Official releases: GASB no. 43.

Space considerations prevent publishing here the appendices to GASB Statement no. 43. Since the appendices often are important to understanding GASB statements, readers are advised to obtain complete copies. For additional copies of GASB statements and/or information on applicable prices and discount rates, contact the GASB order department, 401 Merritt 7, P. O. Box 5116, Norwalk, Connecticut 06856 5116. Telephone: [phone].

Statement No. 43 of the Governmental Accounting Standards Board--Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans

SUMMARY

In addition to pensions, many state and local governmental employers provide other postemployment benefits (OPEB) as part of the total compensation offered to attract and retain the services of qualified employees. OPEB includes postemployment healthcare, as well as other forms of postemployment benefits (for example, life insurance) when provided separately from a pension plan.

What This Statement Does

This Statement establishes uniform financial reporting standards for OPEB plans and supersedes the interim guidance included in Statement No. 26, Financial Reporting for Postemployment Healthcare Plans Administered by Defined Benefit Pension Plans. The approach followed in this Statement generally is consistent with the approach adopted in Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, with modifications to reflect differences between pension plans and OPEB plans.

The standards in this Statement apply for OPEB trust funds included in the financial reports of plan sponsors or employers, as well as for the stand-alone financial reports of OPEB plans or the public employee retirement systems, or other third parties, that administer them. This Statement also provides requirements for reporting of OPEB funds by administrators of multiple-employer OPEB plans, when the fund used to accumulate assets and pay benefits or premiums when due is not a trust fund. A related Statement, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions (referred to as the related Statement), addresses standards for the measurement, recognition, and display of employers' OPEB expense/expenditures and related liabilities (assets); note disclosures; and, if applicable, required supplementary information (PSI). The measurement and disclosure requirements of the two Statements are related, and disclosure requirements are coordinated to avoid duplication when an OPEB plan is included as a trust or agency fund in an employer's financial report. In addition, reduced disclosures are acceptable for OPEB trust or agency funds when a stand alone plan financial report is publicly available and contains all required information.

SUMMARY OF STANDARDS

OPEB Plans That Are Administered as Trusts (or Equivalent Arrangements)

Financial Reporting Framework

The financial reporting framework for defined benefit OPEB plans that are administered as trusts or equivalent arrangements includes two financial statements and two multiyear schedules that are required to be presented as RSI immediately following the notes to the financial statements. The financial statements focus on reporting current financial information about plan net assets held in trust for OPEB and financial activities related to the administration of the trust. The statement of plan net assets provides information about the fair value and composition of plan assets, plan liabilities, and plan net assets held in trust for OPEB. The statement of changes in plan net assets provides information about the year-to-year changes in plan net assets, including additions from employer, member, and other contributions and net investment income and deductions for benefits and refunds paid, or due and payable, and plan administrative expenses.

Required notes to the financial statements include a brief plan description, a summary of significant accounting policies, and information about contributions and legally required reserves. In addition, OPEB plans are required to disclose information about the current funded status of the plan as of the most recent actuarial valuation date, and actuarial methods and assumptions used in the valuation.

The required schedules (RSI) provide actuarially determined historical trend information from a long-term perspective, for a minimum of three valuations, about (a) the funded status of the plan and the progress being made in accumulating sufficient assets to pay benefits when due and (b) employer contributions to the plan. The schedule of funding progress reports the actuarial value of assets, the actuarial accrued liability, and the relationship between the two over time. The schedule of employer contributions reports the annual required contributions of the employer(s) (ARC) and the percentage of ARC recognized by the plan as contributions. The required schedules are accompanied by notes regarding factors that significantly affect the identification of trends in the amounts reported.

Measurement (the Parameters)

Plans are required to measure all actuarially determined information included in their financial reports in accordance with certain parameters. The parameters include requirements for the frequency and timing of actuarial valuations as well as for the actuarial methods and assumptions that are acceptable for financial reporting. If the methods and assumptions used in determining a plan's funding requirements meet the parameters, the same methods and assumptions are required for financial reporting by both a plan and its participating employer(s). However, if a plan's method of financing does not meet the parameters (for example, the plan is financed on a pay-as-you-go basis), the parameters apply, nevertheless, for financial reporting purposes.

For financial reporting purposes, an actuarial valuation is required at least biennially for OPEB plans with a total membership (including employees in active service, terminated employees who have accumulated benefits but are not yet receiving them, and retired employees and beneficiaries currently receiving benefits) of 200 or more, and at least triennially for plans with a total membership of fewer than 200. The projection of benefits should include all benefits covered by the current substantive plan (the plan as understood by the employer and plan members) at the time of each valuation and should take into consideration the pattern of sharing of benefit costs between the employer and plan members to that point, as well as certain legal or contractual caps on benefits to be provided. The parameters require that the selection of actuarial assumptions, including the healthcare cost trend rate for postemployment healthcare plans, be guided by applicable actuarial standards.

Alternative Measurement Method

OPEB plans with a total membership of fewer than one hundred have the option to apply a simplified alternative measurement method instead of obtaining actuarial valuations. This alternative method includes the same broad measurement steps as an actuarial valuation (projecting future cash outlays for benefits, discounting projected benefits to present value, and allocating the present value of projected benefits to periods using an actuarial cost method). However, it permits simplification of certain assumptions to make the method potentially usable by nonspecialists.

OPEB Plans That Are Not Administered as Trusts or Equivalent Arrangements

Multiple-employer defined benefit OPEB plans that are not administered as trusts or equivalent arrangements should be reported as agency funds. Any assets accumulated in excess of liabilities to pay premiums or benefits, or for investment or administrative expenses, should be offset by liabilities to participating employers. Required notes to the financial statements include a brief plan description, a summary of significant accounting policies, and information about contributions.

Defined Contribution Plans

Defined contribution plans that provide OPEB are required to follow the requirements for financial reporting by fiduciary funds generally, and by component units that are fiduciary in nature, set forth in Statement 34 and the disclosure requirements set forth in paragraph 41 of Statement 25.

EFFECTIVE DATES AND TRANSITION

The requirements of this Statement for OPEB plan reporting are effective one year prior to the effective date of the related Statement for the employer (single-employer plan) or for the largest participating employer in the plan (multiple-employer plan). The requirements of the related Statement are effective in three phases based on a government's total annual revenues, as defined in that Statement, in the first fiscal year ending after June 15, 1999--the same criterion used to determine a government's phase for implementation of Statement No. 34, Basic Financial Statements--and Management's Discussion and Analysis--for State and Local Governments. Plans in which the sole or largest participating employer is a phase 1 government (those with total annual revenues of $100 million or more) are required to implement this Statement in financial statements for periods beginning after December 15, 2005. Plans in which the sole or largest participating employer is a phase 2 government (total annual revenues of $10 million or more but less than $100 million) are required to implement this Statement in financial statements for periods beginning after December 15, 2006. Plans in which the sole or largest participating employer is a phase 3 government (total annual revenues of less than $10 million) are required to implement this Statement in financial statements for periods beginning after December 15, 2007. If comparative financial statements are presented, restatement of the prior-year financial statements is required. Early implementation of this Statement is encouraged.

