Policy References:

GASB Statement No. 43 – Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans (superseded by GASB Statement No.74)

GASB Statement No. 45 – Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions (superseded by GASB Statement No. 75)

GASB Statement No. 74 - Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans

GASB Statement No. 75 - Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions

Process and Document Preparation:

BACKGROUND

GASB Statement (GASBS) 43 established uniform financial reporting standards for other postemployment benefits (OPEB) plans. GASBS 45 established standards for the measurement, recognition, and display of OPEB expense/expenditures and related liabilities (assets), note disclosures, and, if applicable, required supplementary information (RSI) in the financial statements of governmental employers. GASBS 74 further refines reporting guidance established in GASBS 43 for OPEB plans that administer OPEB benefits on behalf of governments. GASBS 75 further refines reporting guidance established in GASBS 45 for governments that provide OPEB to their employees and for governments that are legally required to finance OPEB for employees of other governments. GASB concluded that OPEB, like pension benefits, are a form of employee compensation and should be recognized in the same period in which the compensated service is provided by the employees. OPEB includes postemployment healthcare benefits (including medical, dental, vision, hearing, and other health-related benefits) and other forms of postemployment benefits (including life insurance, disability insurance, and long-term care insurance).

The New York State Department of Civil Service (DCS) administers the New York State Health Insurance Program (NYSHIP) which provides health insurance to current and retired employees of New York State, participating public authorities, and local governments. As administrator of NYSHIP, DCS performs all relevant administrative tasks. Annual benefit premiums charged to and paid by participants are generally the same, regardless of each individual employer’s risk profile. The annual benefit premiums collected by DCS are either remitted to the health insurance carriers that comprise NYSHIP or, for certain Empire Plan components, used to reimburse vendors for incurred claim, administrative fee and other contractually required expenses.

DETERMINATION

An important step in implementing GASBS 74 was to determine the type of plan that NYSHIP is. As defined in paragraph 11, an OPEB plan is considered to be a defined benefit OPEB for which the benefits that the plan member will receive at or after separation from employment are defined by the benefit terms. The OPEB may be stated as (a) a specified dollar amount; (b) an amount that is calculated based on one or more factors such as age, years of service, and compensation; or (c) a type or level of coverage such as prescription drug coverage or a percentage of health insurance premiums.

NYSHIP, as the name implies, is a program and does not exist as a separate entity or fund; therefore, it does not satisfy the requirements to be classified as a trust or trust equivalent as defined in paragraph 4 of GASBS 43 and paragraph 3 of GASBS 74. The State, as the administrator of NYSHIP, must apply the accounting and reporting requirements for a single-employer, defined benefit plan as required by GASBS 75.

Employers that must apply the accounting and reporting requirements for a single-employer, defined benefit plan are required to measure and disclose an amount for OPEB cost on an accrual basis of accounting, and perform a valuation of the OPEB obligation. Annual OPEB cost should be equal to the annual required contributions (ARC) of the employer to the plan for that year and should be based on an actuarial valuation calculated, at a minimum, biennially (for employers the size of New York State). The actuarial valuation date need not be the State’s balance sheet date but should be the same date each year. New valuations should be performed if, since the previous valuation, there have been significant changes in benefit provisions, the size or composition of the population covered by the plan, or other factors that impact long-term assumptions.

The actuarial present value of total projected benefits should include all benefits provided to plan members or beneficiaries in accordance with the current substantive plan (the plan terms as understood by the employer and the plan members). Employers providing benefits to both active employees and retirees through the same plan should segregate, for actuarial measurement, the retiree benefits from the projections of future retiree benefits based on claims costs or age-adjusted premiums approximating claims costs for retirees in accordance with actuarial standards issued by the Actuarial Standards Board.

