June 16, 2009 Jon S. Corzine Joseph V. Doria Susan Jacobucci Governor Commissioner Director Revised 11/16/2009
GASB 45 – Other Post Retirement Benefits Update
Director's Office This Local Finance Notice concerns all local units and their responsibilities to
V. 609.292.6613 provide financial reporting on “other post employment benefits” (OPEB)
F. 609.292.9073 provided to employees. The reporting requirement stems from financial
reporting standards issues by the Government Accounting Standards Board Local Government Research 1 (GASB) as GASB Statement 45, initially covered in Local Finance Notice V. 609.292.6110 2007-15. Users should review both Notices. F. 609.292.9073
Financial Regulation This Notice also provides specific reporting guidance for local authorities and Assistance (hereinafter including fire districts). V. 609.292.4806 F. 609.984.7388 Reporting Requirements
Local Finance Board Municipalities and counties, that report on the “other comprehensive basis of V. 609.292.0479 accounting” do not have to report OPEB liabilities on their balance sheet or F. 609.633.6243 appropriate a minimum contribution in their budget, but are required to provide
Local Management Services information on their OPEB practices and costs in their Notes to the Financial
V. 609.292.7842 Statements. The disclosure must meet the requirements of GASB 45.
Local authorities and fire districts are treated differently; the GASB rules have Authority Regulation full force on them as they are obligated under the Local Authorities Fiscal V. 609.984.0132 Affairs Law to provide financial reporting on generally accepted accounting F. 609.984.7388 principles for government agencies. The GASB is the agency that promulgates
the principles. Mail and Delivery
101 South Broad St.
At the core of OPEB calculation is the concept that the tax or ratepayers that are PO Box 803
incurring the expense should fund its cost. This means authorities that have a Trenton, New Jersey
liability must budget their Annual Required Contribution (the “ARC”), a 08625-0803
combination of current costs plus an actuarially calculated amount that represents Web: www.nj.gov/dca/lgs
the future liability. The actuary calculation is discussed in the next section.* E-mail: email@example.com
Local authorities are requires to recognize the OPEB liability in Statements of Distribution Revenues, Expenses, and Changes in Net Assets (balance sheets) and Notes to Municipal and County Chief the Financial Statements in accordance with GASB Statement 45. The OPEB Financial Officers liability is displayed as a separate line item in the Unrestricted Net Assets area Local Authority Executive of the balance sheet. For local authority budget analysis purpose, the OPEB Directors
liability must be shown on Form SS-9 and displayed separately from negative Fire District Boards of Commissioners balances that are required to be raised in the next succeeding year’s budget. !!
* Text eliminated and added through Local Finance Notice 2009-25. Please review that
Notice for additional related information.
GASB 45 requires local authorities to include their OPEB liability on their balance sheet and annually appropriate their ARC in order to prevent a negative impact on the balance sheet. They must also provide full explanatory information in their Notes to Financial Statements. 4. The Budget Message
for all local authorities must include how the organization is addressing its OPEB liability. The full
reporting requirements are detailed in the GASB Statement 45 publication.
Given their obligation to report on a full GASB basis (Statement 34), local authority financial managers should carefully review the GASB 45 requirements and consult with their auditor to ensure their financial statements properly reflect their OPEB obligations. They should also consult with their
bond counsel to review their debt covenants and the impact that reporting OPEB liabilities may have on outstanding and future bond issues. This is particularly important if the bond documents require calculations performed in accordance with generally accepted accounting principles (GAAP).
Actuary Study Requirements
The calculation of OPEB costs and liabilities generally requires a study of long-term projections of program participation and health care costs. There are three categories into which a local government would fall; State Health Benefits Program (SHBP) participants, employers with more than 100 employees, employers with less than 100 employees. Each of these is discussed below.
Employers enrolled in the SHBP participate in a “cost-sharing, multi-employer benefit plan” as
defined by the GASB. These employers are able to base their reporting on an actuarial study and report of the SHBP. The SHBP report is available on the Division of Pension and Benefits website.
The Division, in consultation with auditors, developed model language consistent with GASB requirements that can be used as the basis for a local unit’s Notes to the Financial Statement. The language is Appendix A of this Notice and must be customized to meet the agency’s specific circumstances.
The model language requires disclosure of OPEB annual costs. For SHBP participants, health benefits costs for active and retired members are rated separately. There are also separate rates for state, local and local education employees. The Division of Pensions and Benefits posts detailed information on their website at www.nj.gov/treasury/pensions/shbp1.htm#4, posted under the “Retired Group Plan
The nature of the SHBP does not require participants to calculate an Annual Required Contribution; they may rely on their total annual premium for retired employees as their ARC. This practice is sanctioned by the GASB as long as basic information about the program is provided along with a link to the SHBP report. The model language takes this requirement into account.
Agencies with more than 100 employees must calculate their liability through an actuarial study.
These government agencies are encouraged to contract for actuary services on a cooperative basis, as cost savings are available when multiple agencies contract at the same time. Working through cooperative purchasing systems or joint insurance funds are ways to combine purchasing power.
Agencies with less than 100 employees can use an “alternate” spreadsheet-based calculation, a
version of which is available through at least one fee-based online service. The model is also
described in the GASB Statement 45 publication. The Division does not specifically endorse this !!
specific service, but only brings it to the attention of local officials who may want to investigate it to see if it meets their needs.
