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WELCOME TO T raining A ctivities for B usiness S taff

WELCOME TO T raining A ctivities for B usiness S taff. We are pleased to welcome you to the third session of the 2007-08 TABS program! TABS is designed to provide topic-specific knowledge about a variety of school business topics.

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WELCOME TO T raining A ctivities for B usiness S taff

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  1. WELCOME TOTrainingActivities forBusinessStaff We are pleased to welcome you to the third session of the 2007-08 TABS program! TABS is designed to provide topic-specific knowledge about a variety of school business topics. You may build a resource binder from the handouts to assist you in keeping “tabs” on best business practices… “GASB 45 Accounting” Presented by Sonya Menyon January 11, 2008 This TABS workshop is being Webcast and archived for future reference.

  2. Overview of Presentation GASB 45 Accounting • Review the financial results of the actuarial valuation to determine the components of the ARC. • Review the accounting guidelines and key provisions for implementing GASB 45. • Review the automated payroll process established by SDCOE for charging OPEB costs through the payroll system. • Review fund-use options for accounting for OPEB costs.

  3. Key Terms GASB 45 Accounting • Present Value of Projected Benefits (PVPB) – the total projected costs to finance benefits payable in the future based upon members’ past service thru the valuation date, and their future service. • Actuarial Accrued Liability (AAL)- PAST SERVICE - that portion of the PVPB which represents the value of OPEB Benefits already earned in exchange for an employees’ past service. (consists of both active and retired employee service) (A) (B)

  4. Key Terms GASB 45 Accounting • Normal Cost – CURRENT & FUTURE COSTS– that portion of the PVPB to be allocated each year which represents the cost for OPEB Benefits being earned by active employeesin exchange for their services now. • Actuarial Value of Assets (AVA)– the value of cash, investments and other property belonging to the OPEB plan for inclusion in the valuation and counted towards meeting the GASB 45 obligation. (C) (D)

  5. Key Terms GASB 45 Accounting • Unfunded Actuarial Accrued Liability (UAAL) – the excess of the AAL over the AVA. • GASB 45 allows the amortization of the UAAL for a maximum period of 30 years. • Annual Required Contribution (ARC) – the level of employer contribution required on a sustained ongoing basis to systematically fund the Normal Cost and to amortize the UAAL. It is the amount needed to pay benefits as they come due plus amortize the UAAL. (E) (F)

  6. Annual Required Contribution(ARC) GASB 45 Accounting

  7. Annual RequiredContribution (ARC) GASB 45 Accounting • The ARC has two components: • The Normal Cost 2. The amortization of the UAAL Consisting of: • Active employees’ past service costs not previously funded. • Retirees’ costs not previously funded.

  8. Annual RequiredContribution (ARC) GASB 45 Accounting

  9. Funding the ARC(Employer Contributions) GASB 45 Accounting • The ARC is considered funded when one or more of the following has occurred: • Payments of benefits made directly to or on behalf of a retiree or beneficiary. • Premium payments made to an insurer. • Assets are irrevocably transferred to a trust or an equivalent arrangement.

  10. Funding the ARC(Employer Contributions) GASB 45 Accounting Most districts are currently paying retiree benefits or premiums on a pay-as-you-go basis. This method falls under 1 and 2 from the previous slide. Historically, pay-as-you-go has been used to pay for current year retiree costs. GASB 45 changes how payments are expensed and accounted for. The focus moves from who you’re paying, to what you’re paying. When the district implements GASB 45, what you pay out each year is funding the ARC.

  11. Valuation Report GASB 45 Accounting

  12. Valuation Report GASB 45 Accounting • The Financial Results section of the Actuarial Valuation provides the information needed to properly account for OPEB costs. • The district needs to compute the proration factors for actives and retirees for the PVPB, AAL and the amortization of the UAAL. • Also needed is the amount of the annual Normal Cost and the computed ARC.

  13. Valuation Report GASB 45 Accounting • Included in your handout is a sample valuation report (Appendix A) that we will be using to compute the costs of the various components of the ARC.

  14. Valuation ReportFinancial Results GASB 45 Accounting (A) This is the total projected costs to finance benefits payable in the future based upon members’ past service thru the valuation date, and their future service.