CONTENTS

Introduction/1-3
Standards of Governmental Accounting and
  Financial Reporting/4-42
    Scope and Applicability of This
      Statement/4-15
        Public Employee Retirement
          Systems/12-15
    OPEB Plans That Are Administered as
      Trusts (or Equivalent
      Arrangements) / 16-40
        Financial Reporting Framework/17
        Financial Statements/18-30
          Statement of Plan Net Assets/18-25
            Assets18-23
              Receivables/20-21
              Investments/22
              Assets Used in Plan Operations/23
            Liabilities/24
            Net Assets Held in Trust for
              OPEB/25
          Statement of Changes in Plan Net
            Assets/26-29
            Additions/27
            Deductions/28-29
          Notes to the Financial Statements/30
        Required Supplementary
          Information/31-37
          The Parameters/33-34
          Schedule of Funding Progress/35
          Schedule of Employer
            Contributions/36
          Notes to the Required Schedules/37
      Alternative Measurement Method for
        Plans with Fewer Than One Hundred
        Plan Members/38-40
    OPEB Plans That Are Not Administered
      as Trusts (or Equivalent Arrangements)/41
    Defined Contribution Plans/42
Effective Date and Transition/43-45
Glossary/46
Actuarial Terminology/47
Appendix A: Background/48-58
Appendix B: Basis for Conclusions/59-183
Appendix C: Illustrations of Equivalent
  Single Amortization Period Calculations/184
Appendix D: Illustrations of Financial
  Statements and Disclosures/185
Appendix E: Illustration of Calculations Using
  the Alternative Measurement Method/186
Appendix F: Codification Instructions/187

INTRODUCTION

1. The objective of this Statement is to establish uniform standards of financial reporting by state and local governmental entities for other postemployment (1) benefit plans (OPEB plans). The term other postemployment benefits (OPEB) refers to postemployment benefits other than pension benefits and includes (a) postemployment healthcare benefits and (b) other types of postemployment benefits (for example, life insurance) if provided separately from a pension plan. The term plans, in this context, refers to trust or other funds through which assets are accumulated to finance OPEB, and benefits are paid as they come due. This Statement provides standards for measurement, recognition, and display of the assets, liabilities, and, where applicable, net assets and changes in net assets of such funds and for related disclosures. The requirements of this Statement apply whether an OPEB plan is reported as a trust or agency fund or a fiduciary component unit of a participating employer or plan sponsor, or the plan is separately reported by a public employee retirement system (PERS) or other entity that administers the plan.

2. The approach adopted in this Statement generally is consistent with that of Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, and results in a common overall approach to financial reporting for all postemployment benefit plans. However, certain requirements of this Statement differ from the requirements of Statement 25 to reflect differences between pension benefits and OPEB.

3. A related Statement, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions (referred to as the related Statement), establishes standards for accounting aim financial reporting of OPEB costs and obligations by state and local governmental employers that offer OPEB. The effective dates and many of the measurement and disclosure requirements of the two Statements are closely related, and certain provisions of this Statement refer to the related Statement. The two Statements include provisions to coordinate disclosures to avoid duplication when a government that participates in an OPEB plan also reports the plan as a fiduciary fund or component unit, or when a separately issued plan report, prepared in accordance with the requirements of this Statement, is publicly available.

STANDARDS OF GOVERNMENTAL ACCOUNTING AND FINANCIAL REPORTING

Scope and Applicability of This Statement

4. This Statement establishes financial reporting standards for OPEB plans of all state and local governments. Paragraphs 16 through 40 discuss reporting requirements for OPEB plans that are administered as trusts, or equivalent arrangements, through which assets are accumulated and benefits are paid as they come due in accordance with an agreement between the employer(s) and plan members and their beneficiaries (the substantive plan), and in which:

a. Employer contributions to the plan are irrevocable

b. Plan assets are dedicated to providing benefits to their retirees and their beneficiaries in accordance with the terms of the plan

c. Plan assets are legally protected from creditors of the employer(s) or the plan administrator.

For such plans, this Statement provides standards for (a) financial reporting of the plan assets, liabilities, net assets, and changes in net assets held in trust for payment of benefits and (b) disclosure of actuarial information about the funded status and funding progress of the plan (the extent to which resources have been accumulated in comparison to actuarially accrued liabilities for benefits) and the contributions made to the plan by participating employers in comparison to annual required contributions of the employer(s) (ARC).

5. This Statement also applies to financial reporting for funds that are used to accumulate assets and to pay benefits in a multiple-employer OPEB plan that does not meet the criteria stated in the preceding paragraph. Paragraph 41 discusses reporting requirements for such plans. This Statement does not apply to assets that an employer earmarks for OPEB purposes within its governmental or proprietary funds by designation of fund balance(s) or net assets or to assets that an employer transfers to and accumulates in a separate governmental or proprietary fired for that purpose.

6. OPEB plans are plans that provide:

a. Postemployment healthcare benefits, either separately or through a defined benefit pension plan. Postemployment healthcare benefits include medical, dental, vision, hearing, and other health-related benefits. For financial reporting purposes, postemployment healthcare benefits provided through a defined benefit pension plan, and the assets accumulated by, the plan for the payment of postemployment healthcare benefits, are considered, in substance, a postemployment healthcare plan administered by, but not part of, the pension plan.

b. Other forms of postemployment benefits, when provided separately from a defined benefit pension plan. Examples include life insurance, disability, long-term care, and other benefits if provided as compensation for employee services rendered. Such forms of benefits are considered pensions when provided through a defined benefit pension plan.

7. The requirements of this Statement address financial reporting by defined benefit OPEB plans and defined contribution plans. Defined benefit OPEB plans are plans having terms that specify, the benefits to be provided at or after separation from employment. The benefits may be specified in dollars (for example, a flat dollar payment or an amount based on one or more factors such as age, years of service, and compensation), or as a type or level of coverage (for example, prescription drugs or a percentage of healthcare insurance premiums). In contrast, a defined contribution plan is a plan having terms that (a) provide an individual account for each plan member and (b) specify how contributions to an active plan member's account are to be determined, rather than the income or other benefits the member or his or her beneficiaries are to receive at or after separation from employment. In a defined contribution plan, those benefits will depend only on the amounts contributed to the member's account, earnings on investments of those contributions, and forfeitures of contributions made for other members that may be allocated to the member's account. An OPEB plan may have both defined benefit and defined contribution characteristics. If the plan provides a defined benefit in some form--that is, if the benefit to be provided is a function of factors other than the amounts contributed and amounts earned on contributed assets the provisions of this Statement for defined benefit plans apply.

8. The provisions of this Statement apply whether the plan is a single-employer, agent multiple-employer, or cost-sharing multiple-employer plan and regardless of how or when OPEB provided by the plan is financed. The requirements apply whether:

a. The plan's financial statements are included in a separate financial report issued by the plan or by the PEPS or other entity that administers the plan (stand-alone plan financial report)

b. The plan is included as a trust or agency fund or a fiduciary component unit in the statement of fiduciary net assets and statement of changes in fiduciary net assets of the plan sponsor or employer.

9. OPEB arises from an exchange of salaries and benefits for employee services, and it is part of the compensation that employers offer for services received. In contrast, termination offers and benefits are inducements offered by employers to employees to hasten the termination of services, or payments made in consequence of the early termination of services. Because they are different in nature from OPEB, termination offers and benefits--including special termination benefits as defined in National Council on Governmental Accounting (NCGA) Interpretation 8, Certain Pension Matters, early-retirement incentive programs, and other termination-related benefits--are generally excluded from the scope of this Statement, regardless of who provides or administers them. However, the effects, if any, of an employee's acceptance of a special termination offer on OPEB obligations incurred through an existing defined benefit plan (for example, an increase in the employer's obligation to provide postemployment healthcare benefits) should be accounted for in accordance with the requirements of this Statement and the related Statement.

10. Conversion of a terminating employee's unused sick leave credits to an individual account to be used for payment of postemployment benefits on that person's behalf is a termination payment, as the term is used in Statement No. 16, Accounting for Compensated Absences. The portion of sick leave expected to be compensated in that manner should be accounted for as a compensated absence in accordance with the requirements of that Statement. However, when a terminating employee's unused sick leave credits are converted to provide or to enhance a defined benefit OPEB (for example, postemployment healthcare benefits), the resulting benefit or increase in benefit should be accounted for in accordance with the requirements of this Statement and the related Statement.

11. This Statement supersedes footnote 3 of GASB Statement 25: GASB Statement No. 26, Financial Reporting for Postemployment Healthcare Plans Administered by Defined Benefit Pension Plans; and footnote 18 of GASB Statement No. 27, Accounting for Pensions by State and Local Governmental Employers. In addition, it amends the authoritative guidance in paragraph 5 of NCGA Interpretation No. 6, Notes to the Financial Statements Disclosure; paragraph 81 of GASB Statement No. 14, The Financial Reporting Entity; paragraphs 4, 26, 42, and 44 and footnotes 5 and 16 of GASB Statement 25; paragraph 2 of GASB Statement 27; paragraph 4 of GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools; and paragraphs 106 through 109, 140, and 141 and footnotes 43 and 44 of GASB Statement No. 34, Basic Financial Statements--and Management's Discussion and Analysis--for State and Local Governments, with regard to financial reporting for OPEB plans.

