OTHER POST EMPLOYMENT BENEFITS WORKSHOP SUMMARY

The WV Municipal League and the WV Association of Counties hosted a workshop on May 30, 2008, in Flatwoods, WV, regarding recent developments pertaining to post employment benefits.

The workshop featured Jason Haught, Chief Finance Official for the WV Public Employees Insurance Agency.  Mr. Haught advised that with recent changes to governmental accounting standards via GASB Statements 43 & 45, employers will now have to begin recognizing the expense of providing post employment benefits prior to paying such.  Per GASB 45, governmental entities must now recognize this expense as it is incurred, or earned by the employee.  This expense encompasses both the amortization of benefits earned in the past and current year’s benefits.  The WV Municipal League and the WV Association of Counties hosted a workshop on May 30, 2008, in Flatwoods, WV, regarding recent developments pertaining to post employment benefits.

The workshop featured Jason Haught, Chief Finance Official for the WV Public Employees Insurance Agency.  Mr. Haught advised that with recent changes to governmental accounting standards via GASB Statements 43 & 45, employers will now have to begin recognizing the expense of providing post employment benefits prior to paying such.  Per GASB 45, governmental entities must now recognize this expense as it is incurred, or earned by the employee.  This expense encompasses both the amortization of benefits earned in the past and current year’s benefits.  

GASB 43 affects the reporting requirements of the WV OPEB Plan.  The WV OPEB Plan is administered by the WV Retiree Health Benefits Trust Fund and is in effect for FY 2007.  GASB 45 affects the reporting requirements of employers that provide OPEB and is in effect for FY 2008.  WV’s OPEB Plan is offered to, among others, municipal governments.  WV PEIA specifies the health care benefits to be provided; the WV OPEB Plan has been defined as a Defined Benefit – Multiple Employer Cost Sharing Plan.  An example of how WV’s OPEB Plan works is the WV Public Employees Retirement System pension plan.

The WV OPEB Plan has two benefit components:  leave conversion into free or reduced health insurance premiums -    Hired before 1988 – Free insurance premiums
    Hired after 1988 – 50% discount off of premiums
    Hired after 2001 – no insurance conversion benefit
Reduced premiums for health insurance are commonly referred to as “Retiree Subsidy”

Mr. Haught stated an annual required contribution (ARC) was determined by an actuarial valuation of the state’s plan, given the new accounting standards.  The valuation once complete determined the unfunded actuarially accrued liability was $3.1 billion.  Therefore the annual required contribution for this liability in FY 2008 is $398 million.  For FY 2009 the annual required contribution is $338 million.

So how does this affect you as a municipal employer?  Remember we stated earlier that WV’s OPEB Plan is offered to municipal governments and it is a defined benefit – multiple employer cost sharing plan.  Municipal governments will now have to share in the reporting and reporting and/or cost of meeting the new accounting standards.  Per examples presented during the workshop it appears that employers may find themselves having to choose between investing in the health of the current workforce or shifting resources to retirees based on their expectations of their “post employment” health care coverage.  Below is a breakdown of the annual required contribution for 2008 and 2009.

2008 ARC equates to $461.06 per active health policy per month.  The billed/contractually required amount however is lower (the pay as you go for subsidy is already included in the current premium $104 million from WV PEIA (this is premiums already placed in the pool) The billed ARC is $144.48 for Non State employers (municipals)

2009 ARC equates to $388.21 per active health policy per month.  The billed/contractually required amount however is lower (the pay as you go for subsidy is already included in the current premium) In FY 2009 the billed ARC will be $223.54 for Non State employers (municipals)

A cost sharing plan has one annual required contribution for all employers.  The Health Insurance Trust Fund Board determines the contractually required contribution that will be billed to the employers.  This rate is applied per employee health insurance policy for the employers OPEB expense. 

The good news of GASB 45 is that there will be an offset to the new liability.  This is due to the financial accounting and reporting section recording the leave conversion expense under GASB 16 – Compensated Absences.  This liability will now be reduced as it is now incorporated in the GASB 45 annual required contribution.  This also causes a credit for those with retirees with leave conversion or months credit and causing differing amounts per policy on their billing.

We will be keeping you posted on future meetings and discussions regarding these drastic changes in calculating employee benefits.