1. 1 California Society of Municipal Finance Officers GASB Update The views expressed in this presentation are those of Mr. Bean. Official positions of the GASB are determined only after extensive due process and deliberation.

2. 2 Discussion Topics Recent Pronouncements Recent Pronouncements Exposure Drafts Exposure Drafts What Documents Will Be Issued Soon? What Documents Will Be Issued Soon? Other Current Projects Other Current Projects

3. 3 Recently Issued Final Pronouncements

4. 4 Recently Issued Documents Statement 45—Accounting and Financial Reporting by Employers for OPEB Statement 45—Accounting and Financial Reporting by Employers for OPEB Statement 46—Net Assets Restricted By Enabling Legislation Statement 46—Net Assets Restricted By Enabling Legislation Statement 47—Accounting for Termination Benefits Statement 47—Accounting for Termination Benefits Concepts Statement 3—Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements Concepts Statement 3—Communication Methods in General Purpose External Financial Reports That Contain Basic Financial Statements

5. 5 Recently Issued Documents Implementation guides Implementation guides OPEB—Statements 43 and 45 OPEB—Statements 43 and 45 Statistical section—Statement 44 Statistical section—Statement 44 Comprehensive—2005 edition Comprehensive—2005 edition New User Guide—Notes and supporting information New User Guide—Notes and supporting information

6. 6 Effective Dates June 30, 2006 June 30, 2006 Statement 34, Retroactive infrastructure—Phase I Statement 34, Retroactive infrastructure—Phase I Statement 42 Statement 42 Statement 44 Statement 44 Statement 46 Statement 46 Statement 47 Statement 47 June 30, 2007 June 30, 2007 Statement 27, Amortization period Statement 27, Amortization period Statement 34, Retroactive infrastructure—Phase II Statement 34, Retroactive infrastructure—Phase II Statement 43—Phase I Statement 43—Phase I June 30, 2008 June 30, 2008 Statement 43—Phase II Statement 43—Phase II Statement 45—Phase I Statement 45—Phase I

7. 7 Statement 43 and 45 Other Postemployment Benefits What Do You Need to Know?

8. 8 Why Are We Discussing This Now? All about planning All about planning Significant policy implications that are not 11 th hour considerations Significant policy implications that are not 11 th hour considerations When should an actuary (if any) be engaged? When should an actuary (if any) be engaged? Should changes (if any) be made to the plan? Should changes (if any) be made to the plan? Fund or not to fund? Fund or not to fund?

9. 9 What is the Substance of the OPEB Transaction? Postemployment benefits (both pensions and OPEB) are part of the compensation for services rendered by employees—that is, they are part of an exchange transaction Postemployment benefits (both pensions and OPEB) are part of the compensation for services rendered by employees—that is, they are part of an exchange transaction

10. 10 What are the Reporting Objectives? Recognize OPEB cost (expense) systematically over periods approximating employees’ years of service Recognize OPEB cost (expense) systematically over periods approximating employees’ years of service Provide relevant information about: Provide relevant information about: (a) actuarial accrued liabilities for promised benefits associated with past service, (b) the annual cost of OPEB, and (c) progress made in funding the plan

11. 11 What is an OPEB Plan? The plan as understood by the employer and plan members The plan as understood by the employer and plan members Should be based on the types of benefits provided at the time of each valuation, including any changes made and announced to plan members Should be based on the types of benefits provided at the time of each valuation, including any changes made and announced to plan members

12. 12 Measurement— A Statement 27 Approach All postemployment benefits (OPEB as well as pensions) will be reported using the same general approach. All postemployment benefits (OPEB as well as pensions) will be reported using the same general approach. Broad steps: Broad steps: Project cash outflows for benefits Project cash outflows for benefits Discount projected benefits to present value (PV) Discount projected benefits to present value (PV) Allocate the PV of projected benefits to periods using an acceptable actuarial cost method Allocate the PV of projected benefits to periods using an acceptable actuarial cost method

13. 13 254062 80 Employee Age Timeline Age when hired Present age Life Expectancy Service Period Assumed age at retirement

