
1.63
1.68
1.73
1.78
1.84
1.89
1.95
2.01
2.07
2.13
54
1.52
1.57
1.62
1.67
1.72
1.77
1.82
1.88
1.93
1.99
2.05
55
1.47
1.51
1.56
1.60
1.65
1.70
1.75
1.80
1.86
1.91
1.97
56
1.41
1.45
1.50
1.54
1.59
1.63
1.68
1.73
1.79
1.84
1.89
57
1.36
1.40
1.44
1.48
1.53
1.57
1.62
1.67
1.72
1.77
1.82
58
1.30
1.34
1.38
1.42
1.47
1.51
1.56
1.60
1.65
1.70
1.75
59
1.25
1.29
1.33
1.37
1.41
1.45
1.50
1.54
1.59
1.64
1.68
60
1.20
1.24
1.28
1.32
1.36
1.40
1.44
1.48
1.53
1.57
1.62
215
Table 5—Default Factors for Calculating Age-Adjusted Premiums for Ages 65 or Older (with Medicare Coordination)
Average
Age of
Plan
Members
Midpoint Age (from paragraph 40d(2)(f))
65
66
67
68
69
70
71
72
73
74
75
25
2.38
2.45
2.52
2.60
2.68
2.76
2.84
2.92
3.01
3.10
3.20
26
2.29
2.35
2.43
2.50
2.57
2.65
2.73
2.81
2.90
2.98
3.07
27
2.20
2.26
2.33
2.40
2.47
2.55
2.62
2.70
2.78
2.87
2.95
28
2.11
2.18
2.24
2.31
2.38
2.45
2.52
2.60
2.68
2.76
2.84
29
2.03
2.09
2.16
2.22
2.29
2.36
2.43
2.50
2.57
2.65
2.73
30
1.95
2.01
2.07
2.14
2.20
2.27
2.33
2.40
2.48
2.55
2.63
31
1.88
1.94
1.99
2.05
2.11
2.18
2.24
2.31
2.38
2.45
2.53
32
1.81
1.86
1.92
1.97
2.03
2.09
2.16
2.22
2.29
2.36
2.43
33
1.74
1.79
1.84
1.90
1.96
2.01
2.07
2.14
2.20
2.27
2.33
34
1.67
1.72
1.77
1.83
1.88
1.94
1.99
2.05
2.12
2.18
2.24
35
1.61
1.65
1.70
1.76
1.81
1.86
1.92
1.98
2.03
2.10
2.16
36
1.54
1.59
1.64
1.69
1.74
1.79
1.84
1.90
1.96
2.02
2.08
37
1.48
1.53
1.58
1.62
1.67
1.72
1.77
1.83
1.88
1.94
2.00
38
1.43
1.47
1.51
1.56
1.61
1.66
1.70
1.76
1.81
1.86
1.92
39
1.37
1.41
1.46
1.50
1.55
1.59
1.64
1.69
1.74
1.79
1.85
40
1.32
1.36
1.40
1.44
1.49
1.53
1.58
1.62
1.67
1.72
1.77
41
1.27
1.31
1.35
1.39
1.43
1.47
1.52
1.56
1.61
1.66
1.71
42
1.22
1.26
1.29
1.33
1.37
1.41
1.46
1.50
1.55
1.59
1.64
43
1.17
1.21
1.25
1.28
1.32
1.36
1.40
1.44
1.49
1.53
1.58
44
1.13
1.16
1.20
1.23
1.27
1.31
1.35
1.39
1.43
1.47
1.52
45
1.09
1.12
1.15
1.19
1.22
1.26
1.30
1.33
1.37
1.42
1.46
46
1.04
1.07
1.11
1.14
1.17
1.21
1.25
1.28
1.32
1.36
1.40
47
1.00
1.03
1.06
1.10
1.13
1.16
1.20
1.23
1.27
1.31
1.35
48
0.96
0.99
1.02
1.05
1.09
1.12
1.15
1.19
1.22
1.26
1.30
49
0.93
0.96
0.98
1.01
1.04
1.08
1.11
1.14
1.17
1.21
1.25
50
0.89
0.92
0.95
0.97
1.00
1.03
1.06
1.10
1.13
1.16
1.20
51
0.86
0.88
0.91
0.94
0.97
0.99
1.02
1.05
1.09
1.12
1.15
52
0.82
0.85
0.87
0.90
0.93
0.96
0.98
1.01
1.04
1.08
1.11
53
0.79
0.82
0.84
0.87
0.89
0.92
0.95
0.98
1.00
1.03
1.07
54
0.76
0.79
0.81
0.83
0.86
0.88
0.91
0.94
0.97
0.99
1.02
55
0.73
0.75
0.78
0.80
0.83
0.85
0.88
0.90
0.93
0.96
0.99
56
0.70
0.73
0.75
0.77
0.79
0.82
0.84
0.87
0.89
0.92
0.95
57
0.68
0.70
0.72
0.74
0.76
0.79
0.81
0.83
0.86
0.88
0.91
58
0.65
0.67
0.69
0.71
0.73
0.76
0.78
0.80
0.83
0.85
0.88
59
0.63
0.65
0.66
0.68
0.71
0.73
0.75
0.77
0.79
0.82
0.84
60
0.60
0.62
0.64
0.66
0.68
0.70
0.72
0.74
0.76
0.79
0.81
OPEB Plans That Are Not Administered as Trusts (or Equivalent Arrangements)
41. If the fund used to accumulate assets and pay benefits in a multiple-employer OPEB plan does not meet the
criteria in paragraph 4, the plan administrator or sponsor should:
a. Report the fund as an agency fund. Assets and liabilities should be accounted for in accordance with the
requirements of paragraphs 18 through 24. Any assets accumulated in excess of liabilities to pay premiums or
benefits, or for investment or administrative expenses, should be offset by liabilities to participating employers; no
plan net assets should be reported.
216
b. Apply the disclosure requirements of paragraphs 30a (plan description),28 30b (summary of significant accounting
policies), and 30c(1) through (4) (contributions). However, when a plan’s financial statements are presented in both
an employer’s report and a publicly available stand-alone plan financial report that complies with this Statement,
the employer may limit its plan disclosures to those required by paragraphs 30a(1), 30b, and 30c(4), provided that
the employer discloses information about how to obtain the stand-alone plan financial report.
c. Disclose that each participating employer is required by the related Statement to disclose additional information
with regard to funding policy, the employer’s annual OPEB cost and contributions made, the funded status and
funding progress of the employer’s individual plan, and actuarial methods and assumptions used.
