1 California Society California Society of Municipal Finance of Municipal Finance Officers Officers GASB Update GASB Update The views expressed in this presentation are those of The views expressed in this presentation are those of Mr. Bean. Mr. Bean. Official positions of the GASB are determined only Official positions of the GASB are determined only after extensive due process and deliberation. after extensive due process and deliberation.
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California Society of California Society of Municipal Finance OfficersMunicipal Finance Officers
GASB UpdateGASB Update
The views expressed in this presentation are those of Mr. Bean.The views expressed in this presentation are those of Mr. Bean.Official positions of the GASB are determined only after extensive due Official positions of the GASB are determined only after extensive due process and deliberation.process and deliberation.
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Discussion TopicsDiscussion Topics
Recent PronouncementsRecent PronouncementsExposure DraftsExposure DraftsWhat Documents Will Be Issued Soon?What Documents Will Be Issued Soon?Other Current ProjectsOther Current Projects
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Recently Issued Final Recently Issued Final PronouncementsPronouncements
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Recently Issued DocumentsRecently Issued Documents
Statement 45—Statement 45—Accounting and Financial Accounting and Financial Reporting by Employers for OPEBReporting by Employers for OPEB
Statement 46—Statement 46—Net Assets Restricted By Net Assets Restricted By Enabling LegislationEnabling Legislation
Statement 47—Statement 47—Accounting for Termination Accounting for Termination BenefitsBenefits
Concepts Statement 3—Concepts Statement 3—Communication Communication Methods in General Purpose External Financial Methods in General Purpose External Financial Reports That Contain Basic Financial Reports That Contain Basic Financial StatementsStatements
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Recently Issued DocumentsRecently Issued Documents
Implementation guidesImplementation guidesOPEB—Statements 43 and 45OPEB—Statements 43 and 45Statistical section—Statement 44Statistical section—Statement 44Comprehensive—2005 editionComprehensive—2005 edition
New User Guide—Notes and supporting New User Guide—Notes and supporting informationinformation
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Effective DatesEffective Dates
June 30, 2006June 30, 2006 Statement 34, Retroactive infrastructure—Phase IStatement 34, Retroactive infrastructure—Phase I Statement 42Statement 42 Statement 44Statement 44 Statement 46Statement 46 Statement 47Statement 47
June 30, 2007June 30, 2007 Statement 27, Amortization periodStatement 27, Amortization period Statement 34, Retroactive infrastructure—Phase IIStatement 34, Retroactive infrastructure—Phase II Statement 43—Phase IStatement 43—Phase I
June 30, 2008June 30, 2008 Statement 43—Phase IIStatement 43—Phase II Statement 45—Phase IStatement 45—Phase I
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Statement 43 and 45Statement 43 and 45Other Postemployment BenefitsOther Postemployment Benefits
What Do You Need to Know?What Do You Need to Know?
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Why Are We Discussing This Now?Why Are We Discussing This Now?
All about planningAll about planningSignificant policy implications that are not Significant policy implications that are not
1111thth hour considerations hour considerationsWhen should an actuary (if any) be engaged?When should an actuary (if any) be engaged?Should changes (if any) be made to the plan?Should changes (if any) be made to the plan?Fund or not to fund?Fund or not to fund?
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What is the Substance of the What is the Substance of the OPEB Transaction?OPEB Transaction?
Postemployment benefits (both pensions Postemployment benefits (both pensions and OPEB) are part of the compensation and OPEB) are part of the compensation for services rendered by employees—that for services rendered by employees—that is, they are part of an exchange is, they are part of an exchange transactiontransaction
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What are the Reporting Objectives?What are the Reporting Objectives?
Recognize OPEB cost (expense) Recognize OPEB cost (expense) systematically over periods approximating systematically over periods approximating employees’ years of serviceemployees’ years of service
Provide relevant information about: Provide relevant information about:
(a) actuarial accrued liabilities for (a) actuarial accrued liabilities for promised promised benefits associated with past service, benefits associated with past service,
(b) the annual cost of OPEB, and (b) the annual cost of OPEB, and
(c) progress made in funding the plan(c) progress made in funding the plan
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What is an OPEB Plan?What is an OPEB Plan?
The plan as understood by the employer The plan as understood by the employer and plan members and plan members
Should be based on the types of benefits Should be based on the types of benefits provided at the time of each valuation, provided at the time of each valuation, including any changes made and including any changes made and announced to plan membersannounced to plan members
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Measurement—Measurement—A Statement 27 ApproachA Statement 27 Approach
All postemployment benefits (OPEB as All postemployment benefits (OPEB as well as pensions) will be reported using well as pensions) will be reported using the same general approach.the same general approach.