14. 14 Recognition in Government-wide and Proprietary Fund Financial Statements Employers would report OPEB expense in an amount equal to annual OPEB cost for the period, regardless of the amount paid Employers would report OPEB expense in an amount equal to annual OPEB cost for the period, regardless of the amount paid The cumulative difference between amounts expensed and contributions or benefits paid would create a liability (or asset) called the net OPEB obligation The cumulative difference between amounts expensed and contributions or benefits paid would create a liability (or asset) called the net OPEB obligation

15. 15 Why Are Implicit Rate Subsidies So Important? When current employees and retirees are in the same group—costs for retirees generally are significantly higher When current employees and retirees are in the same group—costs for retirees generally are significantly higher Therefore, retirees that pay for the cost of healthcare benefits through a blended (with current employees) premium often are not paying the actual costs of their benefits Therefore, retirees that pay for the cost of healthcare benefits through a blended (with current employees) premium often are not paying the actual costs of their benefits

16. 16 Implicit Rate Subsidies Difference between the “common” premium charged and the actual rate needed if retirees’ rate was calculated as separate group Difference between the “common” premium charged and the actual rate needed if retirees’ rate was calculated as separate group Even if employer does not otherwise contribute to retirees’ benefits Even if employer does not otherwise contribute to retirees’ benefits

17. 17 Implicit Rate Subsidy Example EmployeesNumber Monthly Cost Age- adjusted Premium Blended Premium Active400$80,000$200 Retired100$40,000$400 Total500$120,000$240

18. 18 How Frequently Should An Actuarial Valuation be Done? OPEB plans with total membership (active employees and retired) over 200—at least biennially OPEB plans with total membership (active employees and retired) over 200—at least biennially OPEB plans with total membership of 200 or fewer—at least triennially OPEB plans with total membership of 200 or fewer—at least triennially OPEB plans with total membership of 100 or fewer—option to use alternative calculation method with certain simplifying assumptions OPEB plans with total membership of 100 or fewer—option to use alternative calculation method with certain simplifying assumptions

19. 19 OPEB—Effective Dates Phased implementation based on same “phase” used for Statement 34 Phased implementation based on same “phase” used for Statement 34 Benefit Plan implementation is for years beginning after December 15, 2005, 2006, or 2007 Benefit Plan implementation is for years beginning after December 15, 2005, 2006, or 2007 Employer implementation is for years beginning after December 15, 2006, 2007, or 2008 Employer implementation is for years beginning after December 15, 2006, 2007, or 2008 Earlier application is encouraged Earlier application is encouraged

20. 20 Exposure Drafts

21. 21 Sales and Pledges of Receivables and Future Revenues Exposure Draft

22. 22 Primary Guidance Transactions of this nature should be reported as a collateralized borrowing unless the conditions required for reporting as a sale are met. Transactions of this nature should be reported as a collateralized borrowing unless the conditions required for reporting as a sale are met.

23. 23 Sales—Receivables Principle—No continuing involvement in transaction Principle—No continuing involvement in transaction Criteria Criteria Transferee’s ability to sell or pledge the receivables is not restricted Transferee’s ability to sell or pledge the receivables is not restricted Receivables are isolated from the transferor government Receivables are isolated from the transferor government Transferor does not have the ability to unilaterally remove specific accounts Transferor does not have the ability to unilaterally remove specific accounts

24. 24 Sales—Future Revenues Principle—no continuing involvement in the transaction Principle—no continuing involvement in the transaction Own-source revenues and most other future revenues will not qualify Own-source revenues and most other future revenues will not qualify Revenue recognition—period in which the revenue relates, will result in deferral of proceeds Revenue recognition—period in which the revenue relates, will result in deferral of proceeds

25. 25 Project Timetable Exposure Draft—Comment deadline recently passed Exposure Draft—Comment deadline recently passed Final Statement—August 2006 Final Statement—August 2006

26. 26 Accounting and Financial Reporting for Pollution Remediation Obligations Exposure Draft

27. 27 Types of Remediation Obligations Types of Remediation Obligations Pre-cleanup activities: site assessment, feasibility study, design Pre-cleanup activities: site assessment, feasibility study, design Cleanup activities: neutralization, containment, disposal activities Cleanup activities: neutralization, containment, disposal activities Oversight and enforcement costs Oversight and enforcement costs Operation and maintenance of the remedy and monitoring Operation and maintenance of the remedy and monitoring