Public Employee Retirement Systems

12. Many PEPS administer more than one employee benefit plan, including defined benefit OPEB plans, as well as, for example, defined benefit pension plans, defined contribution plans, and deferred compensation plans. As used in this Statement, the term public employee retirement system refers to a state or local governmental fiduciary entity entrusted with administering a plan (or plans), and not to the plan itself. This Statement does not address the financial reports of PERS, except to the extent that the systems' reports include financial statements for defined benefit OPEB plans and defined contribution plans. Financial reporting requirements for special purpose governments engaged only in fiduciary activities (including the requirement to present management's discussion and analysis, or MD&A) are discussed in Statement 34, as amended.

13. When the financial report of a PERS includes more than one defined benefit OPEB plan, the provisions of this Statement apply separately to each plan administered. That is, the system's report should present combining financial statements and required schedules for all defined benefit OPEB plans administered by the system. If the system administers one or more agent multiple-employer plans (agent plans), the provisions of this Statement apply at the aggregate plan level for each plan administered. The system is not required to include financial statements and schedules for the individual plans of the participating employers. (2)

14. The principles described in this paragraph should be applied in determining whether a PERS is administering a single plan or more than one plan for which paragraph 13 requires separate reporting.

a. A PERS is administering a single plan if, on an ongoing basis, all assets accumulated for the payment of benefits may legally be used to pay benefits, including refunds of member contributions, to any of the plan members or beneficiaries, as defined by the terms of the plan. If this criterion is met, the plan is considered a single plan for financial reporting even if (1) the system is required by law or administrative policy to maintain separate reserves, funds, or accounts for specific groups of plan members, employers, or types of benefits (for example, a reserve for plan member contributions, a reserve for disability benefits, or separate accounts for the contributions of state government versus local government employers) or (2) separate actuarial valuations are performed for different classes of covered employees or groups (tiers) within a class because different contribution rates may apply for each class or group depending on the applicable benefit structures, benefit formulas, or other factors.

b. A PERS is administering more than one plan if any portion of the total assets administered by the system is accumulated solely for the payment of benefits to certain classes of employees or to employees of certain entities (for example, public safety employees or state government employees) and may not legally be used to pay benefits to other classes of employees or other entities' employees (for example, general employees or local government employees). That portion of the total assets and the associated benefits constitutes a separate plan for which separate financial reporting is required, even if the assets are pooled with other assets for investment purposes.

15. The requirements of paragraph 13 also apply for the annual financial reports of a sponsor or employer when, based on the principles de scribed in paragraph 14, the report includes more than one defined benefit OPEB plan. Financial statements for individual defined benefit OPEB plans should be presented in the notes to the financial statements of the sponsor or employer if separate financial statements prepared in conformity with generally accepted accounting principles (GAAP) and, if applicable, required supplementary information (RSI) have not been issued. If separate financial reports meeting those specifications have been issued, the notes should include information about how to obtain those separate reports.

OPEB Plans That Are Administered as Trusts (or Equivalent Arrangements)

16. A defined benefit OPEB plan that meets the requirements of paragraph 4 should be reported in conformity with the requirements of paragraphs 17 through 40. (For reporting requirements applicable to a defined benefit OPEB plan that does not meet the preceding criteria, see paragraph 41.)

Financial Reporting Framework

17. The financial report of a defined benefit OPEB plan that meets the criteria in paragraph 4 should include two financial statements and two schedules of historical trend information, as summarized in this paragraph. The schedules should be presented as RSI immediately after the notes to the financial statements. The requirements for the recognition, measurement, and display of information in the financial statements and required schedules and for the notes to the financial statements and schedules are addressed in subsequent paragraphs. The financial statements and required schedules are:

a. A statement of plan net assets that includes in formation about the plan assets, liabilities, and net assets as of the end of the plan's fiscal year (reporting date). The statement of plan net assets should provide information about the fair value and composition of net assets.

b. A statement of changes in plan net assets that includes information about the additions to, deductions from, and net increase (or decrease) for the year in plan net assets. The statement should provide information about significant year-to-year changes in plan net assets.

c. A required schedule of funding progress that in dudes historical trend information about the actuarially determined funded status of the plan from a long-term, ongoing plan perspective and whether and to what extent progress is being made in accumulating sufficient assets to pay benefits when due.

d. A required schedule of employer contributions that includes historical trend information about the ARC and the contributions made by the employer(s) in relation to the ARC. The schedule should provide information that contributes to understanding the changes over time in the funded stares of the plan.

Financial Statements

Statement of Plan Net Assets

Assets

18. The statement of plan net assets should be prepared on the accrual basis of accounting. Accordingly, purchases and sales of investments should be recorded on a trade-date basis.

19. Plan assets should be subdivided into (a) the major categories of assets held (for example, cash and cash equivalents, receivables, investments, and assets used in plan operations) and (b) the principal components of the receivables and investments categories.

Receivables

20. Plan receivables generally are short term and include contributions due as of the reporting date from the employer(s), plan members, and other contributors, and interest and dividends on investments. Amounts recognized as receivables should include those due pursuant to formal commitments as well as statutory or contractual requirements. With respect to an employer's contributions, evidence of a formal commitment may include (a) an appropriation by the employer's governing body of a specified contribution or (b) a consistent pattern of making payments after the plan's reporting date pursuant to an established funding policy that attributes those payments to the preceding plan year. When combined with either (a) or (b), the recognition in the employer's financial statements of a contribution payable to the plan may be supporting evidence of a formal commitment. However, the plan should not recognize a receivable based solely on the employer's recognition of a liability for contributions to the plan.

21. Receivables and additions for contributions payable to the plan more than one year after the reporting date (pursuant to, for example, installment contracts) should be recognized in full in the year the contract is made. (3)

Investments

22. Plan investments, whether equity or debt securities, real estate, or other investments (excluding insurance contracts), should be reported at their fair value at the reporting date. The fair value of an investment is the amount that the plan could reasonably expect to receive for it in a current sale between a willing buyer and a willing seller--that is, other than in a forced or liquidation sale. (4) Fair value should be measured by the market price if there is an active market for the investment. If such prices are not available, fair value should be estimated. Unallocated insurance contracts may be reported at contract value. Allocated insurance contracts should be excluded from plan assets. (5)

Assets used in plan operations

23. Plan assets used in plan operations (for example, buildings, equipment, furniture and fixtures, and leasehold improvements) should be reported at historical cost less accumulated depreciation or amortization.

Liabilities

24. Plan liabilities generally consist of benefits and refunds due to plan members and beneficiaries and accrued investment and administrative expenses. All plan liabilities should be recognized on the accrual basis. Plan liabilities for benefits and refunds should be recognized when due and payable in accordance with the terms of the plan. Benefits payable from contracts excluded from plan assets for which payments to the insurance company have been made should be excluded from plan liabilities.

Net Assets Held in Trust for OPEB

25. The difference between total plan assets and total plan liabilities at the reporting date should be captioned net assets held in trust for OPEB.

Statement of Changes in Plan Net Assets

26. The statement of changes in plan net assets should be prepared on the accrual basis, consistent with the requirements of paragraphs 20, 21, and 24 for the recognition of plan receivables and liabilities. The information should be presented in two principal sections: additions and deductions. The difference between total additions and deductions should be reported as the net increase (or decrease) for the year in plan net assets.

Additions

27. The additions section of the statement of changes in plan net assets should include the information in these four categories, separately displayed:

a. Contributions from the employer(s), determined in a manner consistent with the requirements for recognition of receivables in paragraphs 20 and 21

b. Contributions from plan members, including those transmitted by the employer(s)

c. Contributions from sources other than the employer(s) and plan members (for example, state government contributions to a local government plan)

d. Net investment income, including (1) the net appreciation (depreciation) in the fair value of plan investments, (6) (2) interest income, dividend income, and other income not included in (1), (7) and (3) total investment expense, separately displayed, including investment management and custodial fees and all other significant investment-related costs. (8)

Deductions

28. The deductions section of the statement of changes in plan net assets should include (a) benefits and refunds paid to plan members and beneficiaries and (b) total administrative expense, separately displayed.

29. Benefits paid should not include payments made by an insurance company in accordance with a contract that is excluded from plan assets. However, amounts paid by the plan to an insurance company pursuant to such a contract, including purchases of annuities with amounts allocated from existing investments with the insurance company, should be included in benefits paid. (The amounts reported may be net of the plan's dividend income for the year on excluded contracts.)