Broad steps:Broad steps:Project cash outflows for benefitsProject cash outflows for benefitsDiscount projected benefits to present value Discount projected benefits to present value
(PV)(PV)Allocate the PV of projected benefits to Allocate the PV of projected benefits to
periods using an acceptable actuarial cost periods using an acceptable actuarial cost methodmethod
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25 40 62 80
Employee Age Timeline
Age when hired
Present age
Life Expectancy
Service PeriodAssumed age at
retirement
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Recognition in Government-wide and Recognition in Government-wide and Proprietary Fund Financial StatementsProprietary Fund Financial Statements
Employers would report OPEB expense in Employers would report OPEB expense in an amount equal to annual OPEB cost for an amount equal to annual OPEB cost for the period, regardless of the amount paidthe period, regardless of the amount paid
The cumulative difference between The cumulative difference between amounts expensed and contributions or amounts expensed and contributions or benefits paid would create a liability (or benefits paid would create a liability (or asset) called the net OPEB obligationasset) called the net OPEB obligation
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Why Are Implicit Rate Subsidies Why Are Implicit Rate Subsidies So Important?So Important?
When current employees and retirees are When current employees and retirees are in the same group—costs for retirees in the same group—costs for retirees generally are significantly highergenerally are significantly higher
Therefore, retirees that pay for the cost of Therefore, retirees that pay for the cost of healthcare benefits through a blended healthcare benefits through a blended (with current employees) premium often (with current employees) premium often are not paying the actual costs of their are not paying the actual costs of their benefits benefits
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Implicit Rate SubsidiesImplicit Rate Subsidies
Difference between the “common” Difference between the “common” premium charged and the actual rate premium charged and the actual rate needed if retirees’ rate was calculated as needed if retirees’ rate was calculated as separate groupseparate group
Even if employer does not otherwise Even if employer does not otherwise contribute to retirees’ benefitscontribute to retirees’ benefits
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Implicit Rate Subsidy ExampleImplicit Rate Subsidy Example
EmployeesEmployees NumberNumber
Monthly Monthly CostCost
Age-Age-adjusted adjusted PremiumPremium
Blended Blended PremiumPremium
ActiveActive 400400 $80,000$80,000 $200$200
RetiredRetired 100100 $40,000$40,000 $400$400
TotalTotal 500500 $120,000$120,000 $240$240
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How Frequently Should An How Frequently Should An Actuarial Valuation be Done?Actuarial Valuation be Done?
OPEB plans with total membership (active OPEB plans with total membership (active employees and retired) over 200—at least employees and retired) over 200—at least bienniallybiennially
OPEB plans with total membership of 200 OPEB plans with total membership of 200 or fewer—at least trienniallyor fewer—at least triennially
OPEB plans with total membership of 100 OPEB plans with total membership of 100 or fewer—option to use alternative or fewer—option to use alternative calculation method with certain simplifying calculation method with certain simplifying assumptionsassumptions
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OPEB—Effective DatesOPEB—Effective Dates
Phased implementation based on same Phased implementation based on same “phase” used for Statement 34 “phase” used for Statement 34
Benefit Plan implementation is for years Benefit Plan implementation is for years beginning after December 15, 2005, 2006, beginning after December 15, 2005, 2006, or 2007or 2007
Employer implementation is for years Employer implementation is for years beginning after December 15, 2006, 2007, beginning after December 15, 2006, 2007, or 2008or 2008
Earlier application is encouragedEarlier application is encouraged
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Exposure DraftsExposure Drafts
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Sales and Pledges of Sales and Pledges of Receivables and Future Receivables and Future
RevenuesRevenuesExposure DraftExposure Draft
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Primary GuidancePrimary Guidance
Transactions of this nature should be Transactions of this nature should be reported as a collateralized borrowing reported as a collateralized borrowing unless the conditions required for reporting unless the conditions required for reporting as a sale are met.as a sale are met.