Defined Contribution Plans
42. Defined contribution plans that provide OPEB should apply the reporting requirements for fiduciary funds
generally, including other employee benefit trust funds, and for component units that are fiduciary in nature set forth
in paragraphs 69 through 73 and 106 through 111 of Statement 34, as amended by this Statement,29 and the note
disclosure requirements set forth in paragraph 41 of Statement 25.
Effective Date and Transition
43. The requirements of this Statement for OPEB plan reporting are effective one year prior to the effective date of
the related Statement for the employer (single-employer plan) or for the largest participating employer in the plan
(multiple-employer plan). The requirements of the related Statement are effective in three phases based on a
government’s implementation phase for the purpose of Statement 34. Plans in which the sole or largest participating
employer was a phase 1 government for the purpose of implementation of Statement 34 should apply the
requirements of this Statement in financial statements for periods beginning after December 15, 2005. Plans in which
the sole or largest participating employer was a phase 2 government for the purpose of implementation of Statement
34 should apply the requirements of this Statement in financial statements for periods beginning after December 15,
2006. Plans in which the sole or largest participating employer was a phase 3 government for the purpose of
implementation of Statement 34 should apply the requirements of this Statement in financial statements for periods
beginning after December 15, 2007. If comparative financial statements are presented, restatement of the prior-year
financial statements is required. Early implementation of this Statement is encouraged.
44. In the fiscal year in which this Statement is first implemented (transition year), all actuarially determined
information reported for the current year in the schedule of funding progress should be based on the results of an
actuarial valuation, performed in accordance with the parameters, as of a date not more than two years prior to the
plan’s reporting date (three years if the plan had fewer than 200 members at the time of the valuation).
45. In the transition year and until three actuarial valuations have been performed in accordance with the parameters,
the required schedules of funding progress and employer contributions should include information for as many
valuations as are available. The schedules should not include information that does not meet the parameters.30
The provisions of this Statement need
not be applied to immaterial items.
28
The plan should be identified as an agent multiple-employer plan for financial reporting purposes. Correspondingly, the related Statement requires
employers in such a plan to apply the financial reporting requirements of that Statement applicable to agent employers.
29Requirements for financial reporting by special-purpose governments engaged only in fiduciary activities (for example, a PERS) are discussed in
paragraphs 139 through 141 of Statement 34, as amended.
30For some plans, it is anticipated that the actuarial methods and assumptions applied based on the funding policy before implementation of this
Statement will not differ significantly from the parameters. Those plans should be able to provide information substantially in accordance with the
parameters when this Statement is implemented. However, retroactive application of the parameters is not required.
217
Appendix 9
ILLUSTRATIONS OF FINANCIAL STATEMENTS AND DISCLOSURES (FROM STATEMENT 43)
This appendix illustrates the financial reporting and disclosure requirements of this Statement. The facts assumed
in these examples are illustrative only and are not intended to modify or limit the requirements of this Statement or
to indicate the Board’s endorsement of the policies or practices shown. Disclosures in addition to those illustrated also
are required, if applicable. For example, in the following illustrations, there are assumed to be no legally required
reserve accounts. Additional disclosures would be required if that condition existed. Illustrations 1 and 2 are
coordinated with Illustrations 2 and 4 of Appendix 5 of [this guide].
Illustration 1 Defined Benefit Healthcare Plan Financial Reports
Illustration 2 Reduced Note Disclosures and Required Supplementary Information for a Plan Reported as an Other
Employee Benefits Trust Fund or as an Agency Fund When a Stand-Alone Plan Report Is Publicly
Available
Illustration 3 Notes to the Financial Statements and Required Supplementary Information for a Defined Benefit
Healthcare Plan Using the Alternative Measurement Method
219
Illustration 1—Defined Benefit Healthcare Plan Financial Reports
GRANDE RETIREMENT SYSTEM
STATEMENTS OF PLAN NET ASSETS
as of June 30, 20X2
(Dollar amounts in thousands)
State Retired
Employees
Healthcare Plan
Assets
Cash and short-term investments
Receivables
Employer
Employer—long-term
Employee
Interest and dividends
Total receivables
Investments, at fair value
U.S. Treasuries
Federal government agencies
Corporate bonds
Corporate stocks
Total investments
Properties, at cost, net of
accumulated depreciation
of $5,164 and $323, respectively
Total assets
Liabilities
Accounts payable and other
Net assets held in trust for other
postemployment benefits
$
250
State University
Retiree
Health Plan
$
13,532
20X2
Total
$
13,782
1,182
—
1,010
836
3,028
2,101
4,064
1,562
31,193
38,920
3,283
4,064
2,572
32,029
41,948
723,487
1,216,282
1,790,676
3,271,662
7,002,107
194,807
308,764
378,783
615,773
1,498,127
918,294
1,525,046
2,169,459
3,887,435
8,500,234
6,177
434
6,611
7,011,562
1,551,013
8,562,575
7
51,828
51,835
$7,011,555
$1,499,185
$8,510,740
220
GRANDE RETIREMENT SYSTEM
STATEMENTS OF CHANGES IN PLAN NET ASSETS
for the Year Ended June 30, 20X2
(Dollar amounts in thousands)
State Retired
Employees
Healthcare Plan
Additions
Contributions
Employer
Plan member
Total contributions
$ 391,321
39,888
431,209
475,914
261,540
127,853
865,307
44,996
820,311
65,845
55,939
22,079
143,863
9,177
134,686
541,759
317,479
149,932
1,009,170
54,173
954,997
—
1,213,402
365
173,169
365
1,386,571
Deductions
Benefits
Administrative expense
Total deductions
226,108
2,350
228,458
25,568
662
26,230
251,676
3,012
254,688
Net increase
984,944
146,939
1,131,883
6,026,611
$7,011,555
1,352,246
$1,499,185
7,378,857
$8,510,740
Less investment expense
Net investment income
Employer interest on
long-term contracts
Total additions
Net assets held in trust for
other postemployment benefits
Beginning of year
End of year
221
$
20X2
Total
33,639
4,479
38,118
Investment income
Net appreciation in fair value of investments
Interest
Dividends
$ 357,682
35,409
393,091
State University
Retiree
Health Plan
Grande Retirement System
Notes to the Financial Statements
for the Fiscal Year Ended June 30, 20X2
The Grande Retirement System (GRS) administers two defined benefit postemployment healthcare plans—State
Retired Employees Healthcare Plan (SREHP) and State University Retiree Health Plan (SURHP). Although the
assets of the plans are commingled for investment purposes, each plan’s assets may be used only for the payment
of benefits to the members of that plan, in accordance with the terms of the plan.