Notes to the Financial Statements

30. The notes to the financial statements of a defined benefit OPEB plan should include all disclosures required by this paragraph when the financial statements are presented (a) in a stand alone plan financial report or (b) solely in the financial report of an employer (that is, as an other employee benefit trust fund). When a plan's financial statements are presented in both an employer's report and a publicly available standalone plan financial report that complies with this Statement, the employer may limit its plan disclosures to those required by paragraphs 30a(1), 30b, and 30c(4), provided that the employer discloses information about how to obtain the stand-alone plan financial report. (9)

a. Plan description

(1) Identification of the plan as a single-employer, agent multiple-employer, or cost-sharing multiple-employer defined benefit OPEB plan and disclosure of the number of participating employers and other contributing entities.

(2) Classes of employees covered (for example, general employees and public safety employees) and the number of plan members, including employees in active service, terminated employees who have accumulated benefits but are not yet receiving them, and retired employees and beneficiaries currently receiving benefits. If the plan is closed to new entrants, that fact should be disclosed.

(3) Brief description of benefit provisions, including the types of benefits, the provisions or policies with respect to automatic and ad hoc postretirement benefit increases, and the authority under which benefit provisions are established or may be amended.

b. Summary of significant accounting policies

(1) Basis of accounting, including the policy with respect to the recognition in the financial statements of contributions, benefits paid, and refunds paid.

(2) Brief description of how the fair value of investments is determined, including the methods and significant assumptions used to estimate the fair value of investments, if that fair value is based on other than quoted market prices.

c. Contributions and reserves

(1) Authority under which the obligations of the plan members, employer(s), and other contributing entities to contribute to the plan are established or may be amended.

(2) Funding policy, including a brief description of how the contributions of the plan members, employer(s), and other contributing entities are determined (for example, by statute, through an actuarial valuation, or in some other manner) and how the costs of administering the plan are financed. Legal or contractual maximum contribution rates should he disclosed, if applicable.

(3) Required contribution rate(s) of active or retired plan members, as applicable, in accordance with the funding policy. (10) The required contribution rate(s) should be expressed as a rate (amount) per member or as a percentage of covered payroll.

(4) Brief description of the terms of any long-term contracts for contributions to the plan and disclosure of the amounts outstanding at the reporting date.

(5) The balances in the plan's legally required reserves at the reporting date. Amounts of net assets designated by the plan's board of trustees or other governing body for a specific purpose(s) also may be disclosed but should be captioned designations, rather than reserves. (11) Also include a brief description of the purpose of each reserve and designation disclosed and whether the reserve is fully funded.

d. Funded status and funding progress

(1) Information about the funded status of the plan as of the most recent valuation date, including the actuarial valuation date, the actuarial value of assets, the actuarial accrued liability, the total unfunded actuarial accrued liability, the actuarial value of assets as a percentage of the actuarial accrued liability (funded ratio), the annual covered payroll, and the ratio of the unfunded actuarial liability to annual covered payroll. (12) The information should be calculated in accordance with the parameters set forth in paragraphs 33 and 34. However, plans with fewer than one hundred plan members, as defined in paragraph 30a(2), may elect to use the alternative measurement method discussed in paragraphs 38 through 40. Plans that use the aggregate actuarial cost method should prepare this information using the entry age actuarial cost method for that purpose only.

(2) Disclosure of information about actuarial methods and assumptions used in valuations on which reported information about the ARC and the funded status and funding progress of OPEB plans are based, including the following:

(a) Disclosure that actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability of events far into the future, and that actuarially determined amounts are subject to continual revision as actual results are compared to past expectations and new estimates are made about the future.

(b) Disclosure that the required schedule of funding progress immediately following the notes to the financial statements presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits.

(c) Disclosure that calculations are based on the benefits provided under the terms of the substantive plan in effect at the time of each valuation and on the pattern of sharing of costs between the employer and plan members to that point. In addition, if applicable, the plan should disclose that the projection of benefits for financial reporting purposes does not explicitly incorporate the potential effects of legal or contractual funding limitations on the pattern of cost sharing between the employer and plan members in the future. (13)

(d) Disclosure that actuarial calculations reflect a long-term perspective. In addition, if applicable, disclosure that, consistent with that perspective, actuarial methods and assumptions used include techniques that are designed to reduce short term volatility in actuarial accrued liabilities and the actuarial value of assets.

(e) Identification of the actuarial methods and significant assumptions used to determine the ARC for the current year and the information required by paragraph 30d(1). The disclosures should include:

i. The actuarial cost method.

ii. The method(s) used to determine the actuarial value of assets.

iii. The assumptions with respect to the inflation rate, investment return (discount rate) (including the method used to determine a blended rate for a partially funded plan, if applicable), projected salary increases if relevant to determination of the level of benefits, and, for postemployment healthcare plans, the healthcare cost trend rate. If the economic assumptions contemplate different rates for successive years (year-based or select and ultimate rates), the rates that should be disclosed are the initial and ultimate rates.

iv. The amortization method (level dollar or level percentage of projected payroll) and the amortization period (equivalent single amortization period, for plans that use multiple periods) for the most recent actuarial valuation and whether the period is closed or open. Plans that use the aggregate actuarial cost method should disclose that because the method does not identify or separately amortize unfunded actuarial accrued liabilities, information about the plan's funded status and funding progress has been prepared using the entry age actuarial cost method for that purpose, and that the information presented is intended to approximate the funding progress of the plan.

Required Supplementary Information

31. Except as indicated in paragraph 32, a schedule of funding progress and a schedule of employer contributions should be presented immediately after the notes to the financial statements. Paragraphs 33 and 34 include the requirements for measuring the actuarially determined information to be reported in the schedules and related note disclosures (the parameters). However, plans with fewer than one hundred plan members may elect to use the alternative measurement method discussed in paragraphs 38 through 40. Paragraphs 35 through 37 include the requirements for the content of the schedules and related notes.

32. When a cost-sharing or agent plan's financial statements are included in an employer's financial report (that is, as an other employee benefit trust fund), the employer is not required to present schedules of RSI for that plan if both of these situations exist:

a. The required schedules are included with the plan's financial statements in a publicly available, stand-alone plan financial report.

b. The employer includes in its notes to the financial statements information about how to obtain the stand-alone plan financial report.

When the financial statements of a single employer plan are included in the employer's report, the employer should disclose the availability of the stand-done plan report and present the information required for the schedule of funding progress for the three most recent actuarial valuations. (The employer should not present the schedule of employer contributions for the plan.) If the financial statements and required schedules of the plan (whether single-employer, agent, or cost-sharing) are not publicly available in a stand-alone plan financial report, the employer should present both schedules for each plan included in the employer's report for all years required by this Statement. (14)

The Parameters

33. For financial reporting purposes, an actuarial valuation should be performed in accordance with this paragraph and paragraph 34 at the following minimum frequency:

a. For plans with a total membership of 200 or more--at least biennially

b. For plans with a total membership of fewer than 200--at least triennially.

The actuarial valuation date need not be the plan's reporting date, but generally should be the same date each year (or other applicable interval). However, a new valuation should be performed if, since the previous valuation, significant changes have occurred that affect the results of the valuation, including significant changes in benefit provisions, the size or composition of the population covered by the plan, or other factors that impact long-term assumptions. All actuarially determined information reported for the current year in the schedule of funding progress should be based on the results of the most recent actuarial valuation, performed in accordance with the parameters as of a date not more than two years before the plan's reporting date for that year, if valuations are biennial, and not more than three years before the plan's reporting date for that year, if valuations are triennial.

34. For financial reporting purposes, all actuarially determined OPEB information should be calculated in accordance with this paragraph, consistently applied. The actuarial methods and assumptions applied for financial reporting should be the same methods and assumptions applied in determining the plan's funding requirements, unless compliance with this paragraph requires the use of different methods or assumptions. A plan and its participating employer(s) should apply the same actuarial methods and assumptions in determining similar or related information included in their respective financial reports. (15)

a. Benefits to be included:

(1) The actuarial present value of total projected benefits should include all benefits to be provided by the plan to plan members or beneficiaries in accordance with the current substantive plan (the plan terms as understood by the employer and plan members) at the time of each valuation, including any changes to plan terms that have been made and communicated to employees. Usually, the written plan is the best evidence of the terms of the exchange; however, in some cases the substantive plan may differ from the written plan. Accordingly, other information also should be taken into consideration in determining the benefits to be provided, including other communications between the employer and employees and all established pattern of practice with regard to the sharing of benefit costs between the employer and plan members. Calculations should be made based on the benefits in force at the time of the valuation and the pattern of sharing of benefit costs to that point.