  15. Valuation ReportFinancial Results GASB 45 Accounting (B) This is that portion of the PVPB which represents the value of OPEB Benefits already earned in exchange for an employees’ past service. (consists of both active and retired employee service)

  16. Valuation ReportFinancial Results GASB 45 Accounting (C) This is that portion of the PVPB to be allocated each year which represents the cost for OPEB Benefits being earned by active employees in exchange for their services now. The bottom of page 1 from the sample valuation report provides the number of active employees, as well as the number of retirees, that the report is based upon.

  17. Valuation ReportFinancial Results GASB 45 Accounting (B) (D) (E) (G)

  18. Valuation ReportFinancial Results GASB 45 Accounting (G) Note: The percentages were determined by the proration of the AAL on slide 15.

  19. Valuation ReportFinancial Results GASB 45 Accounting (C) (G) (F)

  20. Valuation ReportFinancial Results GASB 45 Accounting The final ARC breakdown is based upon the previously determined amounts (slides 16 & 18). Note: Specific object codes are used to account for funding the components of the ARC.

  21. Valuation ReportFinancial Results GASB 45 Accounting

  22. Sample District Planfor GASB 45 GASB 45 Accounting In this scenario, the district chooses to continue only with the amount of $462K paid out in benefits. As a Phase I district, this previous pay-as-you-go amount must now be distributed and accounted for in accordance with GASB 45. In other words, the district is funding the ARC thru the p-a-y-g amount. 22

  23. Sample District Planfor GASB 45 GASB 45 Accounting The district has chosen to account for the amortization of the UAAL for active employees by allocating the amount along with the costs for the retirees. Object codes 3701 and 3702 are used. 23

  24. Accounting for OPEB Costs GASB 45 Accounting • CDE has redefined and established new object codes to account for OPEB costs. • 3701/3702 - OPEB, Allocated, cert/class positions (To account for the UAAL of retirees; the UAAL for active employees may be included) • 3751/3752 - OPEB, Active employees, cert/class positions (to account for the Normal Cost; the UAAL for active employees may be included) • Effective in fiscal year 2007-08

  25. Accounting for OPEB Costs GASB 45 Accounting • Procedure 330 of the 2007 California School Accounting Manual (CSAM) defines the expenditures which must be accounted for under objects 3701, 3702, 3751 and 3752. • The following page is extracted from the 2007 CSAM for review.

  26. Allocated CostsObjects 3701/3702 Includes OPEB expenditures relating to current year pay-as-you-go benefits for retirees, and OPEB expenditures relating to the amortization of the unfunded liability (UAAL). Must be allocated to all activities in proportion to total salariesin all activities or total FTEsin all activities. For purposes of implementing GASB 45, “all activities” refers to any combination of fund, goal and function (but not necessarily resource) to which any salaries or any FTEs are charged. (per CDE Correspondence) UAAL GASB 45 Accounting 26

  27. UAAL Allocated CostsObjects 3701/3702 GASB 45 Accounting • The amount of $233,541 calculated on slide 23 must be allocated to all activities (fund, goal, function) on the basis of total salaries or total FTE’s. • In the combined general fund, district may choose to charge to only the unrestricted resource, however, applicable goal and function combinations must be expensed. • Other funds that have salaries (Cafeteria, Child Dev, etc.) must be charged its proportionate share. 27

  28. Allocated CostsObjects 3701/3702 GASB 45 Accounting • ALL DISTRICTS, whether they are in Phase I, Phase II or Phase III implementation, must begin allocating their retiree costs across all activities, with an allocation base of total salaries or total FTEs in all activities. • For Phase II and Phase III districts, the 2007-08 retiree benefits that are paid out must be allocated to all activities. • REMEMBER: The focus moves from who you’re paying for, to what you’re paying. 28

  29. Allocated Costs GASB 45 Accounting • The SDCOE payroll system has been programmed to allow a district-defined rate to be applied to total salaries for allocated OPEB expenditures and has locally defined OPEB Allocated gross salary costs as follows: • 3711 - OPEB, Alloc, Gross Salary, Certificated • 3712 - OPEB, Alloc, Gross Salary, Classified • These objects will roll to 3701 and 3702 in the SACS software. • Appendix B outlines the Payroll & FIS Enhancements for OPEB. 29