A. Summary of Significant Accounting Policies
Basis of Accounting. GRS’s financial statements are prepared using the accrual basis of accounting. Plan member
contributions are recognized in the period in which the contributions are due. Employer contributions to each plan are
recognized when due and the employer has made a formal commitment to provide the contributions. Benefits and
refunds are recognized when due and payable in accordance with the terms of each plan.
Method Used to Value Investments. Investments are reported at fair value, which for SREHP and SURHP is
determined by the mean of the most recent bid and asked prices as obtained from dealers that make markets in such
securities. Securities for which market quotations are not readily available are valued at their fair value as determined
by the custodian under the direction of the GRS board of trustees, with the assistance of a valuation service.
B. Plan Descriptions and Contribution Information
Membership of each plan consisted of the following at December 31, 20X1, the date of the latest actuarial valuation:
Retirees and beneficiaries receiving benefits
Terminated plan members entitled to but
not yet receiving benefits
Active plan members
Total
Number of participating employers
SREHP
SURHP
31,642
4,876
743
50,601
82,986
2,289
8,861
16,026
1
15
State Retired Employees Healthcare Plan
Plan Description. SREHP is a single-employer defined benefit postemployment healthcare plan that covers retired
employees of the state including all departments and agencies. SREHP provides health and dental insurance benefits
to eligible retirees and their spouses. Article 37 of the Statutes of the State of Grande assigns the authority to establish
and amend the benefit provisions of the plan to the state legislature.
Contributions. Article 37 also assigns to the state legislature the authority to establish and amend contribution
requirements of the plan members and the state. Retired plan members and beneficiaries currently receiving benefits
are required to contribute specified amounts monthly toward the cost of health insurance premiums. For the year
ended June 30, 20X2, plan members contributed $35.4 million, or approximately 16 percent of total premiums, through
their required contributions of $50 per month for retiree-only coverage and $105 per month for retiree and spouse
coverage. The state is required to contribute the balance of the current premium cost ($190.7 million, or about 84
percent of total premiums for 20X2) and may contribute an additional amount to prefund benefits as determined
annually by the legislature ($167.0 million for 20X2). Administrative costs of SREHP are financed through investment
earnings.
222
State University Retiree Health Plan
Plan Description. SURHP is a cost-sharing multiple-employer defined benefit postemployment healthcare plan that
covers retired employees of participating universities. SURHP provides medical benefits to plan members. Article 38
of the Statutes of the State of Grande assigns the authority to establish and amend benefit provisions to the SURHP
board of trustees.
Contributions. Article 38 also assigns to the SURHP board of trustees the authority to establish and amend
contribution requirements of the plan members and the participating employers. For the year ended June 30, 20X2,
plan members or beneficiaries receiving benefits contributed $4.5 million, or approximately 18 percent of total
premiums, through their required contributions of $65 per month for retiree-only coverage and $135 for retiree and
spouse coverage to age 65, and $35 and $75 per month, respectively, thereafter. Participating universities were
required to contribute at a rate equivalent to the annual required contribution of the employers (ARC) (8.75 percent
of covered payroll, or $33.6 million). Administrative costs of SURHP are financed through investment earnings.
Long-Term Receivables. In addition to actuarially determined contributions, certain employers also make semiannual installment payments, including interest at 7.5 percent per year, for the cost of service credit granted retroactively
to employees when the employers initially joined SURHP. As of June 30, 20X2, the outstanding balance was $4.1
million. These payments are due over various time periods not exceeding five years at June 30, 20X2.
C. Funded Status and Funding Progress—OPEB Plans
The funded status of each plan as of the most recent actuarial valuation date is as follows (dollar amounts in
thousands):
Actuarial
Valuation
Date
Actuarial
Value of
Assets
(a)
Actuarial
Accrued
Liability
(AAL)—
Entry Age
(b)
Unfunded
AAL
(UAAL)
(b – a)
Funded
Ratio
(a / b)
SREHP
12/31/X1
$5,131,017
$8,833,219
$3,702,202
58.1%
SURHP
12/31/X1
1,301,663
1,575,136
273,473
82.6
Covered
Payroll
(c)
$2,243,759
371,168
UAAL as a
Percentage of
Covered
Payroll
([b – a] / c)
165.0%
73.7
Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about
the probability of occurrence of events far into the future. Examples include assumptions about future employment,
mortality, and the healthcare cost trend. Actuarially determined amounts are subject to continual revision as actual
results are compared with past expectations and new estimates are made about the future. The schedules of funding
progress, presented as required supplementary information following the notes to the financial statements, present
multi-year trend information about whether the actuarial values of plan assets are increasing or decreasing over time
relative to the actuarial accrued liabilities for benefits.
The accompanying schedules of employer contributions present trend information about the amounts contributed
to the plan by employers in comparison to the ARC, an amount that is actuarially determined in accordance with the
parameters of GASB Statement 43. The ARC represents a level of funding that, if paid on an ongoing basis, is
projected to cover normal cost for each year and amortize any unfunded actuarial liabilities (or funding excess) over
a period not to exceed thirty years.
Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood
by the employer and plan members) and include the types of benefits provided at the time of each valuation and the
historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial
223
methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in
actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the
calculations. Additional information as of the latest actuarial valuation follows:
SREHP
SURHP
Valuation date
12/31/X1
12/31/X1
Actuarial cost method
Entry age
Entry age
Amortization method
Level percentage
of pay, open
Level percentage
of pay, open
17 years
15 years
5-year
smoothed market
5-year
smoothed market
6.7%†
7.5%
12% initial
5% ultimate
12% initial
5% ultimate
Remaining amortization period
Asset valuation method
Actuarial assumptions:
Investment rate of return*
Healthcare cost trend rate*
*Includes an inflation assumption of 4.5%.
†
Determined as a blended rate of the expected long-term investment returns on plan assets and on the state’s investments, based on the funded level
of the plan at the valuation date.