(2) When benefits are provided to both active employees and retirees through the same plan, the benefits to retirees should be segregated for actuarial measurement purposes, and the projection of future retiree benefits should be based on claims costs, or age adjusted premiums approximating claims costs, for retirees, in accordance with actuarial standards issued by the Actuarial Standards Board. (16) However, when benefits are provided through a community-rated plan, in which premium rates reflect the projected health claims experience of all participating employers, rather than that of any single participating employer, and the insurer or provider organization charges the same unadjusted premiums for both active employees and retirees, it is appropriate to use the unadjusted premiums as the basis for projection of retiree benefit, to the extent permitted by actuarial standards. (17)

(3) A legal or contractual cap on the employer's share of the benefits to be provided to retirees and beneficiaries each period should be considered in projecting benefits to he provided by the employer(s) in future periods, if the cap is assumed to be effective taking into consideration the employer's record of enforcing the cap in the past and other relevant factors and circumstances.

(4) Benefits to be provided by means of allocated insurance contracts for which payments to an insurance company (a) have been made and (b) have irrevocably transferred to the insurer the responsibility for providing the benefits, should be excluded (and allocated insurance contracts should be excluded from plan assets).

b. Actuarial assumptions--The selection of all actuarial assumptions, including the health care cost trend rate in valuations of postemployment healthcare plans, should be guided by actuarial standards. Accordingly, actuarial assumptions should be based on the actual experience of the covered group, to the extent that credible experience data are available, but should emphasize expected long-term future trends rather than give undue weight to recent past experience. The reasonableness of each actuarial assumption should be considered independently based on its own merits, its consistency with each other assumption, and the combined impact of all assumptions.

c. Economic assumptions--In addition to complying with the guidance in subparagraph b of this paragraph, the investment return assumption (discount rate) should be the estimated long-term investment yield on the investments that are expected to be used to finance the payment of benefits, with consideration given to the nature and mix of current and expected investments and the basis used to determine the actuarial value of assets (subparagraph e). For this purpose, the investments expected to be used to finance the payment of benefits are (1) plan assets for plans for which the employer's funding policy is to contribute consistently an amount at least equal to the ARC, (2) assets of the employer for plans that have no plan assets, or (3) a combination of the two for plans that are being partially funded. The discount rate for a partially funded plan should be a blended rate that reflects the proportionate amounts of plan and employer assets expected to be used. The investment return assumption and other economic assumptions should include the same assumption with respect to inflation.

d. Actuarial cost method--One of die following actuarial cost methods should he used: entry age, frozen entry age, attained age, frozen attained age, projected unit credit, (18) or aggregate, as described in paragraph 47, Section B. A plan that uses the aggregate actuarial cost method should prepare a schedule of funding progress following the requirements of paragraph 35 using the entry age actuarial cost method for that purpose and should follow the related disclosure requirement of that paragraph.

e. Actuarial value of assets--Plan assets should be valued using methods and techniques that are consistent with the class and anticipated holding period of the assets, the investment return assumption, other assumptions used in determining the actuarial present value of total projected benefits, and current actuarial standards for asset valuation. (19) Accordingly, the actuarial value of plan assets generally should be market related.

f. Annual required contributions of the employer (ARC)--The ARC should be actuarially determined in accordance with the parameters. The amount should include the employer's normal cost and a provision(s) for amortizing the total unfunded actuarial accrued liability (unfunded actuarial liability), in accordance with the following requirements: (20)

(1) Maximum amortization period--The maximum acceptable amortization period for the total unfunded actuarial liability is thirty years. The total unfunded actuarial liability may be amortized as one amount, or components of the total may be separately amortized. When components are amortized over different periods, the individual amortization periods should be selected so that the equivalent single amortization period for all components combined does not exceed the maximum acceptable period.

(2) Equivalent single amortization period--The equivalent single amortization period is the number of years incorporated in a weighted average amortization factor for all components of the total UAL combined and should be calculated as follows:

(a) Determine the amortization factor for each component of the total UAL using its associated amortization period and the discount rate selected in accordance with sub paragraphs b and c of this paragraph.

(b) Calculate next year's amortization payment for each of the components by dividing each component by its associated amortization factor.

(c) Calculate the weighted average amortization factor by dividing the total UAL by the sum of next year's individual amortization payments.

(d) Calculate the equivalent single amortization period as the number of years incorporated in the weighted average amortization factor (from c) at the discount rate used in subparagraph f(2)(a) of this paragraph.

(3) Minimum amortization period--A significant decrease in the total unfunded actuarial liability generated by a change from one of the actuarial cost methods specified in subparagraph d of this paragraph to another of those methods, or by a change in the method(s) used to determine the actuarial value of assets (for example, a change from a method that spreads increases or decreases in market value over five years to a method that uses current market value), should be amortized over a period of not less than ten years. The minimum amortization period is not required when a plan is closed to new entrants and all or almost all of the plan members have retired.

(4) Amortization method--The provision(s) for amortizing the total unfunded actuarial liability may be determined in level dollar amounts or as a level percentage of the projected payroll of active plan members, if the level percentage of projected payroll method is used, the assumed payroll growth rate should not include an assumed increase in the number of active plan members; however, projected de creases in that number should be included if no new members are permitted to enter the plan (for example, a plan that covers only employees hired before a certain date).

g. Contribution deficiencies or excess contributions of the employer--A contribution deficiency or excess contribution is the difference between the ARC for a given year and the employer's contributions in relation to the ARC. For the purposes of this Statement, an employer has made a contribution in relation to the ARC if the employer has (1) made payments of benefits directly to or on behalf of a retiree or beneficiary, (2) made premium payments to an insurer, or (3) irrevocably transferred assets to a trust, or an equivalent arrangement, in which plan assets are dedicated to providing benefits to retirees and their beneficiaries in accordance with the terms of the plan and are legally protected from creditors of the employer(s) or plan administrator. Earmarking of employer assets or other means of financing that do not meet the conditions in the preceding sentence do not constitute contributions in relation to the ARC, and the assets earmarked or otherwise accumulated should be considered employer assets for the purposes of this Statement. Amortization of a contribution deficiency or excess contribution should begin at the next actuarial valuation, unless settlement is expected not more than one year after the deficiency or excess occurred. If settlement has not occurred by the end of that term, amortization should begin at the next actuarial valuation.

Schedule of Funding Progress

35. The schedule of funding progress should present information about the funding progress of each plan for the most recent valuation and the two preceding valuations, including, for each valuation, each of the elements of information listed in paragraph 30d(1). All actuarially determined information reported should be calculated in accordance with the parameters and should be presented as of the actuarial valuation date. (21) Plans that use the aggregate actuarial cost method should prepare the information using the entry age actuarial cost method and should disclose that fact and that the purpose of this disclosure is to provide information that approximates the funding progress of the plan.

Schedule of Employer Contributions

36. The schedule of employer contributions should present the following information for the most recent valuation and the two preceding valuations, at a minimum: (a) the dollar amount of the ARC applicable to that year, calculated in accordance with paragraph 34f, and (b) the percentage of that ARC that was recognized in the plan's statement of changes in plan net assets for that year as contributions from the employer(s), in accordance with paragraphs 26 and 27. (22) When the plan's funding policy includes contributions from sources other than the plan members and fire employer(s) (for example, contributions from a state government to a local government plan), the required contributions of those other contributing entities and the percentage recognized as made should be included in the schedule of employer contributions. The schedule should he titled schedule of contributions from the employer(s) and other contributing entities.

Notes to the Required Schedules

37. The schedules of RSI should be accompanied by disclosure of factors that significantly affect the identification of trends in the amounts reported in the required schedules, including, for example, changes in benefit provisions, the size or composition of the population covered by the plan, or the actuarial methods and assumptions used. (The amounts reported for prior years should not be restated.)

