1. ACCOUNTING FOR RETIREE BENEFITS AND HRA AND HSA ACCOUNTS WASBO Accounting Conference 2013

2. Agenda 2  Pay as you go  Trust requirements  Trust accounting  HRA accounting  HSA accounting

3. Documents Discussed 3 If you would like to follow along, all information can be accessed on the SFS WUFAR page. The OPEB documents are also on the SFS Benefit Trust Fund. Sample of Activity: http://sfs.dpi.wi.gov/files/sfs/sample_journal_entries_new.xls Fund 73 Accounts: http://sfs.dpi.wi.gov/files/sfs/Accounts%20to%20use%20for%20Fund%20 73%20trust.doc HRA and HSA guidance http://sfs.dpi.wi.gov/files/sfs/HRA_and_HSA_2-19-13.doc

4. Pay As You Go Retiree Benefits 4  District does not set aside funds into a trust while the employee is active.  District pays retiree benefits in the year the premiums are paid.  Payments for retirees are shared costs in the year they are paid.  Payments are not eligible for federal grants or state categorical aid

5. Pay As You Go Retiree Benefits 5  Accounting is simple  xxE - 290 - 292000  290 = Other Employee Benefits  292000 = Other Retiree Benefits  This can be all in Fund 10 or allocated to all Funds.  Treatment should be consistent from year to year.

6. 6 Information Location - OPEB http://sfs.dpi.wi.gov/sfs_emp_benefit_trust_fund

7. Why an OPEB Trust VS. Pay Go 7  Benefits of a trust:  Favorable discount rate in the actuarial study  Favorable audited financial statements  Evidence to credit agency that district is addressing OPEB liability  Future budget management  Year end prefunding versus adding to undesignated/unreserved fund balance – Additional categorical and equalized aid  Accumulated trust balance may allow for future year budget reallocation  Investment returns

8. OPEB Trust versus PayGo 8  Additional benefits  OPEB trust is available for retiree insurance, sick leave payments, HRAs, vested stipends and termination 403b  Are you failing MOE? Shared contribution payments to Fund 73 charged to 27Exxxxxx218 may help.  MOE in a paygo situation allows for Fund 27 retiree post employment benefits to be charged to project 019

9. OPEB Trust Process 9  Fund 73 Irrevocable OPEB Trust Section 115 IRS  The process  School District should have a completed actuarial study  Study must be completed every 2-3 years, send to DPI  Board approval of resolution authorizing an OPEB Trust  Determine Trustee: Administrator, board member or assigned to a third party trustee company.  Develop and sign trust agreement  Develop investment policy following ACT 99 (Best Practice)

10. OPEB Trust Requirements 10  District doesn’t have control of funds. The irrevocable trust is a separate legal entity designed for the beneficiaries of the trust and post employment benefits  DPI Requirements: Delivered By June 30  Board resolution approval  Actuarial study  Trust agreement  Legal opinion letter from attorney  Must inform employees, documents available for review  Annual Meeting report on activity and balance

11. OPEB Trust 11  District has met DPI requirements to contribute to OPEB trust.  Contributions to the trust are shared costs in the year of the contribution.  District must pay retiree benefits and Implicit Rate Subsidy from the trust once trust is established and funded.  Payments are potentially eligible for grant reimbursement and categorical aid  IRREVOCABLE

12. Documents Available 12  Sample of Activity  Step by step process for all OPEB transactions  Assists with determination of amounts and allocations  Fund 73 Account Descriptions and OPEB transactions  Detailed descriptions and when to use the various account segments  Examples of the basic 4 entries for OPEB

13. OPEB Trust Activity 13  All activity with the trust needs to be CASH TRANSACTIONS  Contributions to the trust need to be physical cash movement from district to trust.  Payment of Implicit Rate Subsidy needs to be physical cash movement from trust to the district.  Benefits must be paid with physical cash movement from the trust.

14. OPEB Trust - Exhibit A 14  Collect General Information  ARC from the study  Total insurance premiums Both District and Retiree Paid  Implicit Rate Subsidy (calculated in next step)  Calculate District Contribution  Calculate Benefits to be Paid from Trust Premiums Implicit Rate Subsidy

15. OPEB Trust - Exhibit B 15  Implicit Rate Subsidy (IRS)  What is it?  When retirees and active employees are on the same health insurance plan, generally the premiums are higher than if the active employees had their own plan. The difference between what the active employees pay with the retirees on their plan and what they would pay on a plan with just active employees is the Implicit Rate Subsidy.

16. OPEB Trust - Exhibit B 16  Implicit Rate Subsidy  If you have retirees on the districts plan, you will have an Implicit Rate Subsidy that needs to be a physical cash movement from the trust to the district. It will offset active employee health costs.

17. OPEB Trust - Exhibit B 17  Implicit Rate Subsidy Calculation  The actuarial study will provide you with an estimated Implicit Rate Subsidy.  This is not what you use to make the payment!  The district needs to calculate the actual Implicit Rate Subsidy based on actual retiree premiums paid.