224
REQUIRED SUPPLEMENTARY INFORMATION
(Dollar amounts in thousands)
SCHEDULES OF FUNDING PROGRESS
Actuarial
Valuation
Date
Actuarial
Value of
Assets
(a)
Actuarial
Accrued
Liability
(AAL)—
Entry Age
(b)
Unfunded
AAL
(UAAL)
(b – a)
Funded
Ratio
(a / b)
SREHP
12/31/W7
12/31/W9
12/31/X1
$3,696,201
4,209,207
5,131,017
$7,189,703
7,838,210
8,833,219
$3,493,502
3,629,003
3,702,202
51.4%
53.7
58.1
SURHP
12/31/W7
12/31/W9
12/31/X1
697,274
935,184
1,301,663
1,001,851
1,168,147
1,575,136
304,577
232,963
273,473
Covered
Payroll
(c)
$2,144,804
2,325,810
2,243,759
69.6
80.1
82.6
297,926
329,473
371,168
UAAL as a
Percentage of
Covered
Payroll
([b – a] / c)
162.9%
156.0
165.0
102.2
70.7
73.7
SCHEDULES OF EMPLOYER CONTRIBUTIONS
Employer Contributions
SREHP
Year
Ended
June 30
Annual
Required
Contribution
19W9
20X0
20X1
20X2
$535,307
501,102
542,812
577,180
SURHP
Percentage
Contributed
54.3%
66.9
64.3
62.0
225
Annual
Required
Contribution
$29,047
31,056
32,123
33,639
Percentage
Contributed
100%
100
100
100
Illustration 2—Reduced Note Disclosures and Required Supplementary Information for a Plan Reported as
an Other Employee Benefits Trust Fund or as an Agency Fund When a Stand-Alone Plan Report Is
Publicly Available
When a defined benefit OPEB plan is included in an employer’s financial reporting entity as an other employee
benefits trust fund or as an agency fund, the requirements of this Statement regarding notes to the financial
statements and required supplementary information (RSI) are reduced, if a stand-alone plan report containing the
information required by this Statement is publicly available. The following chart summarizes the requirements
applicable to the trust or agency fund:
Plan Issues
Stand-Alone
Report
Other Employee Benefits
Trust Fund
Agent
Employer
Cost-Sharing
Employer
Agency
Fund
Agent
Employer
Notes ¶30
(Reduced)
Notes ¶30
(Reduced)
Notes ¶41
(Reduced)
Notes ¶30
(Full)
Notes ¶30
(Full)
Notes ¶30
(Full)
RSI ¶31–¶37
(Full)
RSI ¶31–¶37
(Full)
RSI ¶31–¶37
(Full)
SingleEmployer
YES
Notes ¶30
(Reduced)
RSI ¶31–¶37
(Reduced)
NO
Notes ¶41
(Full)
Full RSI comprises a schedule of funding progress and a schedule of employer contributions for at least three
valuations, and RSI notes. Reduced RSI comprises a schedule of funding progress for at least three valuations.
Reduced Disclosures
This illustration, which is related to Illustration 1, assumes that the state of Grande includes the State Retired
Employees Healthcare Plan (a single-employer defined benefit healthcare plan) and the State University Retiree
Health Plan (a cost-sharing multiple employer plan) as other employee benefits trust funds of the state in the state’s
report. The reduced disclosures presented in this illustration are based on the information that a stand-alone plan
report is publicly available, in the financial report issued by the Grande Retirement System (Illustration 1). In the
circumstances, the state may present reduced note disclosures and RSI for the single-employer plan reported as a
trust fund in its report. The state may also present similar reduced note disclosures for the cost-sharing multipleemployer plan presented as a trust fund but would not be required to present RSI for that type of plan. Similarly, if the
plans were agent multiple-employer plans, the state could present reduced note disclosures for the trust funds but
would not be required to present RSI for that type of plan.
226
State of Grande
Notes to the Financial Statements
for the Year Ended June 30, 20X2
X. Retiree Healthcare Plans
Plan Description. The Grande Retirement System (GRS) administers the State Retired Employees Healthcare Plan
(SREHP), a single-employer defined benefit healthcare plan, and the State University Retiree Health Plan (SURHP),
a cost-sharing multiple-employer defined benefit healthcare plan with fifteen participating employers. GRS issues a
publicly available financial report that includes financial statements and required supplementary information for
SREHP and SURHP. The financial report may be obtained by writing to Grande Retirement System, State Government Lane, Latte, GR 01000, or by calling 1-800-555-PLAN.
Summary of Significant Accounting Policies
Basis of Accounting. The financial statements for SREHP and SURHP are prepared using the accrual basis of
accounting. Plan member contributions are recognized in the period in which the contributions are due. Employer
contributions to each plan are recognized when due and the employer has made a formal commitment to provide the
contributions. Benefits and refunds are recognized when due and payable in accordance with the terms of each plan.
Method Used to Value Investments. Investments are reported at fair value, which for SREHP and SURHP is
determined by the mean of the most recent bid and asked prices as obtained from dealers that make markets in such
securities. Securities for which market quotations are not readily available are valued at their fair value as determined
by the custodian under the direction of the GRS board of trustees, with the assistance of a valuation service.
Long-term Receivables
In addition to actuarially determined contributions, certain employers also make semiannual installment payments,
including interest at 7.5 percent per year, for the cost of service credit granted retroactively to employees when the
employers initially joined SURHP. As of June 30, 20X2, the outstanding balance was $4.1 million. These payments are
due over various time periods not exceeding five years at June 30, 20X2.
REQUIRED SUPPLEMENTARY INFORMATION
STATE RETIRED EMPLOYEES HEALTHCARE PLAN
Schedule of Funding Progress
(Dollar amounts in thousands)
Actuarial
Valuation
Date
Actuarial
Value of
Assets
(a)
Actuarial
Accrued
Liability
(AAL)—
Entry Age
(b)
Unfunded
AAL
(UAAL)
(b – a)
Funded
Ratio
(a / b)
12/31/W7
12/31/W9
12/31/X1
$3,696,201
4,209,207
5,131,017
$7,189,703
7,838,210
8,833,219
$3,493,502
3,629,003
3,702,202
51.4%
53.7
58.1
227
Covered
Payroll
(c)
$2,144,804
2,325,810
2,243,759
UAAL as a
Percentage of
Covered
Payroll
([b – a] / c)
162.9%
156.0
165.0
Illustration 3—Notes to the Financial Statements and Required Supplementary Information for a Defined
Benefit Healthcare Plan Using the Alternative Measurement Method
CITY OF JAVA
Notes to the Financial Statements
for the Year Ended June 30, 20X2
A. Summary of Significant Accounting Policies
Basis of Accounting. The Public Safety Retiree Healthplan’s (PSRH) financial statements are prepared using the
accrual basis of accounting. Plan member contributions are recognized in the period in which the contributions are
due. Employer contributions are recognized when due and the employer has made a formal commitment to provide
the contributions. Benefits and refunds are recognized when due and payable.
Method Used to Value Investments. Investments are reported at fair value, which is determined by the mean of the
most recent bid and asked prices as obtained from dealers that make markets in such securities. Securities for which
market quotations are not readily available are valued at their fair value as determined by the custodian under the
direction of the PSRH board of trustees, with the assistance of a valuation service.
