HomeMy WebLinkAboutIR 9954 INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 9954
To the Mayor and Members of the City Council November 1, 2016
Page 1 of 2
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*a SUBJECT: IMPLEMENTATION OF GOVERNMENTAL ACCOUNTING
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STANDARDS BOARD (GASB) STATEMENTS FOR REPORTING
AND ACCOUNTING RELATED TO NON-PENSION OTHER
POSTEMPLOYMENT BENEFITS
This informal report outlines the implementation of two new Governmental Accounting Standards Board
(GASB) statements that affect how the City accounts for and reports obligations related to Other
Postemployment Benefits ("OPEB").
The two pronouncements are Statement 74, which is effective for the City beginning in the current fiscal
year, and Statement 75, which is effective for the City beginning in Fiscal Year 2018. These statements
impose standards on the accounting and reporting for OPEB benefits that are similar to standards that
were enacted for pension benefits under GASB 67 and 68.
Key elements of GASB 74 and 75 include:
• Replacement of GASB Statements No. 43 and No. 45 with these new standards
• Requirement that unfunded OPEB liabilities be recognized on the face of financial statements
• Use of a 20-year Municipal Bond rate as the discount rate for determining present value
equivalent of future benefit payment obligations
• Use of the actual long term return rate on plan investments as the discount rate for determining
present value equivalent of plan assets available to meet future benefit payment obligations
• Requirement to include extensive note disclosures and supplementary information about OPEB
obligations in financial reporting
There are two important notes to make regarding application of these GASB standards. First, use of the
specified discount rates will result in an increase in the unfunded OPEB obligations being reported for
any entity that is not pre-funding OPEB benefits. Secondly, while these statements govern how OPEB
benefits are accounted for and reported, they do not require OPEB obligations be funded or affect the
City's ability to change the structure of the underlying benefits in the future. The City retains discretion to
change or discontinue health benefits for current employees and retirees at any time.
Overall Effect on the Financial Reporting
GASB 74 and 75 will change the way the City is required to account for OPEB related liability. A summary
of these changes is highlighted below:
A. Implementation of the standards will result in a more immediate recognition of OPEB related
obligations in the City's financial statements
• Under GASB No. 45 the present value equivalent of the City's OPEB liability was
$534,629,000. Calculated using the discount rates mandated by GASB No. 75, the present
value of the City's total OPEB liability is approximately $840,000,000.
B. The OPEB Statements require more robust disclosures of assumptions and methodology.
ISSUED BY FINANCIAL MANAGEMENT SERVICES FORT WORTH, TEXAS
INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 9954
To the Mayor and Members of the City Council November 1, 2016
Page 2 of 2
�i
�i7 Y
*a SUBJECT: IMPLEMENTATION OF GOVERNMENTAL ACCOUNTING
rrn f
STANDARDS BOARD (GASB) STATEMENTS FOR REPORTING
AND ACCOUNTING RELATED TO NON-PENSION OTHER
POSTEMPLOYMENT BENEFITS
• Compliance will involve presentation of more comprehensive schedules, reconciliation of
liabilities and greater detail in general.
C. Since the City is minimally pre-funding its Net OPEB Liability ("NOL"), GASB 75 requires the use of
a lower rate of return.
• Using an estimated 3.5% interest rate will increase the NOL by approximately 11% (application
of this interest rate is reflected in the $840M figure identified above).
Measurement Period:
The actuarial valuation for OPEB liabilities has, in the past, occurred on a calendar year basis. To simplify
recognition and accounting for the NOL, the City will now calculate valuation on a fiscal year basis (10/1 —
9/30). This evaluation is consistent with the City's application of GASB 68 regarding Pension obligations.
Impact on City
From the most recent valuation, the Actuarial Accrued Liability ("AAL") and Unfunded Actuarial Accrued
Liability ("UAAL") for the City's OPEB obligations were $750 million and $684 million, respectively. Under
GASB No. 74/75, staff expects the reportable amount for these liabilities to each increase by $157 million,
with revised AAL being approximately $907 million and revised UAAL coming in at approximately $840
million. While the City's actual payment obligations are not impacted by implementation of the GASB
standards, the total reported liability is expected to increase at least 21%. As with all projections of
valuations, these projections are only estimates and can change as changes occur in market conditions,
plan benefits, beneficiary demographics, and underlying assumptions.
The additional reportable OPEB liability will be recognized on the Statement of Net Position and Statement
of Activities in the City's Fiscal Year 2017 Comprehensive Annual Financial Report, which will issue in
Spring 2018.
If you have any questions, please call Aaron Bovos, Chief Financial Officer, at 817-392-8517
David Cooke
City Manager
ISSUED BY FINANCIAL MANAGEMENT SERVICES FORT WORTH, TEXAS