Rhode Island OPEB Funding Program Reaches MilestonesCategories: New England Developments,OPEB/GASB 45/75
Risky Business, a publication of The Rhode Island Interlocal Risk Management Trust, Spring 2017
Reaching Milestones and Preparing for GASB 75
The Rhode Island Interlocal Risk Management Trust’s OPEB Funding Program, in less than two years in existence, has reached two important milestones; the Program now has in excess of $50 million in assets, and two participating entities have achieved their first fee reduction.
“The OPEB Funding Program continues to exceed our expectations and provides Members with a simple, cost-effective and comprehensive solution to fund their OPEB liabilities,” said Colleen Bodziony, Director of Operations and Member Services. One of the many benefits of the The Trust’s OPEB Funding Program is the low fee schedule, which can then be further reduced as the assets grow. “We have two entities whose assets now exceed $10 million, so they are now benefiting from their first individual fee reductions on administrative rates,” said Colleen.
OPEB Funding Program Members are also preparing for the new Governmental Accounting Standards Board Statement No. 75 (GASB 75) which is set to take effect this summer. GASB 75 will change the way that other post-employment benefi ts (OPEB) liabilities are valued and reported. Following in the footsteps of GASB 68 for pensions, public agencies nationwide will be required to move their OPEB liabilities from a footnote to an actual line item on the balance sheet.
For employers already funding into an OPEB trust, the new GASB rule goes into effect for the fiscal year that begins on/after June 15, 2016. For unfunded plans, and employers without a trust, GASB 75 is effective for the fiscal year that begins on/after June 15, 2017. Furthermore, smaller employers that could previously obtain an actuarial valuation every three years, must now get them every two years like everyone else.
“All Members who have an OPEB trust in place should be in touch with their actuary or auditor to determine, based on the funding method as well as the amount being funded, the impact of this new GASB standard on their balance sheet,” said Colleen.
New Discount Rates
For entities who choose “pay-as-you-go” funding, actuaries must now tie the discount rate to a municipal bond index. This index may well be lower than the entity’s current actuarial discount rate, and, as a result, the entity’s liabilities may increase. For those that are already pre-funding in a trust, the new GASB standard states that if the entity is not showing an ongoing commitment to pre-fund, or is making small or irregular contributions, the discount rate may be reduced to a new blended rate.
No More ARC
With GASB 75, the confusing term Annual Required Contribution (ARC) is to be replaced with “OPEB expense”. Additionally, actuaries will no longer have the flexibility of choosing between several actuarial methods, but instead must use the “Entry Age Normal” approach. This new actuarial requirement may impact a Member’s liability, depending on which method its actuary previously used.