Measurement of Actuarial Information. PSRH has elected to calculate information of an actuarial nature using the
alternative measurement method permitted by GASB Statement 43 for plans with fewer than one hundred employees.
B. Plan Description and Contribution Information
Plan Description. PSRH is a single-employer, defined benefit healthcare plan established through the City of Java
Municipal Code, Sections 3-145 through 3-155. The plan provides healthcare insurance for eligible public safety
retirees up to the age of 65 through the city of Java’s group health insurance plan, which covers both active and retired
public safety members. At June 30, 20X1, the date of the last plan valuation, PSRH covered thirty-six members
(twenty-one active plan members and fifteen retirees receiving benefits).
Contributions. Contribution requirements are established through Section 3-156 of the City of Java Municipal Code.
Both the city and active plan members are required to contribute 1.5 percent of gross payroll to the plan. For fiscal
year 20X2, these groups each contributed $12,261 to the plan. In the event that plan assets are not sufficient to pay
for benefits under the plan, the city is required to contribute the additional amounts necessary to provide the benefits.
In fiscal year 20X2, no additional contributions were required. Administrative costs of the plan are paid by the city.
C. Funded Status and Funding Progress
Funded Status. As of June 30, 20X1, the actuarial accrued liability (AAL) for benefits was $1,161,595, and the
actuarial value of assets was $221,701, resulting in an unfunded actuarial accrued liability (UAAL) of $939,894 and
a funded ratio of 19.1 percent. The covered payroll (annual payroll of active employees covered by the plan) was
$815,712, and the ratio of the UAAL to the covered payroll was 115.2 percent.
Methods and Assumptions. The projection of future benefit payments for an ongoing plan involves estimates of the
value of reported amounts and assumptions about the probability of occurrence of events far into the future.
Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer (ARC) are
subject to continual revision as actual results are compared with past expectations and new estimates are made about
the future. The schedule of funding progress, presented as required supplementary information following the notes to
the financial statements, presents multi-year trend information about whether the actuarial value of plan assets is
increasing or decreasing over time relative to the actuarial accrued liabilities for benefits.
228
Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood
by the employer and plan members) and include the types of benefits provided at the time of each valuation and the
historical pattern of sharing of benefit costs between the employer and plan members to that point. The methods and
assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial
accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations.
The following simplifying assumptions were made:
Retirement age for active employees—Based on the historical average retirement age for the covered group, active
plan members were assumed to retire at age 47, or at the first subsequent year in which the member would qualify
for benefits.
Mortality—Life expectancies were based on mortality tables from the National Center for Health Statistics. The 19W9
United States Life Tables for Males and for Females were used.
Turnover—The city’s historical data on turnover by age were used as the basis for assigning active plan members a
probability of remaining employed until the assumed retirement age and for developing an expected future working
lifetime assumption for purposes of allocating to periods the present value of total benefits to be paid.
Healthcare cost trend rate—The expected rate of increase in healthcare insurance premiums was based on
projections of the Office of the Actuary at the Centers for Medicare & Medicaid Services. A rate of 9.5 percent initially,
reduced to an ultimate rate of 5.6 percent after six years, was used.
Health insurance premiums—20X1 health insurance premiums for retirees were used as the basis for calculation of
the present value of total benefits to be paid.
Inflation rate—The expected long-term inflation assumption of 3.3 percent was based on projected changes in the
Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) in The 20X1 Annual Report of the
Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds for an
intermediate growth scenario.
Payroll growth rate—The expected long-term payroll growth rate was assumed to equal the rate of inflation.
The discount rate used, 5.8 percent, is a blended rate reflecting the expected long-term investment returns on plan
assets and the city’s investments. The calculation of the blended rate was based on the historical and expected levels
of employer contributions in relation to the ARC. In addition, the entry age actuarial cost method was used, and the
actuarial value of plan assets is measured at fair value. The unfunded actuarial accrued liability is being amortized as
a level percentage of projected payroll on an open basis. The remaining amortization period at June 30, 20X1, was
thirty years.
229
REQUIRED SUPPLEMENTARY INFORMATION
Schedule of Funding Progress
for the Public Safety Retiree Healthplan
Actuarial
Valuation
Date
Actuarial
Value of
Assets
(a)
Actuarial
Accrued
Liability
(AAL)—
Entry Age
(b)
Unfunded
AAL
(UAAL)
(b – a)
Funded
Ratio
(a / b)
Covered
Payroll
(c)
6/30/W7
6/30/W9
6/30/X1
$159,339
185,806
221,701
$ 965,345
1,052,564
1,161,595
$806,006
866,758
939,894
16.5%
17.7
19.1
$764,423
789,653
815,712
Schedule of Employer Contributions
Fiscal
Year
Ended
Annual
Required
Contribution
6/30/W9
6/30/X0
6/30/X1
6/30/X2
$71,425
79,542
79,542
82,843
230
Percentage
Contributed
14.8%
14.9
14.6
14.8
UAAL as a
Percentage of
Covered
Payroll
([b – a] / c)
105.4%
110.0
115.2
TOPICAL INDEX*
Accrual basis recognition
Annual OPEB cost: 29, 59, 89, 115, 116, 118, 121,
122
Contractually required contributions: 133
Net OPEB obligation (asset): 30, 108, 120, 122
OPEB liabilities: 30
OPEB liabilities (employer): 120, 122, 123, 126
OPEB-related debt: 30, 31, 115, 125, 134
Plans: 227–233
Short-term differences: 120, 123
Actuarial valuations: 36, 38, 59. See also Actuarial
assumptions; Actuarial methods
Employer and plan coordination: 47, 204, 242, 244,
245
Frequency: 37, 39, 40, 241, 242, 249
Initial implementation: 203, 204, 257
Timing: 41–44, 203, 204, 242
Active employee healthcare: 4
Separate accounting for actives and retirees: 4, 58,
60–63, 65–69
Additions to plan net assets
Contributions: 233
Interest income: 232
Investment income: 233
Investment gains and losses: 231
Purchase discounts/premiums on debt securities:
232
Separate reporting: 233
Actuarial value of assets: 79, 80, 87, 88
Changes: 95, 252
Actuarial accrued liability. See also Funded status;
Funding progress information
Amortization: 55
Decrease: 55, 144
Age-adjusted premiums: 23, 58–60, 62–70
Alternative measurement method: 192–195
Actuarial assumptions: 45, 46, 77–83
Changes: 48, 143, 241, 242
Consistency with funding: 243
Employer and plan coordination: 47, 244
RSI disclosures: 143
Agency fund reporting. See Nontrust arrangements
Agent employers: 128
Actuarial valuations: 46, 47, 245
Note disclosures: 44, 46, 86, 135–142, 145, 234,
235
Notes to RSI: 44, 48, 143–145
RSI: 141, 142, 144, 145
Trust reporting: 235
Actuarial cost methods: 84–86
Aggregate actuarial cost method: 145, 239, 240
Alternative measurement method: 196, 197
Changes: 95
Employer and plan coordination: 47, 244
Agent multiple-employer plans: 68
Actuarial valuations: 47, 245
Additions: 233
Agency fund reporting: 218, 219, 253, 254
Allocated insurance contracts: 229
Applicability of Statement No. 43: 214
Comparative financial statements: 258
Effective date: 257
Employer contributions: 227, 228
Employer reporting: 46, 128, 135–142, 145, 235,
245
Actuarial methods: 45, 46, 84–88, 93, 94, 96–99, 105,
106. See also Actuarial assumptions; Actuarial
cost methods
Changes: 48, 95, 252
Consistency with funding: 243
Employer and plan coordination: 47, 244
Actuarial Standards Board Standard of Practice
No. 6: 66
Actuarial valuation date: 242. See also Actuarial
valuations: Timing
*Unless otherwise noted, the topics in this index are referenced to questions and answers.