Alternative Measurement Method for Plans with Fewer Than One Hundred Plan Members

38. The parameters of paragraphs 33 and 34 concerning the measurement of actuarially determined OPEB information, including the requirements of paragraph 33 regarding the minimum frequency of actuarial valuations and the requirement of paragraph 34b that the selection of actuarial assumptions should be guided by actuarial standards, generally are applicable to all defined benefit plans. However, defined benefit plans with fewer than one hundred plan members may elect to apply certain simplifying modifications for the selection of actuarial assumptions, as stated in paragraph 39.

39. Plans that meet the eligibility, test in paragraph 38 may elect either to apply the parameters of paragraphs 33 and 34 in their entirety or to apply the parameters with one or more of the following specific modifications. Plans that apply these modifications should disclose that they have used the alternative measurement method permitted by this Statement and should disclose in the notes to the financial statements the source or basis of all significant assumptions or methods selected in accordance with this paragraph, in addition to all other disclosure requirements of this Statement.

a. General considerations--The projection of benefits should include assumptions regarding all significant factors affecting the amount and timing of projected future benefit payments, including, where applicable, the factors listed below. Additional assumptions may be needed de pending upon the benefits being provided. Assumptions generally should be based on the actual experience of the covered group, to the extent that credible experience data are available, but should emphasize expected long-term future trends rather than give undue weight to recent past experience. However, grouping techniques that base the selection of assumptions on combined experience data for similar plans may be used, as discussed in subparagraph i of this paragraph. The reasonableness of each assumption should be considered independently based on its own merits and its consistency with each other assumption. For example, each assumption of which general inflation is a component should include the same assumption with regard to that component. In addition, consideration should be given to the reasonableness of the combined impact of all assumptions.

b. Expected point in time at which benefits will begin to be provided--The assumption should reflect past experience and future expectations for the covered group. The assumption may incorporate a single assumed retirement age for all active employees or an assumption that all active employees will retire upon attaining a certain number of years of service.

c. Marital and dependency status--The plan may base these assumptions on the current status of active and retired plan members or historical demographic data for retirees in the covered group.

d. Mortality--The plan should base this assumption on current published mortality tables.

e. Turnover--The plan generally should base both the assumed probability that art active plan member will remain employed until the assumed retirement age and the expected future working lifetime of plan members, for purposes of allocating the present value of expected benefits to periods, on the historical age-based turnover experience of the covered group using the calculation method in paragraph 40a. However, if experience data are not available, the plan should assign the probability of remaining employed until the assumed retirement age using Table 1 in paragraph 40b, and should determine the expected future working lifetime of plan members using the calculation table in Table 2 of paragraph 40c.

f. Healthcare cost trend rate--The plan should derive select and ultimate assumptions about healthcare cost trends in future years tier which benefits are projected from an objective source.

g. Use of health insurance premiums--A plan that provides benefits through premium payments to an insurer or other service provider may use the plan's current premium structure as the initial per capita healthcare rates for the purpose of projecting future healthcare benefit payments. However, if the same premium rates are given for both active employees and retirees, and the plan is not a community rated plan, as discussed in paragraph 34a(2), the employer should (1) obtain from the insurer age-adjusted premium rates for retirees or, if that information cannot be obtained from the insurer, (2) estimate age-adjusted premiums for retirees using the method provided in Tables 3 through 5 of paragraph 40d, as appropriate.

h. Plans with coverage options--When at postemployment benefit plan provides plan members more than one coverage option, the plan should base assumptions regarding members' coverage choices on the experience of the covered group, considering differences, if any, in the choices of pre- and post-Medicare-eligible members.

i. Use of grouping--Plans may use grouping techniques. One such technique is to group participants based on common demographic characteristics (for example, participants within a range of ages or years of service), where the obligation for each participant in the group is expected to be similar for commonly grouped individuals. Another technique is to group plans with similar expected costs and benefits.

40. This paragraph includes calculation methods and default values for use with the alternative measurement method in determining (a) the probability that active plan members will remain employed until retirement age, (b) the expected future working lifetime of plan members, and (c) age-adjusted premiums for retirees in certain situations.

a. Plans that use historical age-based turnover experience of the covered group when applying the alternative measurement method, as discussed in paragraph 39e, should use the following methodology [right] to calculate the probability of remaining employed until retirement age and the expected future working lifetime of plan members:

                                  Probabi-      Probabi-
                                  lity of       lity of      Expected
                                 Remaining     Remaining      future
                     Proba-       Employed      Employed     Working
        Proba-       bility        from         from Age     Lifetime
       bility of    Remaining     Earliest       Shown         for
      Termination   Employed     Entry Age     to Assumed    Assumed
        in Next     for Next    to Beginning   Retirement   Retirement
         Year         Year        of Year         Age          Age
Age       (a)          (b)          (c)           (d)          (e)

Column a: For each age (n) from the earliest entry age to assumed
retirement age, list the age-based probabilities of termination in
the next year for the covered group.

Column b: Compute the probability at each age of remaining employed
for the next year. This value should be calculated as 1 - a.

Column c: Set the initial value in column c to equal 1.000. For each
subsequent age (n), column c values should be calculated as:
[c.sub.(n - 1)] x [b.sub.(n - 1)].

Column d: For each age (n), these values should be calculated as
the product of the values in column b from age n to the year prior
to the assumed retirement age.

Column e: These values should be calculated as the sum of c from
age (n) to the year prior to the assumed retirement age, divided
by the value of c at age (n). At the assumed retirement age, this
value should be set to 0.

b. Plans that are not using historical age-based turnover experience of the covered group when applying the alternative measurement method, as discussed in paragraph 39e, should use the following table [Table 1, below] to determine the probability of remaining employed until the assumed retirement age:

c. Plans that are not using historical age based turnover experience of the covered group when applying the alternative measurement method, as discussed in paragraph 39e, should use [table 2, above] to determine the expected future working lifetime of plan members:

d. When the same premiums are charged to active employees and retirees, and the employer or plan sponsor is unable to obtain age-adjusted premium information for retirees from the insurer or service provider, the following approach should be used to age adjust premiums for purposes of projecting future benefits for retirees:

(1) To adjust premiums for ages under 65:

(a) Identify the premium charged for active and retired plan members under age 65.

(b) Calculate the average age of plan members (actives and retirees or beneficiaries) to which the premium identified in step a applies.

(c) For each active plan member, and each retired member or beneficiary under age 65, identify the greater of expected retirement age or current age.

(d) Calculate the average of the ages identified in step c.

(e) Calculate the midpoint age between the result of step d and age 65: result of step d + (0.5 x [65 - result of step d]).

(f) Using the results of steps b and c, locate the appropriate factor in Table 3 [page 114]. The factor also can be calculated directly as [1.04.sup.(result of step e - result of step b)]

(g) Multiply the factor identified in step f by the premium identified in step a. The result is the current-year age-adjusted premium that should be used as the basis for projecting future benefits for ages under age 65.

(2) To adjust premiums for ages 65 or older: (27)

(a) Identify the premium charged for active and retired plan members age 65 or older.

(b) Calculate the average age of plan members (actives and retirees or beneficiaries) to which the premium identified in step a applies.

(c) For each active plan member, and each retired member or beneficiary (whether age pre-65 or age 65 or older), identify the greater of current age or age 65.

(d) Calculate the average of the ages identified in step c.

(e) Calculate the average life expectancy of all plan members (actives and retirees or beneficiaries).

(f) Calculate the midpoint age between the result of step d and the result of step e: result of step d + (0.5 x [result of step e - result of step d]).

(g) Using the results of steps b and f, locate the appropriate factor in Table 4 (for plans with no Medicare coordination) or Table 5 (for plans with Medicare coordination). The factor in Table 4 also can be calculated directly as 1.04(64 - result of step b) x 1.03(result of step f - 64). The factor in Table 5 also can be calculated directly as 0.5 x [1.04.sup.(64 - result of step b)] x [1.03.sup.(result of step f - 64)]. [Tables 4 and 5 can be found on pages 116 and 117.]

(h) Multiply the factor identified in step g by the premium identified in step a. The result is the current-year age-adjusted premium that should be used as the basis for projecting future benefits for ages 65 or older.