REPORTING REQUIREMENTS FOR OPEB EMPLOYERSFor fiscal years beginning on or prior to June 15, 2017 (GASBS 45)

Currently the resources accumulated to provide OPEB (employer and retiree contributions) should be reported in the GAAP basis financial statements in an agency fund. Assets held by the fund result from a timing difference between when the premiums are collected and the time they are remitted to the appropriate insurance carriers. Disclosures required include a description of the plan, a summary of significant accounting policies, and contributions.

OPEB expenditures should be reported in the governmental funds using the modified accrual basis of reporting. The amount reported is the amount contributed to NYSHIP during the fiscal year or the amount liquidated with expendable available financial resources. For the State, this is the amount of an obligation at March 31 that would be liquidated during the subsequent fiscal year.

OPEB expenses are reported using the accrual basis of accounting for the proprietary and fiduciary fund financial statements and the government-wide financial statements. OPEB expense for the year is reported in relation to the ARC equal to the annual OPEB cost. The net OPEB obligation will be adjusted for any difference between OPEB expense and contributions made in relation to the ARC (including incurred short-term differences). A positive (negative) year-end balance in the net OPEB obligation will be reported as a year-end liability (asset) in relation to the ARC. OPEB expense arising from the incurrence of OPEB-related debt will be reported in full in the year the debt is incurred. Liabilities, separate from the net OPEB obligation, will be reported for year-end balances of short-term differences or OPEB related debt.

Disclosures required in the notes to the financial statements for OPEB that single-employer plans include:

1. Plan description which includes the name of the plan and identifies the plan as an agent multiple-employer plan and a brief description of the benefits and the authority under which the benefit provisions were established or may be amended.
2. The fact that the State does not pre-fund these benefits.
3. Required contribution rates of plan members and of the employer.
4. Current year annual cost and the dollar amount of the contribution made. If the State has a net OPEB obligation, the components of annual OPEB cost, the increase or decrease in the net OPEB obligation, and the net year-end OPEB obligation will be disclosed.
5. Annual OPEB cost, percentage of OPEB cost contributed, and net OPEB obligation at year-end will be presented for the current and preceding two years. The required information will be presented for the transition year, and for the current and transition years, respectively, for the first two years.
6. The notes will disclose information about the funded status 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, 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.
7. The notes will disclose information about actuarial methods and assumptions used in valuations related to the ARC, annual OPEB cost, and the funded status and the funding progress of the State.
8. Supplemental information required to be disclosed includes information about the State’s funding progress and factors that significantly affect the identification of trends in the amounts reported (including changes in benefit provisions, the size or composition of the population covered by the plan, or the actuarial methods and assumptions used).

For fiscal years beginning after June 15, 2017 (GASBS 75)

Financial Statement Impact

As the result of implementing GASBS 75, one of the biggest changes to the financial statements for governmental employers that do not provide OPEB through a trust is to recognize the entire OPEB liability in their financial statements. GASBS 45 allowed governments to amortize the unfunded liability over a period of up to thirty years (approximately equal to a typical public employee’s term of employment) and recognize that amount in the financial statements. Reporting the entire OPEB liability on the face of the financial statements, as required by GASBS 75, has a significant impact on the government’s net position for governments that previously elected to amortize the liability.

Changes to the Measurement of the Total OPEB Liability

The discount rate will be based on a high-quality 20-year tax-exempt general obligation municipal bond yield or index rate. “High-quality” is defined as being rated AA/Aa or higher (or an equivalent rating). The prior standard, GASBS 45, allowed the use of a discount rate based solely on an assumed long-term rate of return on investments that was expected to be used to pay OPEB.

All governments will be required to use the entry-age normal-level percentage of payroll cost method to allocate the present value over past and future periods of employee service. This method projects benefits that are discounted to their present value when employees first begin to earn benefits and are attributed to the employees’ expected periods of employment. Comparatively, GASBS 45 provided six different cost methods for attributing the present value of benefit payments to specific years.

