Other Postemployment Benefits Financial Accounting Webcast

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Other Postemployment BenefitsFinancial
Accounting Webcast

• Kathy Guralski, Auditor, School Finance Team
• Lori Ames, Consultant, School Finance Team
• June 28, 2006

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Agenda

• Intro Media Site Technical Issues
• Trust Contribution Amount
• Financial Accounting
• Annual Meeting Reporting Requirements
• Questions Answers
• Polls

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Presentation Assumptions

• This presentation is focused on the financial
  accounting requirements as it relates to a trust.
  Given those parameters, we make the following
  assumptions
• The actuarial study or alternative method has
  been completed.
• The Annual Required Contribution is known.
• The District has already established an Employee
  Benefit Trust (Fund 73).

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Presentation Assumptions

• If you need information relating to the actuarial
  determination or establishment of a trust, please
  refer to the following document.
• Employee Benefit Fund (Fund 73) Requirements
  located at
• http//www.dpi.wi.gov/sfs/ben_trust.html

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Trust Contribution Amount

• The amount of postemployment benefits to be
  funded in any given year is dependent on various
  factors.
• Size of the districts liability
• Requirements for current year payment for post
  employment benefits
• Available resources in the districts budget
• Amount of the districts fund balance

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Potential Contribution Amounts

• The District may choose to fund
• the entire unfunded actuarial accrued liability
  plus normal cost in a single payment
• The annual required contribution
• An amount less than the annual required
  contribution
• An amount more than the annual required
  contribution but not in excess of the actuarial
  accrued liability plus normal cost

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Trust Contribution Amount

• In order for a trust contribution to recorded in
  the current fiscal year, a physical segregation
  of assets must occur by June 30th.
• In other words, the contribution should be made
  and the cash have cleared the districts bank
  account by June 30th.

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Contribution Amounts and Applicable State Aid

• General Equalization Aid
• Any contribution to the trust, not in excess of
  the unfunded actuarial accrued liability plus
  normal cost will be included in the calculation
  of shared cost.
• Positive tertiary aid districts may receive
  additional equalization aid
• Negative tertiary aid districts may fall more
  heavily into negative aid

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Contribution Amounts and Applicable State Aid

• Federal and State Grants
• If the grant allows, a school district may
  include all costs of funding eligible staff
  postemployment benefits, up to a maximum of the
  annual required contribution (ARC), in the
  calculation of costs subject to federal and state
  grants.

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Contribution Amounts and Applicable State Aid

• State Categorical Aid ( i.e. special education
  categorical aid)
• A school district may include all costs of
  funding eligible staff postemployment benefits,
  up to a maximum of the annual required
  contribution (ARC), in the calculation of costs
  subject to categorical aid.

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Financial Accounting

• Concept
• District decides to set up a trust
• District decides on current fiscal year
  contribution amount
• Physically makes a contribution to the trust
• Pay all future retiree benefits from the trust
• http//www.dpi.wi.gov/sfs/doc/ben_acct.doc

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Financial Accounting
Steps to funding the trust
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Financial Accounting

• Make contribution and allocate to proper account
  codes
• Determine which postemployment benefits to
  include in the funding and the employee groups
  that are eligible for those benefits
• Equitable distribution of the contribution
• DPI sample methods

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Financial Accounting

• Make contribution and allocate to proper account
  codes
• Method A
• Determine amount of eligible payroll for the
  employees included
• Divide the value of the postemployment benefits
  for the group by the eligible payroll for the
  group to get a contribution rate
• Apply the contribution rate to each employee

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Financial Accounting

• Example facts
• Contribution to trust 275,820
• of total employees in group funded 150
• Total payroll of employees in
• group funded 4,500,000

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Financial Accounting

• Allocation under Method A
• Divide 275,820 by 4.5 million for a
  contribution rate of 6.13
• Apply the contribution to each employee
• Susie has a wage of 35,000 times 6.13 equals
  2,145.50 annually
• Susie has a bi-monthly wage of 1,458 times 6.13
  equals 89 each pay period

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Financial Accounting

• Make contribution and allocate to proper account
  codes
• Method B
• Divide the contribution dollar amount for the
  group by the eligible employees in the group to
  get a contribution dollar amount
• Apply the dollar amount to each employee

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Financial Accounting

• Example facts
• Contribution to trust 275,820
• of total employees in group funded 150

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Financial Accounting

• Allocation under Method B
• Divide 275,820 by 150 employees for a
  contribution amount of 1,838.80 annually
• Apply the contribution to each employee
• Susie has 1,838.80 benefit annually
• Susie has a bi-monthly benefit of 77 each pay
  period

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Financial Accounting
Steps to funding the trust
Allocate contribution amount to proper account
codes
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Financial Accounting

• When contribution is made may affect the timing
  of the journal entries and transactions recorded
• Contribution accounted for during the year
  through the payroll system
• Contribution accounted for when lump sum amount
  is paid to trust

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Financial Accounting

• Entries to account for contribution during the
  year through the payroll system
• 1) 10E XXXXXX 218 77 27E XXXXXX 218
  77
• 10B 811600 77
• 27B 811600 77

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Financial Accounting

• Example facts
• Contribution to trust 275,820
• of total employees in group funded 150
• of special education employees
• included in group funded 10

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Financial Accounting

• Entries to account for contribution during the
  year through the payroll system
• 1) 10E XXXXXX 218 257,432 27E
  XXXXXX 218 18,388
• 10B 811600 257,432
• 27B 811600 18,388

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Financial Accounting

• Entries to account for contribution made to trust
  
• 2) 10B 811600 257,432 27B
  811600 18,388
• 10B 711000 257,432
• 27B 711000 18,388

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Financial Accounting

• Entries to account for contribution at year end
  when lump sum amount is paid to trust
• 3) 10E XXXXXX 218 257,432 27E
  XXXXXX 218 18,388
• 10B 811600 257,432
• 27B 811600 18,388
• 4) 10B 811600 257,432
• 27B 811600 18,388
• 10B 711000 257,432
• 27B 711000 18,388

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Financial Accounting

• Contribution in excess of ARC
• When the contribution to the trust exceeds the
  ARC amount, the difference between ARC and
  contribution would not be allocated to employee
  functions but rather would be reported in fund
  10, function 291000, object 218.