231
Implementation: 258
Installment contracts: 228
Interest income: 232
Investments: 229, 231
Liabilities: 230
Nontrust arrangements: 32, 218, 219, 253, 254
Note disclosures: 224, 228, 230, 231, 234–236,
238–240, 246, 248, 254
Notes to RSI: 252
OPEB-related debt: 32, 228
RSI: 235, 239, 240, 247–252
Schedule of employer contributions: 250–252
Schedule of funding progress: 248, 249, 252
Section 401h: 246
Statement of changes in plan net assets: 231–233
Statement of plan net assets: 227–230
Transition: 258
Trust arrangements: 218, 219, 235
Unallocated insurance contracts: 229
Expected point in time at which benefits will begin
to be provided: 170–172
Experience data: 177, 178, 187
Experience-rated premiums: 182, 183
Frequency of measurement: 162
Grouping techniques: 185
Healthcare cost trend rate: 179–181
Illustrations: 197
Life expectancy: 174
Marital status: 173, 174
Measurement process: 159, 164, 165, 168
Mortality: 175
Net OPEB obligation: 168
Note disclosures: 198
Paragraph 35a: 186, 187, 191
Paragraph 35b: 189, 190
Paragraph 35c: 188, 190, 191
Paragraph 35d: 192–195
Plan changes: 162
Probability of remaining employed: 176–178,
186–188, 190
Projection of benefits: 165, 166, 170–172, 179–185,
192–195
Qualifying criteria: 160
Significant changes: 162
Simplification of assumptions: 170–181, 183–195
Substantive plan: 166, 170–175, 184
Timing of measurement: 163
Turnover: 167, 176–178, 186, 187
Unadjusted premiums: 182, 183
Aggregate actuarial cost method: 86, 145, 236, 239,
240
Allocated insurance contracts: 74–76
Plan reporting: 229
Alternative measurement method: 36, 161, 164
Actuarial cost methods: 176, 196
Illustrations: 197
Age-adjusted premiums: 192–195
Age-based turnover: 167, 176–178, 186, 187
Amortization: 196
Annual OPEB cost: 168
Assumptions: 165, 170–181, 184, 186–196
Blended premium rates: 182, 183, 192–195
Change to actuarial valuations: 169
Community-rated plan: 182, 183
Compared to actuarial valuation: 159
Coverage options: 184
Default assumptions: 183, 186–190, 192–195
Demographic data: 165, 167, 176
Dependency status: 173, 174
Eligibility criteria: 38, 39
Expected future working lifetime: 176–178, 186,
187, 189–191
Amortization: 55, 91, 93–99, 105, 106, 113, 114
Annual OPEB cost: 29, 89, 92, 109, 110–112, 122
Alternative measurement method: 168
Between valuations: 124
Note disclosures: 138
Recognition: 116, 118
Annual required contribution of the employer (ARC):
29, 31, 35, 43–46, 89–92
Adjustment: 109, 111–113
Plan reporting: 250
Applicability of Statement No. 43: 3, 8, 9, 214, 216,
217, 220
232
Applicability of Statement No. 45: 3, 6, 8, 9, 13–18,
216
ARC adjustment: 109, 111–113
Assumptions. See also Actuarial assumptions
Alternative measurement method: 165, 170–181,
184, 186–196
Benefits to be included: 49–59, 62–64, 66–76, 148,
225, 246
Blended premium rates: 23, 58, 62, 63, 66–68, 70
Alternative measurement method: 182, 183, 192–195
Caps:
Active employee costs: 62, 63
On benefits: 71, 72, 238
On contributions: 71–73, 224, 238, 246
Cost-sharing employers: 127
Contractually required contributions: 69, 127,
129–133, 156, 157, 210
Expenditure recognition: 129–132
Expense recognition: 129, 133
Funding progress information: 146
Nontrust arrangements: 128
Note disclosures: 135–137, 234, 235
Notes to RSI: 146
OPEB-related debt: 134
RSI: 146
Schedule of employer contributions: 146
Special funding situation: 155–157
Trust reporting: 235
Cost-sharing multiple-employer plans: 69
Actuarial valuations: 245
Additions: 233
Agency fund reporting: 218, 219, 254, 255
Allocated insurance contracts: 229
Applicability of Statement No. 43: 214
Comparative financial statements: 258
Definition: 127
Employer reporting: 127–137, 146, 155–157, 234,
235, 255
Implementation: 258
Interest income: 232
Investments: 229, 231
Liabilities: 230
Nontrust arrangements: 32, 128, 218, 219, 254, 255
Note disclosures: 224, 230, 231, 234, 236,
238–240, 246, 248, 254
Notes to RSI: 252
OPEB-related debt: 32
RSI: 239, 240, 247–252
Schedule of employer contributions: 250–252
Schedule of funding progress: 248, 249, 252
Section 401h: 246
Special funding situation: 155–157
Statement of changes in plan net assets: 231–233
Statement of plan net assets: 229, 230
Transition: 258
Trust arrangements: 127, 218, 219, 235
Unallocated insurance contracts: 229
Cash payments: 13, 15, 16
Claims costs: 23, 58, 59, 62–70
Community-rated plan: 66–69
Alternative measurement method: 182, 183
Comparative financial statements, plans: 258
Compensated absences: 22–24
Contractually required contributions: 69, 127, 129
Accrual basis recognition: 133
Modified accrual basis recognition: 130–132
Special funding situation: 155–157
Transition: 210
Contribution deficiencies: 100, 105, 106, 122
Contribution rates, note disclosures: 46, 137, 236, 238
Contributions: 11, 12, 23, 33, 46, 60, 61, 100–104,
107, 117, 118, 123, 128, 237
Allocation between pensions and OPEB: 224, 225
Caps: 246
Plan reporting: 227, 228, 233
Cost-sharing patterns: 56, 71–73, 225, 246
233
Covered payroll: 35
Equivalent single amortization period: 55, 93, 94
Defined benefit OPEB:
Affected by termination benefits: 21
Versus defined contribution OPEB: 19, 152
Excess contributions: 100, 105, 106, 122