Calculating OPEB Expense

Factors that impact a government’s OPEB liability, such as actual earnings on plan investments when the OPEB plan is administered as a trust, employee compensation changes, interest on the outstanding OPEB liability, contributions from employees and employers, and actual demographic and economic changes that are not in line with assumptions made in the actuarial calculations, will be considered when determining the government’s OPEB expense. A government’s annual OPEB expense will be calculated with consideration for factors affecting the OPEB liability within the reporting period. Several elements affecting OPEB liability will immediately be factored into the calculation of OPEB expense for the period, such as benefits earned each year, interest on the total OPEB liability, changes in benefit terms, and projected earnings on plan investments, if administered through a trust.

Governments will be required to recognize deferred outflows of resources or deferred inflows of resources and then introduce into the expense calculation, systematically and rationally over the average remaining years of employment (active employees and inactive employees, including retirees), the impact to the total OPEB liability for differences between assumptions and actual experience.

Note Disclosure and Required Supplementary Information (RSI)

In addition to the note disclosures currently required for OPEB under GASBS 45, this new standard will also require disclosure of:

1. A reconciliation of the changes in deferred outflows of resources and deferred inflows of resources related to OPEB.
2. The impact on the OPEB liability of a 1-percentage-point increase and decrease in the discount rate and a 1-percentage-point increase and decrease in the healthcare cost trend rate.

Governments with single and agent employers will also be required to disclose for the current period:

1. The effects of changes during the period (such as the effects of service cost, benefit changes, and, if applicable, investment earnings) on the total OPEB liability.
2. The OPEB plan’s fiduciary net position, if applicable.

The RSI will have to include the following additional information for each of the past 10 years (on a prospective basis):

1. The beginning and ending balances of the OPEB liability and the effects of changes during the period on the total OPEB liability.
2. The OPEB plan’s fiduciary net position, if applicable.
3. The components of the OPEB liability and related ratios, including the covered employee payroll, the OPEB plan’s fiduciary net position as a percentage of the total OPEB liability, and a ratio of the OPEB liability as a percentage of the covered employee payroll.
4. Schedules of contributions displaying the difference between actuarially determined contributions and employer contributions, covered employee payroll and employer contributions as a percentage of covered payroll.

Governments are also required to present notes to the RSI schedules regarding factors that significantly affect the trends in the schedules.

SICK LEAVE

Presently, retirees that retired prior to January 1, 1983 are required to pay, on a monthly basis, either zero percent or 25 percent of the health insurance premium for single or family coverage, respectively. Retirees that retired prior to January 1, 2012 but on or after January 1, 1983 are required to pay, on a monthly basis, either 12 percent or 27 percent of the health insurance premium for single or family coverage, respectively. Employees, at a salary grade 10 or above, retiring on or after January 1, 2012 are required to contribute 16 percent or 31 percent of the health insurance premium for single or family coverage, respectively. Employees, at a salary grade below 10, retiring on or after January 1, 2012 are required to contribute 12 percent or 27 percent of the health insurance premium for single or family coverage, respectively.

Retirees are entitled to have the value of their sick leave used to offset the cost of retiree health insurance. The amount a retiree has available to pay the monthly premium is determined as follows:

1. Total amount available to pay the retiree’s share of health insurance is calculated by multiplying an employee’s total sick leave hours at retirement by the employee’s hourly rate at retirement. The hourly rate at retirement for employees paid on an annual basis is calculated by dividing the annual salary (including additional constant salary factors such as location pay) by 2088 for hours which are normally 8 hours per day and 1957 for jobs which are normally 7.5 hours per day.
2. The monthly benefit available to pay the retiree’s monthly share of the health insurance premium is then calculated by dividing the total amount available (determined in step 1) by a factor that is based on the employee’s age at retirement.

The monthly benefit is then applied to the retiree’s share of the monthly health insurance premium for as long as the retiree and/or surviving spouse lives, depending on the option selected.

Guide to Financial Operations

Guide to Financial Operations

REV. 01/25/2021