Non-Health Benefit OPEB Liabilities
While employee health benefits are the most common OPEB, some local units provide other retiree benefits. In each case, the GASB requires disclosure for all local units, and financial statement reporting by local authorities of the liability for each benefit. Depending on the size of the local unit and benefit cost, this may require an actuarial calculation of the Annual Required Contribution for each of these benefits as well. Local units should review all their OPEB with their auditor to determine if they have requirements to calculate other benefit costs.
The GASB established a phase-in schedule for reporting, based on size of their budget in their 1999 budget. That schedule required reporting in the annual financial reports as follows:
; More than $100 million in revenue: first fiscal year beginning after 12/15/2006
; Between $10 million and $100 million in revenue: first fiscal year beginning after
; Less than $10 million: first fiscal year beginning after 12/15/2008.
This schedule requires many agencies to begin reporting with their FY 2008 annual financial reports. The rest (less than $10 million budget) will report with their FY 2009 budgets.
Funding OPEB Liabilities
The disclosure of the OPEB liability will result in bond rating agencies considering OPEB liabilities when evaluating local unit finances. Based on local unit finances, some local units may consider reserving funds or developing financing tools for this purpose. The GASB standards allow for the accrual of reserves, the establishment of irrevocable trusts, and standards regarding the issuance of debt to fund the liability. The GASB highlights that these options are subject to individual state and local laws and regulations.
New Jersey laws, however, currently do not provide the ability for municipalities and counties to use the GASB provisions for accrual or reservation of funds, while all local authorities may create a fund balance reserve for OPEB on their balance sheet. Local units do not have the authority to create trusts, invest reserves in long-term investments, or issue debt to finance the liability.
The Division plans to work with various professional associations and the Legislature to explore the possibility of establish the authority for permanent reserves and trusts, and for related authority to permit those reserves and trusts to invest in financial instruments that recognize their long-term nature. Given the attention being paid to OPEB, local units should begin planning to consider how to address the liability through funding or changes to their benefit policies.
All local units should review their employee benefit policies to ensure they have proper disclosure under GASB 45, and if a local authority, account for their OPEB liabilities. Specific questions on this issue should be addressed to the local unit’s auditor.
Approved: Susan Jacobucci, Director
Table of Web Links
Page Shortcut text Internet Address 1 GASB Statement 45 http://www.gasb.org/st/summary/gstsm45.html 1 Local Finance Notice 2007-15 http://www.nj.gov/dca/lgs/lfns/07lfns/2007-15.doc 1 GASB Statement 45 publication. http://gasbpubs.stores.yahoo.net/gs45.html 2 Division of Pension and Benefits website http://www.state.nj.us/treasury/pensions/gasb-43-sept2008.pdf 2 fee-based online service https://www.gasb45help.com/gasbhelptool.html
Appendix to Local Finance Notice 2009-13
This appendix must be customized by the user.
Items that require customization are highlighted as italics and in blue.
GASB 45 SHBP Participant Disclosure Language
Plan Description. The <name of local unit> contributes to the State Health Benefits Program (SHBP),
a cost-sharing, multiple-employer defined benefit post-employment healthcare plan administered by the State of New Jersey Division of Pensions and Benefits. SHBP was established in 1961 under N.J.S.A. 52:14-17.25 et seq., to provide health benefits to State employees, retirees, and their dependents. Rules governing the operation and administration of the program are found in Title 17, Chapter 9 of the New Jersey Administrative Code. SHBP provides medical, prescription drugs, mental health/substance abuse, and Medicare Part B reimbursement to retirees and their covered dependents.
The SHBP was extended to employees, retirees, and dependents of participating local public employers in 1964. Local employers must adopt a resolution to participate in the SHBP. In 19XX,
<local unit> authorized participation in the SHPB’s post-retirement benefit program through
resolution number XX-XXX. <Describe the local policies that explain the eligibility of retirees to participate in the SHBP’s post-retirement benefit program with the local unit, and describe the benefit received by eligible employees.>
The State Health Benefits Commission is the executive body established by statute to be responsible for the operation of the SHBP. The State of New Jersey Division of Pensions and Benefits issues a publicly available financial report that includes financial statements and required supplementary information for the SHBP. That report may be obtained by writing to: State of New Jersey Division of Pensions and Benefits, P.O. Box 295, Trenton, NJ 08625-0295 or by visiting their website at www.state.nj.us/treasury/pensions/gasb-43-sept2008.pdf
Funding Policy: Participating employers are contractually required to contribute based on the amount of premiums attributable to their retirees. Post-retirement medical benefits under the plan have been funded on a pay-as-you-go basis since 1994. Prior to 1994, medical benefits were funded on an actuarial basis.
Contributions to pay for the health premiums of participating retirees in the SHBP are billed to the
<name of local unit> on a monthly basis. <Explain the funding practice, any cost sharing policy, and
amounts for each category of retired employee for each type of benefit.>
The <name of local unit> contributions to SHBP for the years ended December 31, 2008, 2007, and
2006, were $XX,XXX, $XX,XXX, and $XX,XXX, respectively, which equaled the required contributions
for each year. There were approximately XXX, XXX, and XXX retired participants eligible at December
31, 2008, 2007, and 2006, respectively.