Defined contribution OPEB:
Employer reporting: 151–153
Plan reporting: 214, 256
Versus defined benefit OPEB: 19, 152
Experience-rated plan: 58, 65, 69, 70, 182, 183
Disability benefits:
Insured benefits: 149
Long-term: 26, 149
Short-term: 25
Funded status: 44, 86
Aggregate actuarial cost method: 145, 236, 239,
240
Employers: 139, 141, 142, 145
Plans: 230, 236, 239, 240, 248
Excess investment earnings: 225
Financial Accounting Standards Board (FASB)
Statement No. 106: 208
Discount rate: 79, 110
Funded plan: 80, 83
Partially funded plan: 80, 81
Unfunded plan: 80, 82, 83
Funding: 89, 90. See also Pay-as-you-go financing
Funding cap, active employee costs: 62, 63
Early implementation:
Statement No. 43: 257
Statement No. 45: 200
Funding limitations: 57
Early-retirement incentives: 20, 21
Funding progress information:
Agent employers: 44, 48, 141–145
Aggregate actuarial cost method: 86, 145, 239, 240
Changes: 252
Cost-sharing employers: 146
Notes to: 252
Plans: 239, 240, 247–249, 252
Restatement: 144, 252
Sole employers: 44, 142–145
Transition: 142
Funding policy: 136, 137, 224, 237, 246
Earmarked assets: 102, 103, 218
Economic assumptions: 79–83
Effective date:
Actuarial valuation timing: 203, 204, 257
Agent multiple-employer plans: 257
Statement No. 43: 201, 202, 204, 257
Statement No. 45: 199–204
Governmental Accounting Standards Board (GASB):
Comprehensive Implementation Guide—2004:
221
Statement No. 10: 27
Paragraph 2: 4
Statement No. 12: 5
Statement No. 16: 22–24
Statement No. 24: 156, 158
Statement No. 25: 7, 15, 214, 217, 223–225, 240
Compared to Statement No. 43: 215, 236, 241
Employer contributions: 11, 12, 23, 33, 46, 60, 61,
100–104, 107, 117, 118, 123, 128, 237
Allocation between pensions and OPEB: 11, 12,
224, 225
Caps: 246
Implicit subsidy: 3, 16, 23, 58–62
Plan reporting: 227, 228
Equivalent arrangements: 101. See also Trust
arrangements
234
Statement No. 27: 7, 10, 15, 25, 26, 137, 205
Compared to Statement No. 45: 1, 34, 137, 139
Paragraphs 30–35: 206–208
Statement No. 34: 199, 214, 221, 256
Statement No. 43: 1, 213–258
Applicability: 3, 8, 9, 214, 216, 217, 220
Compared to Statement No. 25: 215, 236, 241
Compared to Statement No. 45: 3, 216
Statement No. 45: 1–212
Applicability: 3, 6, 8, 9, 13–18, 216
Compared to Statement No. 27: 1, 34, 137, 139
Compared to Statement No. 43: 3, 216
Statement No. 47: 20, 21
Technical Bulletin No. 2004-2: 129, 131–133, 210
Measurement process: 28
Alternative measurement method: 159, 164, 165,
168
Methods and assumptions. See also Actuarial
assumptions; Actuarial methods
Note disclosures: 138, 139, 236
Minimum amortization period: 48, 55, 95, 96, 114
Modified accrual basis recognition: 116, 119
Net OPEB asset: 113. See also Net OPEB obligation
Net OPEB obligation: 30, 31, 59, 108, 114, 120,
122, 123
Adjustments: 109–112
Alternative measurement method: 168
Amortization: 113
Between valuations: 124
Note disclosures: 138
Transition: 205–208
Healthcare cost trend rate: 78
Alternative measurement method: 179–181
Implicit subsidy: 3, 16, 23, 58, 59, 62–64, 66
Installment contracts: 228
Insured benefits: 76, 147–150
Note disclosures: 148
Nontrust arrangements: 102–104, 214
Agent multiple-employer plans: 32, 218, 219, 253,
254
Cost-sharing employers: 128, 255
Cost-sharing multiple-employer plans: 32, 128, 218,
219, 254, 255
Note disclosures: 254
OPEB-related debt: 32
Pay-as-you-go financing: 255
Single employer plans: 254
Interest income: 232
Internal service fund: 103
Investment income, plan reporting: 233
Investment return assumption: 79, 80, 110
Investments: 229
Gains and losses: 231
Normal cost: 28, 91
Level dollar amortization: 97, 98
Note disclosures:
Agent employers: 44, 46, 86, 135–142, 145, 234,
235
Aggregate actuarial cost method: 86, 145, 236, 239,
240
Alternative measurement method: 198
Contribution rates: 46, 137, 236, 238
Coordination between employers and plans: 234,
235
Cost-sharing employers: 135–137, 234, 235
Level percentage of payroll amortization: 97, 98
Life insurance: 8, 9, 14, 217
Long-term care benefits: 8, 9, 217
Long-term disability benefits: 26
Insured benefits: 149
235
Defined contribution OPEB (employers): 153
Funded status: 139, 141, 142, 145, 230, 236, 239,
240, 248
Funding policy: 136, 137, 224, 237, 246
Installment contracts: 228
Insured benefits: 148
Limited if separate plan report issued: 234
Methods and assumptions: 138, 139, 236
OPEB-related debt: 228
Plan changes: 51
Plan description: 136, 137
Plans: 224, 228, 230, 231, 234–236, 238–240,
246–248, 254
Sole employers: 44, 46, 86, 135–140, 142, 145,
234, 235
Statement No. 12: 5
Subsequent events: 50, 51
Substantive plan: 140
Transition: 212
OPEB obligation bonds: 33, 113
OPEB plan. See also Agent multiple-employer plans;
Cost-sharing multiple-employer plans; Singleemployer plans
Definition: 2, 213
Versus pension plan: 217, 236, 256
OPEB provided through a defined benefit pension
plan: 246
OPEB-related debt: 30–33, 105, 107, 115, 116, 120,
125
Cost-sharing employers: 134
Nontrust arrangements: 32
Note disclosures: 228
Plan reporting: 31, 228
Transition: 209
Parameters: 28, 34–88, 93–107, 241–245
Notes to RSI:
Agent employers: 44, 48, 143–145
Aggregrate actuarial cost method: 145
Cost-sharing employers: 146
