Other Postemployment Benefits Financial Accounting Webcast Kathy Guralski, Auditor, School Finance Team Lori Ames, Consultant, School Finance Team June

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

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).

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

Trust Contribution Amount

The amount of postemployment benefits to be funded in any given year is dependent on various factors.

Size of the district’s liability Requirements for current year payment for

post employment benefits Available resources in the district’s budget Amount of the district’s fund balance

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

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 district’s bank account by June 30th.

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


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.


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.

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


Steps to funding the trust

Allocate contributionamount to

proper account codes


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


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


Example facts: Contribution to trust $275,820 # of total employees in group funded 150 Total payroll of employees in

group funded$4,500,000


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


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


Example facts: Contribution to trust $275,820 # of total employees in group funded 150


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





Record financial transactions for

contribution made


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


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


Example facts: Contribution to trust $275,820 # of total employees in group funded 150 # of special education employees

included in group funded 10


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


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


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


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.


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


Accounting for the contribution in fund 73: 1) 73B 711000 $275,820

73R 951$275,820




Record financial transactions for

contribution made


Withdraw retireebenefits from trust

Pay health provider/retiree

for benefit


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.



included in group funded 10 Insurance premium paid $479 Value of retiree premium $699 Implicit rate subsidy $220 # of retirees on plan 15


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.


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



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


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


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


District originally reported the payment as an expenditure 10B 711000 $123,180 27B 711000 2,640

10E 290000 210 $ 86,22010E XXXXX 240 36,96027E 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

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


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”


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

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

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

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)


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


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.

Questions?

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Because your input is so important, please take our poll – also located above the speaker box – Thanks!

Documents

Other Postemployment Benefits Financial Accounting Webcast Kathy Guralski, Auditor, School Finance Team Lori Ames, Consultant, School Finance Team June