OPEB Plans That Are Not Administered as Trusts (or Equivalent Arrangements)

41. If the fund used to accumulate assets and pay benefits in a multiple-employer OPEB plan does not meet the criteria in paragraph 4, the plan administrator or sponsor should:

a. Report the fund as an agency fund. Assets and liabilities should be accounted for in accordance with the requirements of paragraphs 18 through 24. Any assets accumulated in excess of liabilities to pay premiums or benefits, or for investment or administrative expenses, should be offset by liabilities to participating employers; no plan net assets should be reported.

b. Apply the disclosure requirements of paragraphs 30a (plan description), (28) 30b (summary of significant accounting policies), and 30c(1) through (4) (contributions). However, when a plank financial statements are presented in both an employer's report and a publicly available stand-alone plan financial report that complies with this Statement, the employer may limit its plan disclosures to those required by paragraphs 30a(1), 30b, and 30c(4), provided that the employer discloses information about how to obtain the stand-alone plan financial report.

c. Disclose that each participating employer is required by the related Statement to disclose additional information with regard to funding policy, the employer's annual OPEB cost and contributions made, the funded status and funding progress of the employer's individual plan, and actuarial methods and assumptions used.

Defined Contribution Plans

42. Defined contribution plans that provide OPEB should apply the reporting requirements for fiduciary funds generally, including other employee benefit trust funds, and for component units that are fiduciary in nature set forth in paragraphs 69 through 73 and 106 through 111 of Statement 34, as amended by this Statement, (29) and the note disclosure requirements set forth in paragraph 41 of Statement 25.

EFFECTIVE DATE AND TRANSITION

43. The requirements of this Statement for OPEB plan reporting are effective one year prior to the effective date of the related Statement for the employer (single-employer plan) or for the largest participating employer in the plan (multiple-employer plan). The requirements of the related Statement are effective in three phases based on a government's implementation phase for the purpose of Statement 34. Plans in which the sole or largest participating employer was a phase 1 government for the purpose of implementation of Statement 34 should apply the requirements of this Statement in financial statements for periods beginning after December 15, 2005. Plans in which the sole or largest participating employer was a phase 2 government for the purpose of implementation of Statement 34 should apply the requirements of this Statement in financial statements for periods beginning after December 15, 2006. Plans in which the sole or largest participating employer was a phase 3, government for the purpose of implementation of Statement 34 should apply the requirements of this Statement in financial statements for periods beginning after December 15, 2007. If comparative financial statements are presented, restatement of the prior year financial statements is required. Early implementation of this Statement is encouraged.

44. In the fiscal year in which this Statement is first implemented (transition year), all actuarially determined information reported for the current year in the schedule of funding progress should be based on the results of an actuarial valuation, performed in accordance with the parameters, as of a date not more than two years prior to the plan's reporting date (three years if the plan had fewer than 200 members at the time of valuation).

45. In the transition year and until three actuarial valuations have been performed in accordance with the parameters, the required schedules of funding progress and employer contributions should include information for as many valuations as are available. The schedules should not include information that does not meet the parameters. (30)

This Statement was issued by unanimous vote of the seven members of the Governmental Accounting Standards Board:

Tom L. Alien, Chairman Cynthia B. Green William W. Holder Edward J. Mazur Paul R. Reilly Richard C. Tracy James M. Williams

GLOSSARY

46. This paragraph contains definitions of certain terms as they are used in this Statement; the terms may have different meanings in other contexts. Terms defined in paragraph 47, "Actuarial Terminology," are cross-referenced to that paragraph.

Actuarial accrued liability. See paragraph 47, A-4.

Actuarial assumptions. See paragraph 47, C-2.

Actuarial cost method. See paragraph 47, A-2.

Actuarial experience gain and loss. See paragraph 47, A-8.

Actuarial present value of total projected benefits. Total projected benefits include all benefits estimated to be payable to plan members (retirees and beneficiaries, terminated employees entitled to benefits but not yet receiving them, and current active members) as a result of their service through the valuation date and their expected future service. The actuarial present value of total projected benefits as of the valuation date is the present value of the cost to finance benefits payable in the future, discounted to reflect the expected effects of the time value (present value) of money and the probabilities of payment. Expressed another way, it is the amount that would have to be invested on the valuation date so that the amount invested plus investment earnings will provide sufficient assets to pay total projected benefits when due.

Actuarial valuation. See paragraph 47, C-3.

Actuarial valuation date. The date as of which an actuarial valuation is performed.

Actuarial value of assets. See paragraph 47, A-5.

Ad hoc postretirement benefit increase. See Postretirement benefit increase.

Agent multiple-employer plan (agent plan). An aggregation of single-employer plans, with pooled administrative and investment functions. Separate accounts are maintained for each employer so that the employer's contributions provide benefits only for the employees of that employer. A separate actuarial valuation is performed for each individual employer's plan to determine the employer's periodic contribution rate and other information for the individual plan, based on the benefit formula selected by the employer and the individual plan's proportionate share of the pooled assets. The results of the individual valuations are aggregated at the administrative level.

Aggregate actuarial cost method. See paragraph 47, B-4.

Allocated insurance contract. A contract with an insurance company under which related payments to the insurance company are currently used to purchase an immediate or deferred benefit for individual members.

Amortization (of unfunded actuarial accrued liability). See paragraph 47, C-5.

Annual OPEB cost. An accrual-basis measure of the periodic cost of an employer's participation in a defined benefit OPEB plan.

Annual required contributions of the employer(s) (ARC). The employer's periodic required contributions to a defined benefit OPEB plan, calculated in accordance with the parameters.

Attained age actuarial cost method. See paragraph 47, B-3.

Automatic postretirement benefit increase. See Postretirement benefit increase.

Closed amortization period (closed basis). A specific number of years that is counted from one date and, therefore, declines to zero with the passage of time. For example, if the amortization period initially is thirty years on a closed basis, twenty-nine years remain after the first year, twenty-eight years after the second year, and so forth. In contrast, an open amortization period (open basis) is one that begins again or is recalculated at each actuarial valuation date. Within a maximum number of years specified by law or policy (for example, thirty years), the period may increase, decrease, or remain stable.

Contract value. The value of an unallocated contract that is determined by the insurance company in accordance with the terms of the contract.

Contribution deficiencies (excess contributions). The difference between the annual required contributions of the employer(s) (ARC) and the employer's actual contributions in relation to the ARC.

Cost-sharing multiple-employer plan. A single plan with pooling (cost-sharing) arrangements for the participating employers. All risks, rewards, and costs, including benefit costs, are shared and are not attributed individually to the employers. A single actuarial valuation covers all plan members, and the same contribution rate(s) applies for each employer.

Covered group. Plan members included in an actuarial valuation.

Covered payroll. Annual compensation paid to active employees covered by an OPEB plan. If employees also are covered by a pension plan, the covered payroll should include all elements included in compensation on which contributions to the pension plan are based. For example, if pension contributions are calculated on base pay including overtime, covered payroll includes overtime compensation.

Defined benefit OPEB plan. An OPEB plan having terms that specify the amount of benefits to be provided at or after separation from employment. The benefits may be specified in dollars (for example, a flat dollar payment or an amount based on one or more factors such as age, years of service, and compensation), or as a type or level of coverage (for example, prescription drugs or a percentage of healthcare insurance premiums).

Defined benefit pension plan. A pension plan having terms that specify the amount of pension benefits to be provided at a future date or after a certain period of time. The amount specified usually is a function of one or more factors such as age, years of service, and compensation.

Defined contribution plan. A pension or OPEB plan having terms that (a) provide an individual account for each plan member and (b) specify how contributions to an active plan member's account are to be determined, rather than the income or other benefits the member or his or her beneficiaries are to receive at or after separation from employment. Those benefits will depend only on the amounts contributed to the member's account, earnings on investments of those contributions, and forfeitures of contributions made for other members that may be allocated to the member's account. For example, an employer may contribute a specified amount to each active member's postemployment healthcare account each month. At or after separation from employment, the balance of the account may be used by the member or on the member's behalf for the purchase of health insurance or other healthcare benefits.