Plans: 252
Sole employers: 44, 48, 143–145
Pattern of cost sharing: 56, 71–73, 225, 246
Pay-as-you-go financing: 5, 6, 52, 102, 103, 220
Pension benefits: 13, 15
Versus OPEB: 217
On-behalf payments: 156–158
Pension plan:
OPEB provided through: 7, 8, 10–12, 14, 25, 26,
217, 246
Reporting separately from OPEB plan: 7, 8, 10–12,
14, 223–226, 246
Versus OPEB plan: 217, 236, 256
OPEB assets, offset: 126
OPEB provided through a defined benefit pension
plan: 7, 8, 10–12, 14, 25, 26, 217, 246
OPEB expenditures: 116, 119
Cost-sharing employers: 129–132
Insured benefits: 148
PERS. See Public employee retirement system (PERS)
OPEB expense: 29, 31, 59, 89, 90, 115, 116, 121,
122, 125
Cost-sharing employers: 129, 133
Insured benefits: 148
Plan changes: 242, 252
Benefits to be included: 49, 52, 54
Effects on AAL: 55, 114
Frequency of valuation: 162, 241
Note disclosures: 51
RSI disclosures: 144
OPEB liabilities: 30, 31, 59, 108, 114, 122, 123
Offset: 126
Recognition: 120
Transition: 205–211
Plan description: 136
Plan membership, determining: 37
236
Plans. See also Agent multiple-employer plans;
Cost-sharing multiple-employer plans; Singleemployer plans
Definition: 2, 213
Determining number of: 117, 222
Schedule of funding progress. See Funding progress
information
Section 401h plans: 10, 11, 12, 224, 246
Postemployment benefits, definition: 217
Select and ultimate assumptions: 78
Alternative measurement method: 179
Postemployment healthcare, classified as OPEB: 4, 7,
8, 217
Separate accounting for actives and retirees: 4, 58,
60–63, 65–69
Premium payments: 150
Short-term differences: 30, 106, 120, 123
Projection of benefits: 49–54, 56–59, 62–64, 66–83,
148, 225, 246
Alternative measurement method: 182, 183, 192–195
Short-term disability benefits: 25
Public employee retirement system (PERS): 221, 222,
246
Significant changes: 39, 40, 162, 241, 242
Sick leave: 22–24
Single-employer plans:
Actuarial valuations: 245
Additions: 233
Agency fund reporting: 254
Allocated insurance contracts: 229
Applicability of Statement No. 43: 214
Comparative financial statements: 258
Employer contributions: 227, 228
Employer reporting: 46, 135–140, 142–145, 235,
245
Implementation: 258
Installment contracts: 228
Interest income: 232
Investments: 229, 231
Liabilities: 230
Nontrust arrangements: 254
Note disclosures: 224, 228, 230, 231, 234–236,
238–240, 246, 248, 254
Notes to RSI: 252
OPEB-related debt: 228
RSI: 235, 239, 240, 247–252
Schedule of employer contributions: 250–252
Schedule of funding progress: 248, 249, 252
Section 401h: 246
Statement of changes in plan net assets: 231–233
Statement of plan net assets: 227–230
Receivables: 227, 228
Required supplementary information:
Agent employers: 86, 141, 142, 144, 145
Cost-sharing employers: 146
Notes to: 44, 48, 86, 143–146, 252
Plans: 235, 239, 240, 247–252
Reduced: 235, 247
Schedule of employer contributions: 250–252
Schedule of funding progress: 248, 249, 252
Sole employers: 86, 142, 144, 145
Retiree healthcare: 19
Retirement income: 8, 9, 13, 15, 217
Risk-retention plan: 65
Schedule of employer contributions: 247, 250
Changes: 252
Contributions from other sources: 251
Cost-sharing employers: 146
Notes to: 252
Plans: 252
Restatement: 252
237
Transition: 258
Trust arrangements: 219, 235
Unallocated insurance contracts: 229
Transition:
Agent employers: 205–209
Agent multiple-employer plans: 258
Cost-sharing employers: 210, 211
Cost-sharing multiple-employer plans: 258
FASB Statement No. 106: 208
Funding progress information: 142
Net OPEB obligation: 205–208
Note disclosures: 212
OPEB liabilities: 205–211
OPEB-related debt: 209
Prospective calculation: 205, 207, 208
Retroactive calculation: 206–208
Single-employer plans: 258
Sole employers: 205–209
Sole employers:
Actuarial valuations: 46, 47, 245
Note disclosures: 46, 86, 135–140, 142, 145, 234,
235
Notes to RSI: 44, 48, 143–145
RSI: 142, 144, 145
Trust reporting: 235
Special funding situation: 154–157
Component units: 158
Statement of changes in plan net assets: 231–233
Additions: 231–233
Contributions: 233
Interest income: 232
Investment gains and losses: 231
Investment income: 233
Purchase discounts/premiums on debt securities:
232
Trust arrangements: 101, 127, 214, 226
Agent multiple-employer plans: 218, 219
Cost-sharing multiple-employer plans: 218, 219
Single-employer plans: 219
Turnover. See Alternative measurement method:
Turnover
Ultimate assumptions. See Select and ultimate
assumptions
Statement of plan net assets: 227–230
Allocated insurance contracts: 229
Installment contracts: 228
Investments: 229
Liabilities: 230
Receivables: 227, 228
Unallocated insurance contracts: 229
Unadjusted premiums: 66–68
Alternative measurement method: 182, 183
Unallocated insurance contracts:
Plan reporting: 229
Unfunded actuarial accrued liability. See also Funded
status; Funding progress information
Amortization: 55, 91, 93–99, 114
Plan reporting: 230
Subsequent events: 50, 51
Substantive plan: 49–52, 54, 56, 57, 71–73, 225
Note disclosures: 140
Termination benefits: 20, 21
Valuation date: 39, 49. See also Actuarial valuations:
Timing
Time of the valuation: 49. See also Actuarial
valuations: Timing
Vesting: 52
Workers’ compensation benefits: 27
238