18. OPEB Trust - Exhibit B 18  Implicit Rate Subsidy Calculation  Calculation uses factors from the study and actual district costs to calculate the Implicit Rate Subsidy.  Method depends on how the Implicit Rate Subsidy is presented in your study.  The premiums paid for retirees is also the pay as you go amount or PYG.

19. OPEB Trust - Exhibit B 19  Implicit Rate Subsidy Calculation  Example 1  Factor from study (example 1.3246) is multiplied by the retiree premiums paid.  This will give you the amount needed in the trust to fund current activity (both the premiums and IRS).  The difference between the amount needed in trust and the premiums paid is the Implicit Rate Subsidy.

20. OPEB Trust - Exhibit B 20  Implicit Rate Subsidy Calculation  Example 2  Gives you the projected premiums (PYG), IRS and premiums with IRS as dollar values.  The calculation on Exhibit B shows the percentage of the implicit rate subsidy to the premiums paid.  The percentage is then applied to the actual premiums paid to get the actual Implicit Rate Subsidy.

21. OPEB Trust - Exhibit C 21  Test of Special Education Categorical Aid eligibility.  Three tests - District must meet one in order to code costs to project 011.  Contribution equals or exceeds the ARC. Amount in excess of ARC not eligible for aid.  Contribution is at least 5% more than current year expenditures from the trust. This includes premiums and IRS expenditures. 73E-420000-991  Same calculation as number 2, but also includes the previous two years.

22. OPEB Trust - Exhibit C 22  Special Ed Categorical Aid eligibility. Don’t use Sample of Activity, Exhibit C. Go to current year calculations at: http://sfs.dpi.wi.gov/sfs_emp_benefit_trust_fund http://sfs.dpi.wi.gov/sfs_emp_benefit_trust_fund

23. OPEB Trust - Exhibit D 23  Allocating the Contribution  ALL contributions must be allocated to functions of active employee plan members.  This changed a few years ago. The contributions now MUST be allocated.  I will be checking this next year for compliance  Allocation method - 2 options.  By active employee FTE  By active employee salaries

24. OPEB Trust - Exhibit D 24  Allocating the Implicit Rate Subsidy payment  Implicit Rate Subsidy must be allocated to functions of active employee plan members.  Be careful that you don’t overclaim the federal grants with the credit to the employees healthcare costs!!!  IRS Allocation method - 2 options, use the same method as the contribution  By active employee FTE  By active employee salaries

25. OPEB Trust - Exhibit E 25  Contribution to the Trust  Contribution should be budgeted.  Amount of contribution is a decision by the district.  In some years, a district may not have a contribution at all. In these cases, there are enough funds in the Trust that retiree benefits are still paid from the Trust.

26. OPEB Trust - Exhibit E 26  Contribution to the Trust  Possible Factors in determining contribution:  How much money can the district afford?  How much money is already in the trust to pay for retiree benefits?  Does the district want the contribution to qualify for special ed categorical aid?

27. OPEB Trust - Exhibit E 27  Accounting for the Contribution to the Trust  CASH expenditure to the trust is charged to Object 218 and the active employees fund and function (and project if applicable)  Variation - record payables and receivables throughout the year FundFunctionObj/SrcProject DebitxxExxxxxx218xxx CreditxxB711000 Cash Contribution from district to Fund 73 trust

28. 28  Accounting for the Contribution to the Trust  Contribution in excess of the ARC is not allocated to active employee functions and should be coded to function 292000.  The object is still 218.  The amount in excess can either go to Fund 10 or can be allocated to employees funds. The method used should be consistent from year to year.  The amount in excess is not eligible for categorical aid or federal grants. If special ed, would be project 019. Contributing more than ARC

29. 29  Accounting for the Contribution to the Trust  Contribution in excess of the ARC should be coded to function 292000.  Example: ARC was $1,000,000. Contribution was $1,200,000. FundFunctionObj/SrcProjectAmount DebitxxExxxxxx218xxx1,000,000 DebitxxE292000218None/019200,000 CreditxxB7110001,200,000 Cash Contribution from district to Fund 73 trust Contributing more than ARC

30. OPEB Trust - Exhibit F 30  Retiree pays for portion of their premiums.  CASH is not district funds and should be deposited directly into Trust FundFunctionObj/SrcProject Debit73B711000 Credit73R952 Retiree Portion of Premium

31. OPEB Trust - Exhibit F 31  Retiree pays for portion of their premiums.  CASH is not district funds.  If the district can’t deposit directly, cash should go into a Due to Fund 73 liability account and be paid IN CASH to the trust. All retiree benefits must be paid from the trust. FundFunctionObj/SrcProject Debit10B711000 Credit10B812000 Retiree Portion of Premium payable to Fund 73

32. OPEB Trust - Exhibit G 32  Accounting for Payments from the Trust - Retiree Premiums  All retiree benefits funded in the Trust must be paid from the Trust FundFunctionObj/Src Debit73E420000991 Credit73B711000 Payment of retiree benefits to vendor