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Sales—ReceivablesSales—Receivables
Principle—No continuing involvement in Principle—No continuing involvement in transactiontransaction
CriteriaCriteriaTransferee’s ability to sell or pledge the Transferee’s ability to sell or pledge the
receivables is not restrictedreceivables is not restrictedReceivables are isolated from the transferor Receivables are isolated from the transferor
governmentgovernmentTransferor does not have the ability to Transferor does not have the ability to
unilaterally remove specific accountsunilaterally remove specific accounts
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Sales—Future RevenuesSales—Future Revenues
Principle—no continuing involvement in Principle—no continuing involvement in the transactionthe transactionOwn-source revenues and most other future Own-source revenues and most other future
revenues will not qualifyrevenues will not qualifyRevenue recognition—period in which the Revenue recognition—period in which the
revenue relates, will result in deferral of revenue relates, will result in deferral of proceeds proceeds
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Project TimetableProject Timetable
Exposure Draft—Comment deadline Exposure Draft—Comment deadline recently passed recently passed
Final Statement—August 2006Final Statement—August 2006
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Accounting and Financial Accounting and Financial Reporting for Pollution Reporting for Pollution
Remediation ObligationsRemediation Obligations
Exposure DraftExposure Draft
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Types of Remediation Types of Remediation ObligationsObligations
Pre-cleanup activities: site assessment, Pre-cleanup activities: site assessment, feasibility study, designfeasibility study, design
Cleanup activities: neutralization, Cleanup activities: neutralization, containment, disposal activitiescontainment, disposal activities
Oversight and enforcement costsOversight and enforcement costsOperation and maintenance of the remedy Operation and maintenance of the remedy
and monitoringand monitoring
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Recognition ThresholdRecognition Threshold
Determine whether one of more Determine whether one of more components of a pollution remediation components of a pollution remediation obligation are recognizable as a liability obligation are recognizable as a liability when . . . when . . . Government knows or reasonably believes Government knows or reasonably believes
that a site is polluted, andthat a site is polluted, andObligating event occursObligating event occurs
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Obligating EventsObligating Events
Imminent endangerment compels actionImminent endangerment compels actionViolate pollution prevention permitViolate pollution prevention permitNamed as responsible partyNamed as responsible partyNamed in lawsuit to enforce actionNamed in lawsuit to enforce actionVoluntary remediation commencedVoluntary remediation commenced
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RecognitionRecognition Recognize components of liability as they Recognize components of liability as they
become reasonably estimable—Recognition become reasonably estimable—Recognition benchmarksbenchmarks Receipt of an administrative orderReceipt of an administrative order Participation as a responsible party or PRPParticipation as a responsible party or PRP Completion of corrective measure feasibility studyCompletion of corrective measure feasibility study Issuance of authorization to proceedIssuance of authorization to proceed Remediation design and implementationRemediation design and implementation
Cost accumulation, not fair valueCost accumulation, not fair value Current value, not present valueCurrent value, not present value Expected cash flow technique would be requiredExpected cash flow technique would be required
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RecognitionRecognition
Cost accumulation, not fair valueCost accumulation, not fair valueCurrent value, not present valueCurrent value, not present valueExpected cash flow technique would be Expected cash flow technique would be
requiredrequiredNot FASB Statement No. 5, Not FASB Statement No. 5, Accounting forAccounting for
ContingenciesContingencies
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Capitalization CriteriaCapitalization Criteria
Outlays to prepare property for anticipated saleOutlays to prepare property for anticipated sale Outlays to prepare property for use when known Outlays to prepare property for use when known
polluted property was acquired and expected to polluted property was acquired and expected to be remediatedbe remediated
Outlays to restore pollution caused decline in Outlays to restore pollution caused decline in service utility that was recognized as an asset service utility that was recognized as an asset impairmentimpairment
Outlays used to acquire assets that will have Outlays used to acquire assets that will have alternative uses other than remediation effortsalternative uses other than remediation efforts
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Project TimetableProject Timetable
Preliminary Views—March 2005Preliminary Views—March 2005Public Hearing—June 2005Public Hearing—June 2005Exposure Draft—January 2006Exposure Draft—January 2006Comment Deadline—May 1, 2006Comment Deadline—May 1, 2006Statement—November 2006Statement—November 2006
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Medicare Part DMedicare Part D
Recognition of PaymentsRecognition of Payments
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RecognitionRecognition
Based on Statements 33 and 24Based on Statements 33 and 24Nonexchange transaction—Federal Nonexchange transaction—Federal
Government has not assumed the Government has not assumed the obligationobligation
Revenues and Expenditures/Expenses Revenues and Expenditures/Expenses should be reported versus nettingshould be reported versus netting
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Project TimetableProject Timetable
ED released in FebruaryED released in FebruaryComment deadline—April 17Comment deadline—April 17thth
Final Technical Bulletin scheduled to be Final Technical Bulletin scheduled to be released by June 30released by June 30thth
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What Will Be Issued Soon?What Will Be Issued Soon?
Derivatives and Hedging—PV in AprilDerivatives and Hedging—PV in AprilFund Balance Reporting—ITC in JulyFund Balance Reporting—ITC in JulyElements of Financial Statements—ED in Elements of Financial Statements—ED in
AugustAugust
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Other Current ProjectsOther Current Projects
Intangible Assets—ED in SeptemberIntangible Assets—ED in SeptemberComprehensive Implementation Guide Comprehensive Implementation Guide
Update—SeptemberUpdate—SeptemberRecognition and Measurement AttributesRecognition and Measurement Attributes
—Concepts Statement—Concepts Statement
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Research AgendaResearch Agenda
Economic Condition ReportingEconomic Condition ReportingElectronic Financial ReportingElectronic Financial Reporting Intergovernmental Financial RisksIntergovernmental Financial RisksPension Accounting and ReportingPension Accounting and ReportingReporting Units / Statement 14 RevisitedReporting Units / Statement 14 RevisitedService Efforts and Accomplishments Service Efforts and Accomplishments
ReportingReporting
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Questions?Questions?
Telephone—(203) 847-0700Web site—www.gasb.org
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