28. 28 Recognition Threshold Determine whether one of more components of a pollution remediation obligation are recognizable as a liability when... Determine whether one of more components of a pollution remediation obligation are recognizable as a liability when... Government knows or reasonably believes that a site is polluted, and Government knows or reasonably believes that a site is polluted, and Obligating event occurs Obligating event occurs

29. 29 Obligating Events Imminent endangerment compels action Imminent endangerment compels action Violate pollution prevention permit Violate pollution prevention permit Named as responsible party Named as responsible party Named in lawsuit to enforce action Named in lawsuit to enforce action Voluntary remediation commenced Voluntary remediation commenced

30. 30 Recognition Recognize components of liability as they become reasonably estimable—Recognition benchmarks Recognize components of liability as they become reasonably estimable—Recognition benchmarks Receipt of an administrative order Receipt of an administrative order Participation as a responsible party or PRP Participation as a responsible party or PRP Completion of corrective measure feasibility study Completion of corrective measure feasibility study Issuance of authorization to proceed Issuance of authorization to proceed Remediation design and implementation Remediation design and implementation Cost accumulation, not fair value Cost accumulation, not fair value Current value, not present value Current value, not present value Expected cash flow technique would be required Expected cash flow technique would be required

31. 31 Recognition Cost accumulation, not fair value Cost accumulation, not fair value Current value, not present value Current value, not present value Expected cash flow technique would be required Expected cash flow technique would be required Not FASB Statement No. 5, Accounting for Contingencies Not FASB Statement No. 5, Accounting for Contingencies

32. 32 Capitalization Criteria Outlays to prepare property for anticipated sale Outlays to prepare property for anticipated sale Outlays to prepare property for use when known polluted property was acquired and expected to be remediated Outlays to prepare property for use when known polluted property was acquired and expected to be remediated Outlays to restore pollution caused decline in service utility that was recognized as an asset impairment Outlays to restore pollution caused decline in service utility that was recognized as an asset impairment Outlays used to acquire assets that will have alternative uses other than remediation efforts Outlays used to acquire assets that will have alternative uses other than remediation efforts

33. 33 Project Timetable Preliminary Views—March 2005 Preliminary Views—March 2005 Public Hearing—June 2005 Public Hearing—June 2005 Exposure Draft—January 2006 Exposure Draft—January 2006 Comment Deadline—May 1, 2006 Comment Deadline—May 1, 2006 Statement—November 2006 Statement—November 2006

34. 34 Medicare Part D Recognition of Payments

35. 35 Recognition Based on Statements 33 and 24 Based on Statements 33 and 24 Nonexchange transaction—Federal Government has not assumed the obligation Nonexchange transaction—Federal Government has not assumed the obligation Revenues and Expenditures/Expenses should be reported versus netting Revenues and Expenditures/Expenses should be reported versus netting

36. 36 Project Timetable ED released in February ED released in February Comment deadline—April 17 th Comment deadline—April 17 th Final Technical Bulletin scheduled to be released by June 30 th Final Technical Bulletin scheduled to be released by June 30 th

37. 37 What Will Be Issued Soon? Derivatives and Hedging—PV in April Derivatives and Hedging—PV in April Fund Balance Reporting—ITC in July Fund Balance Reporting—ITC in July Elements of Financial Statements—ED in August Elements of Financial Statements—ED in August

38. 38 Other Current Projects Intangible Assets—ED in September Intangible Assets—ED in September Comprehensive Implementation Guide Update—September Comprehensive Implementation Guide Update—September Recognition and Measurement Attributes—Concepts Statement Recognition and Measurement Attributes—Concepts Statement

39. 39 Research Agenda Economic Condition Reporting Economic Condition Reporting Electronic Financial Reporting Electronic Financial Reporting Intergovernmental Financial Risks Intergovernmental Financial Risks Pension Accounting and Reporting Pension Accounting and Reporting Reporting Units / Statement 14 Revisited Reporting Units / Statement 14 Revisited Service Efforts and Accomplishments Reporting Service Efforts and Accomplishments Reporting

40. 40 Questions? Telephone—(203) 847-0700 Web site—www.gasb.org