County of Onondaga GASB Valuation Presentation Other Post Employment Benefits (OPEBs)

1. County of OnondagaGASB Valuation PresentationOther Post Employment Benefits (OPEBs) December 5 , 2007

2. Discussion Agenda • What are Other Post Employment Benefits (OPEBs)? • New Governmental Accounting Standards Board Statements on Accounting for OPEBs • Valuation results • Key Assumptions overview • Redesign and cost savings discussion

3. Other Post Employment Benefits • What are Other Post Employment Benefits (OPEBs)? • Healthcare Benefits • Medical • Dental • Rx • Vision • Other Benefits – if not part of pension plan • Life Insurance • Disability • Group Legal • Long-Term Care • Post Employment relates to any time period when an individual is not actively employed, and usually means retired.

4. Other Post Employment Benefits • What are not Other Post Employment Benefits (OPEBs)? • Vacation • Sick Leave • Sabbaticals • Accrued Sick Days (Statement 16) • COBRA • Special termination benefits

5. Onondaga OPEB Plans • Onondaga Retiree Healthcare • Healthcare Plans required to be valued under GASB accounting rules due to subsidization by the County: • Medical for retirees • Prescription Drug for retirees • Survivor Benefits • Other benefits when paid in full by retirees do not generate GASB liability • No implicit subsidy of these benefits

6. Overview of Accounting Rules • Why is GASB implementing a new accounting standard? • Current accounting standards fail to recognize the cost of OPEB when employee services are rendered • Current accounting standards do not identify the value of OPEB already “earned” or accrued as a result of employees’ past service • Current accounting rules recognize only “pay as you go” cost • New Standard creates no obligation to fund the benefits according to the expense measure

7. Overview of Accounting Rules • Recognize the cost of benefits in periods when the related services (i.e. active employment) are received by the employer • Provide information about the actuarial accrued liabilities associated with past service • Whether and to what extent these benefits have been funded • Provide information useful in assessing potential demands on the employer’s future cash flows

8. Overview of Accounting Rules • OPEB standards are structured like GASB’s Pension accounting & reporting standards • GASB 25 – Plan’s accounting • GASB 27 – Employer’s accounting • Key financial statement components • Annual OPEB Cost (annual expense) (AOC) • Annual Required Contribution (ARC) • Net OPEB Obligation (balance sheet liability) (NOO) • Actuarial Liability and Funded Status (disclosure notes) (UAAL) • Advance funding is not required, but if the ARC is fully funded • The Net OPEB Obligation will be close to zero • A potentially more favorable discount rate, depending on investment strategy, can be used to value the plan • A more favorable discount rate results in a lower ARC

9. GASB Valuation for Onondaga • GASB 45 – for the Employer, for FYE 2006 • Valuation results were compiled for GASB 45 • Valuation is one year ahead of mandatory adoption • GASB 45 Effective Dates(follow GASB 34) Annual RevenueEffective for PY > Phase I >$100m 12/15/2006 Phase II >$10m & <$100m 12/15/2007 Phase III <$10m 12/15/2008

10. GASB Results

11. GASB Results Annual OPEB Cost: (Amortization increases at 3.83% per year)

12. GASB Results Projected Unfunded Year End Net OPEB Obligation: ($ in millions) County Responsibility Beginning Net OPEB Obligation (NOO) $0.0 Annual OPEB Cost (AOC) $51.6 Expected Sponsor Contributions $16.4 Expected December 31, 2006 Net OPEB Obligation (NOO) $35.2 * Expected Sponsor Contributions are benefit payments and RDS payments

13. Demographic Information • The valuation is based on a census as of January 1, 2006 that was provided by the County. • The following tables summarize active and retiree demographic information.

14. Assumptions - Eligibility • In general, eligibility conforms to the eligibility to receive a retirement benefit from the corresponding pension plan for the participant • Need not commence pension immediately to receive retiree medical from County • Attainment of age 55 and 5 years of service • 25 years of service and no minimum age with retirement plan code 89k • 20 years of service and no minimum age with retirement plan code 89B or 552

15. Assumptions – Economic • Discount Rate • Discount rate based on returns on assets used to pay benefits • Unfunded plans generate greater liabilities than identical funded plans • Unfunded discount rate must be consistent with short term returns – 4.25% assumed

16. Summary of OPEB remarks • OPEB standards are structured like GASB’s Pension accounting & reporting standards • GASB 25 – Plan’s accounting • GASB 27 – Employer’s accounting • Advance funding is not required, pay as you go methods can be maintained • Adoption by the County is necessary for FYE 2007 • Annual OPEB Cost (annual expense) • Net OPEB Obligation (balance sheet liability) • Actuarial Liability and Funded Status (disclosure notes)

17. Retiree Medical Redesign Parameters • Eligibility – who gets the benefit • Financial Commitment – how much is the cost to the plan sponsor • Benefit Delivery – what benefit levels are covered by the subsidy

18. Eligibility Changes • Turning the financial commitment “off” for some groups of individuals • Usually new hires are an easy target • Younger groups (e.g. younger than 40) • Requiring more service, or an older age to commence benefits • For example, 60 versus 55 • Can require different retirement definition than the corresponding pension plan • Hybrid approach – linking financial commitment to service, usually by a formula

19. Typical Company Financial Approaches • Defined Benefit variations • Frozen/Grandfathered Plan • Points System/Age & Service based premium sharing • Various Coordination Strategies • Financial Design Alternatives • “No Plan” Alternatives • Access Only Plan • HSAs while active • HRAs while active • 401(k) increase • Other Pension trading

20. Retiree Medical Financial Models More Defined Benefit Defined Dollar Benefit Aggregate Account Employer Risk and Responsibility True Defined Contribution Risk + Responsibility Access Only / No Plan OPEB Vals Stops Here More Retiree Risk and Responsibility

21. Retiree Benefits Delivery Alternatives • Employer-sponsored plan (current arrangement) • Plan designed by employer • Plan often mirrors active benefits • Administered by employer and TPA/insurer • Reducing level of benefits a common occurrence in private sector • Virtually every year, small changes • Infrequently, significant changes • Medicare Advantage is being investigated by many public sector employers as a cost savings mechanism with little cost shift

22. Retiree Benefits Delivery Alternatives • Group Medicare Advantage • Plan replaces both Medicare Parts A + B and current retiree plan • Employer negotiates with insurance carriers to offer coverage • Plan can be customized; e.g., to mirror active plan • Rates based on group’s characteristics • Private Fee For Service garnering significant attention • Not a network-style plan • May reproduce existing plan design at lower cost