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Financial Accounting

• Example
• Contribution 275,820
• ARC 200,000
• Allocated to proper employee function 200,000
• Reported to function 291000, object 218 75,820

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Financial Accounting

• Accounting for the contribution in fund 73
• 1) 73B 711000 275,820
• 73R 951 275,820

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Financial Accounting
Steps to funding the trust
Allocate contribution amount to proper account
codes
Record financial transactions for contribution
made
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Financial Accounting

• All future retiree benefits paid from trust
• Amount withdrawn will include cost of benefit to
  be paid provider plus implicit rate subsidy
• The implicit rate subsidy will be allocated in
  the same manner as the original contribution but
  will reduce the employees health benefit, object
  240 rather than the 218.

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Financial Accounting

• Example facts
• Contribution to trust 275,820
• of total employees in group funded 150
• of special education employees
• included in group funded 10
• Insurance premium paid 479
• Value of retiree premium 699
• Implicit rate subsidy 220
• of retirees on plan 15

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Financial Accounting

• Retiree benefits paid
• 15 retirees at a premium value of 699/month each
  equals 125,820 that needs to be withdrawn from
  the trust.
• Trust either pays health provider directly or
  reimburses district who paid health provider for
  retirees on one invoice including active
  employees.

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Financial Accounting

• Trust pays directly to health provider
• 73E 420000 991 125,820
• 73B 711000 125,820
• Trust reimburses district
• 73E 420000 991 125,820
• 73B 711000 125,820

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Financial Accounting

• Example facts
• Contribution to trust 275,820
• of total employees in group funded 150
• of special education employees
• included in group funded 10
• Insurance premium paid 479
• Value of retiree premium 699
• Implicit rate subsidy 220
• of retirees on plan 15
• Cost of insurance premium 86,220
• Implicit rate subsidy withdrawn 39,600

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Financial Accounting

• Withdrawal of 125,820
• Retirees insurance in fund 10 86,220
• Implicit Rate Subsidy
• Fund 10 (140 employees) 36,960
• Fund 27 (10 employees) 2,640 125,820

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Financial Accounting

• District originally reported the payment to the
  health provider as an expenditure
• Original entry was a debit to fund 10, function
  290000, object 210 for the 86,200 and a credit
  to cash for payment to health provider
• District originally reported the payment to the
  health provider as a liability
• Original entry was a debit to fund 10, balance
  sheet account 811600 and credit to cash for
  payment to health provider

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Financial Accounting

• District originally reported the payment as an
  expenditure
• 10B 711000 123,180
• 27B 711000 2,640
• 10E 290000 210 86,220
• 10E XXXXX 240 36,960
• 27E XXXXX 240 2,640
• District originally reported the payment as a
  liability
• 10B 711000 123,180
• 27B 711000 2,640
• 10B 811600 86,220
• 10E XXXXX 240 36,960
• 27E XXXXX 240 2,640

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Contribution same dollar amount as pay as you go

• What if your district elects to contribute only
  enough to the trust to pay the current year
  retiree costs?
• Often referred to as contributing the same dollar
  amount as the district would expend on the pay
  as you go method
• No effect on shared cost

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Contribution same dollar amount as pay as you go

• For you to draw out the insurance premium plus
  the implicit rate subsidy you need to make a
  contribution larger than the pay as you go or
  the actual cost to the insurance provider.
• The implicit rate subsidy when withdrawn from the
  trust will reduce the total expenditures of the
  district so that the net between the two will
  equal the pay as you go

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Contribution same dollar amount as pay as you go

• Example
• Contribution 125,820 Expenditure
• Payment to Ins. Co. 86,220 Liability
• Reimbursement from trust 125,820
• Implicit rate subsidy (39,600) Expenditure
• Pay as you go amount (86,220) Liability

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Retiree makes a contribution towards health
benefit

• If the retiree makes a contribution towards the
  insurance premium that should be accounted for in
  fund 73 as a revenue

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Retiree makes a contribution towards health
benefit

• Example
• Sally is a retiree who contributes 30 towards
  her insurance premium. She pays the district the
  30.
• 73B 711000 30
• 73R 952 30

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Annual Reporting Requirements

• Wisconsin Act 99 , new legislation in regards to
  trusts, relates to the investment by school
  districts of funds held in trust to provide
  postemployment benefits.
• Act 99 also requires additional annual reporting.
  (even if the district chooses not to invest under
  this new authority)

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Annual Reporting Requirements

• Reporting required for ALL Districts who have
  established a trust accounted for in fund 73
• Annual Meeting Common or Union High School
  Districts
• Public Budget Hearing Unified School Districts

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Annual Reporting Requirements

• Information to be reported
• Amount in the trust
• Investment return earned since the last annual
  meeting
• Total of disbursements made since the last annual
  meeting
• Name of the investment manager if investment
  authority has been delegated.

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Questions?

• Click on the Ask button above the speaker box,
  type in your question, and press send
• If youre asking a question after the live
  presentation, please insert your email address so
  a response can be sent directly to you.
• Because your input is so important, please take
  our poll also located above the speaker box
  Thanks!