33. OPEB Trust - Exhibit G 33  Accounting for Payments from the Trust - Retiree Premiums  District can choose to have Fund 10 pay the benefits throughout the year, but Fund 73 must back Fund 10 back IN CASH. Keep the transactions clean!  NOT a district expenditure. Should be set up as a Due From Fund 73 receivable. See Sample of Activity. FundFunctionObj/Src Debit10B714000 Credit10B711000 Set up receivable from Fund 73 for retiree payments

34. OPEB Trust - Exhibit G 34  Accounting for Payments from the Trust - Implicit Rate Subsidy  Fund 73 trust must pay the district IN CASH for the Implicit Rate Subsidy.  Fund 73 transaction (see Sample of Activity for accruals): FundFunctionObj/Src Debit73E420000991 Credit73B711000 Payment to district for Implicit Rate Subsidy

35. OPEB Trust - Exhibit G 35  Accounting for Payments from the Trust - Implicit Rate Subsidy  Allocation method the same as the contribution. A credit to active employee healthcare premiums, Object 241, with the active employee fund and functions.  Fund 10 transaction: FundFunctionObj/SrcProject Debit10B711000 CreditxxExxxxxx241xxx Cash received from Fund 73 Trust for Implicit Rate Subsidy

36. 36 WUFAR - HRA and HSA http://sfs.dpi.wi.gov/sfs_wufaracct_code_ex

37. 1. HRA-HSA payment to trust for OPEB  This is the same as the transactions we just went through for the Contribution to the trust.  Putting money away to fund future HRA or HSA payments. 37

38. 2. HRA payment to trust active employees current medical costs  The trust agreement allows for non-OPEB transactions.  Expenditure for current employees to use for current medical costs. 38 FundFunctionObj/SrcProject DebitxxExxxxxx249xxx CreditxxB711000 Payment to the trust for current employee HRA

39. 2. HRA payment to trust active employees current medical costs  The trust agreement allows for non-OPEB transactions. 39 FundFunctionObj/SrcProject Debit73B711000 Credit73R955 Receipt of district payment to trust for current employee HRA Debit73E420000993 Credit73B711000 Payment of current employee medical costs from the trust

40. 3. HRA payment to trust for retirees current medical costs (pay as you go)  The trust agreement allows for non-OPEB transactions.  Expenditure for retired employees to use for current medical costs.  This was not prefunded into the trust while active employee 40 FundFunctionObj/SrcProject DebitxxE292000290None/019 CreditxxB711000 Payment to the trust for retirees HRA (pay as you go)

41.  The trust agreement allows for non-OPEB transactions. 41 FundFunctionObj/SrcProject Debit73B711000 Credit73R955 Receipt of district payment to trust for retiree HRA Debit73E420000993 Credit73B711000 Payment of retiree medical costs from the trust - PYG 3. HRA payment to trust for retirees current medical costs (pay as you go)

42. 4. HRA - custodial account - current employee, current medical costs 42  District uses a special deposit account for current HRA costs for active employees FundFunctionObj/SrcProject DebitxxExxxxxx249xxx CreditxxB711000 Payment for to custodial account for HRA for current employee DebitxxB711000 CreditxxB815200 Record money held in custodial account on district ledger

43.  If there are cash forfeitures by plan members, that is considered a revenue.  The forfeiture could also be set up to reduce future contributions and not paid back to district.  Most districts adjust their 815200 (HRA deposits) liability account at the end of the year. 43 FundFunctionObj/SrcProject DebitxxB711000 CreditxxR990 Plan forfeiture received in cash 4. HRA - custodial account - current employee, current medical costs

44. 44  District uses a special deposit account for current HRA costs for active employees. FundFunctionObj/SrcProject DebitxxExxxxxx219none/019 CreditxxB711000 Payment for to custodial account for HRA for future retirement DebitxxB711000 CreditxxB815200 Record money held in custodial account on district ledger 5. HRA - custodial account - future retirement

45.  If there are cash forfeitures by plan members, that is considered a revenue.  The forfeiture could also be set up to reduce future contributions and not paid back to district  Most districts adjust their 815200 (HRA deposits) liability account at the end of the year. 45 FundFunctionObj/SrcProject DebitxxB711000 CreditxxR990 Plan forfeiture received in cash 5. HRA - custodial account - future retirement

46. 6, 7. - HRA - No trust or custodial agreement 46  Object 249 - Payments of medical expenditures for current employees through an HRA.  Uses active employee Fund and Function.  Object 290 - Payments of medical expenditures for retirees through an HRA.  Uses Function 292000

47. 8, 9, 10. - HSA - Employee owned accounts 47  Object 249 - Contribution to current employees HSA.  Uses active employee Fund and Function.  Object 290 - Contribution to retiree HSA.  Uses Function 292000  If a retiree contributes to their HSA, they should make payment directly to the HSA administrator. Not a district transaction.

48. 48 Questions??

49. Contact Information 49  Michele Tessner, School Finance Auditor, DPI michele.tessner@dpi.wi.gov, 608-267-9218michele.tessner@dpi.wi.gov  Dave Van Spankeren, Executive Director of Business Services, CESA 6 dvanspankeren@cesa6.orgdvanspankeren@cesa6.org, 920-236-0518