  30. Allocated Costs GASB 45 Accounting • The district rate for allocated OPEB costs based upon total salaries can be computed as follows: 30

  31. Allocation of Amortizationof UAAL Costs GASB 45 Accounting • Percentage calculated on slide 30 31

  32. Direct-Charged CostsObjects 3751/3752 OPEB expenditures relating to active OPEB-eligible employees should be direct-charged as a fringe benefit to the program(s) to which the OPEB-eligible active employee’s salary is charged. Normal costs is required, and the amortization of the unfunded liability (UAAL) for active employees may be included, in direct charges. If charging the UAAL for active employees is burdensome to the program(s), then the UAAL portion must be allocated along with the retiree amount. Normal Cost GASB 45 Accounting 32

  33. Direct-Charged CostsObjects 3751/3752 The amount of $228,459 previously calculated on slide 22 must be direct-charged on a per-FTE basis as a fringe benefit to program(s) in which each OPEB-eligible active employee’s salary is charged. (direct-charged to the same resource, goal and function per CSAM Procedure 330) The amount to charge per FTE is determined by dividing the total number of OPEB-eligible active FTEs by the Normal Cost (or by the Normal Cost and the UAAL for active employees). GASB 45 Accounting 33

  34. Direct-Charged CostsObjects 3751/3752 GASB 45 Accounting The number of active employees in the valuation report may not necessarily indicate the total OPEB-eligible FTEs. Total payroll should be reviewed to determine the OPEB-eligible FTEs. 34

  35. OPEB-eligible Active FTEs GASB 45 Accounting *Per Actuarial Valuation Report 35

  36. OPEB-eligible Active FTEs GASB 45 Accounting • Annual amount calculated on slide 34 36

  37. Direct-Charged CostsObjects 3751/3752 GASB 45 Accounting • The SDCOE payroll system has been programmed to allow a district-defined flat dollar amount per FTE to be applied to OPEB-eligible salaries for direct-charged OPEB expenditures. • Appendix B outlines the Payroll & FIS Enhancements for OPEB. • For consistency in cost treatment, districts should uniformly charge the amortization of the UAAL costs for active employees. • Districts should not direct-charge some and allocate others. 37

  38. Charging OPEBto Categoricals GASB 45 Accounting • The Federal Department of Education (DOE) has emphasized that to be allowable, OPEB costs must actually be funded. • Currently, the DOE does not interpret that funded amounts must be contributed to an irrevocable trust, as long as the funded amounts are used only for providing OPEB to retirees and beneficiaries.

  39. Allowable andUnallowable Charges GASB 45 Accounting • Premiums for self-insured OPEB benefits paid to a self-insurance fund are allowable charges to federal programs. (However, Fund 67 is not irrevocable for purposes of GASB 45 employer contributions to the ARC.) • Interfund transfers (i.e. – to Special Reserve Funds 17 and 20) are not allowable charges to categorical programs. • Designations of fund balances are also not allowable for charges to categorical programs.

  40. GASB 45 and Government-wide Accounting GASB 45 Accounting • GASB 45 requires accrual accounting for postemployment benefits in the government-wide statements. • The Net OPEB Obligation (NOO) is posted in conversion entry CE021 in the GASB 34 government-wide reports. • The following pages show how the NOO is derived and the conversion entry recorded.

  41. Fund Use Options GASB 45 Accounting

  42. Fund Use Options – General Fund GASB 45 Accounting

  43. Fund Use Options – Internal Service Fund GASB 45 Accounting

  44. Fund Use Options – Trust Fund GASB 45 Accounting

  45. CDE’s Correspondence • Detailed OPEB letter with attachments was issued on February 26, 2007. • The CDE correspondence can be obtained from the website at: http://www.cde.ca.gov/fg/ac/co/

  46. Break We will return in a few minutes. GASB 45 Accounting

  47. GASB 45 Accounting Questions

  48. GASB 45 Accounting Thank you! This concludes the Webcast.

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