Employer's contributions. Contributions made in relation to the annual required contributions of the employer (ARC). An employer has made a contribution in relation to the ARC if the employer has (a) made payments of benefits directly to or on behalf of a retiree or beneficiary, (b) made premium payments to an insurer, or (c) irrevocably transferred assets to a trust, or an equivalent arrangement, in which plan assets are dedicated to providing benefits to retirees and their beneficiaries in accordance with the terms of the plan and are legally protected front creditors of the employer(s) or plan administrator.

Entry age actuarial cost method. See paragraph 47, B-2.

Equivalent single amortization period. The weighted average of all amortization periods used when components of the total unfunded actuarial accrued liability are separately amortized and the average is calculated in accordance with the parameters.

Excess contributions (contribution deficiencies). See Contribution deficiencies (excess contributions).

Fair value. The amount that a plan can reasonably expect to receive for an investment in a current sale between a willing buyer and a willing seller--that is, other than in a forced or liquidation sale.

Frozen attained age actuarial cost method. See paragraph 47, B-6.

Frozen entry age actuarial cost method. See paragraph 47, B-5.

Funded ratio. The actuarial value of assets expressed as a percentage of the actuarial accrued liability.

Funding excess. The excess of the actuarial value of assets over the actuarial accrued liability. See also paragraph 47, A-6.

Funding policy. The program for the amounts and timing of contributions to be made by plan members, employer(s), and other contributing entities (for example, state government contributions to a local government plan) to provide the benefits specified by an OPEB plan.

Healthcare cost trend rate. The rate of change in per capita health claims costs over time as a result of factors such as medical inflation, utilization of healthcare services, plan design, and technological developments.

Insurance contract. See Allocated insurance contract and Unallocated insurance contract.

Investment return assumption (discount rate). The rate used to adjust a series of future payments to reflect the time value of money.

Level dollar amortization method. The amount to be amortized is divided into equal dollar amounts to be paid over a given number of years; part of each payment is interest and part is principal (similar to a mortgage payment on a building). Because payroll can be expected to increase as a result of inflation, level dollar payments generally represent a decreasing percentage of payroll; in dollars adjusted for inflation, the payments can be expected to decrease over time.

Level percentage of projected payroll amortization method. Amortization payments are calculated so that they are a constant percentage of the projected payroll of active plan members over a given number of years. The dollar amount of the payments generally will increase over time as payroll increases due to inflation; in dollars adjusted for inflation, the payments can be expected to remain level.

Market-related value of plan assets. A term used with reference to the actuarial value of assets. A market-related value may be fair value, market value (or estimated market value), or a calculated value that recognizes changes in fair value or market value over a period of, for example, three to five years.

Normal cost. See paragraph 47, A-3. In this Statement, the term refers to employer normal cost.

Open amortization period (open basis). See Closed amortization period (closed basis).

Other postemployment benefits. Postemployment benefits other than pension benefits. Other postemployment benefits (OPEB) include postemployment healthcare benefits, regardless of the type of plan that provides them, and all postemployment benefits provided separately from a pension plan, excluding benefits defined as termination offers and benefits.

Parameters. The set of requirements for calculating actuarially determined OPEB information included in financial reports.

Pay-as-you-go. See paragraph 47, C-8.

Payroll growth rate. An actuarial assumption with respect to future increases in total covered payroll attributable to inflation; used in applying the level percentage of projected payroll amortization method.

Pension benefits. Retirement income and all other benefits, including disability benefits, death benefits, life insurance, and other ancillary benefits, except healthcare benefits, that are provided through a defined benefit pension plan to plan members and beneficiaries after termination of employment or after retirement. Postemployment healthcare benefits are considered other postemployment benefits, whether they are provided through a defined benefit pension plan or another type of plan.

Plan assets. Resources, usually in the form of stocks, bonds, and other classes of investments, that have been segregated and restricted in a trust, or in an equivalent arrangement, in which (a) employer contributions to the plan are irrevocable, (b) assets are dedicated to providing benefits to retirees and their beneficiaries, and (c) assets are legally protected from creditors of the employer(s) or plan administrator, for the payment of benefits in accordance with the terms of the plan.

Plan liabilities. Obligations payable by the plan at the reporting date, including, primarily, benefits and refunds due and payable to plan members and beneficiaries, and accrued investment and administrative expenses. Plan liabilities do not include actuarial accrued liabilities for benefits that are not due and payable at the reporting date.

Plan members. The individuals covered by the terms of an OPEB plan. The plan membership generally includes employees in active service, terminated employees who have accumulated benefits but are not yet receiving them, and retired employees and beneficiaries currently receiving benefits.

Plan net assets and Plan net assets held in trust for OPEB. The difference between total plan assets and total plan liabilities at the reporting date.

Postemployment. The period between termination of employment and retirement as well as the period after retirement.

Postemployment healthcare benefits. Medical, dental, vision, and other health-related benefits provided to terminated or retired employees and their dependents and beneficiaries.

Postretirement benefit increase. An increase in the benefits of retirees or beneficiaries granted to compensate for the effects of inflation (cost-of-living adjustment) or for other reasons. Ad hoc increases may be granted periodically by a decision of the board of trustees, legislature, or other authoritative body; both the decision to grant an increase and the amount of the increase are discretionary. Automatic increases are periodic increases specified in the terms of the plan; they are nondiscretionary except to the extent that the plan terms can be changed.

Projected salary increase assumption. An actuarial assumption with respect to future in creases in the individual salaries and wages of active plan members; used in determining the actuarial present value of total projected benefits when the benefit amounts are related to salaries and wages. The expected increases commonly include amounts for rotation, enhanced productivity, and employee merit and seniority.

Projected unit credit actuarial cost method. See paragraph 47, B-1.

Public employee retirement system (PERS). A state or local governmental entity entrusted with administering one or more pension plans. A PERS also may administer other types of employee benefit plans, including postemployment healthcare plans and deferred compensation plans. A PERS also may be an employer that provides or participates in a pension plan or other types of employee benefit plans for employees of the system.

Reporting date. The date of the financial statements; the last day of the fiscal year.

Required supplementary information (RSI). Schedules, statistical data, and other information that are an essential part of financial reporting and should be presented with, but are not part of, the basic financial statements of a governmental entity.

Select and ultimate rates. Actuarial assumptions that contemplate different rates for successive years. Instead of a single assumed rate with respect to, for example, the investment return assumption, the actuary may apply different rates for the early years of a projection and a single rate for all subsequent years. For example, if an actuary applies an assumed investment return of 8 percent for year 20W0, 7.5 percent for 20W1, and 7 percent for 20W2 and thereafter, then 8 percent and 7.5 percent are select rates, and 7 percent is the ultimate rate.

Single-employer plan. A plan that covers the current and former employees, including beneficiaries, of only one employer.

Special termination benefits. Benefits offered by an employer for a short period of time as an inducement to employees to hasten the termination of services. For example, to reduce payroll and related costs, an employer might offer enhanced pension benefits or OPEB to employees as an inducement to take early termination, for employees who accept the offer within a sixty-day window of opportunity.

Sponsor. The entity that established the plan. The sponsor generally is the employer or one of the employers that participate in the plan to provide benefits for their employees. Sometimes, however, the sponsor establishes the plan for the employees of other entities but does not include its own employees and, therefore, is not a participating employer of that plan. An example is a state government that establishes a plan for the employees of local governments within the state, but the employees of the state government are covered by a different plan.

Stand-alone plan financial report. A report that contains the financial statements of a plan and is issued by the plan or by the public employee retirement system that administers the plan. The term stand-alone is used to distinguish such a financial report from plan financial statements that are included in the financial report of the plan sponsor or employer (pension or other employee benefit trust fund).

Substantive plan. The terms of an OPEB plan as understood by the employer(s) and plan members.

Termination offers and benefits. Inducements offered by employers to employees to hasten the termination of services, or payments made in consequence of the early termination of services. Termination offers and benefits include special termination benefits, early-retirement incentive programs, and other termination related benefits.

Transition year. The fiscal year in which this Statement is first implemented.

Ultimate rate. See Select and ultimate rates.

Unallocated insurance contract. A contract with an insurance company under which payments to the insurance company are accumulated in an unallocated pool or pooled account (not allocated to specific members) to be used either directly or through the purchase of annuities to meet benefit payments when employees retire. Moneys held by the insurance company under an unallocated contract may be with drawn and otherwise invested.

Unfunded actuarial accrued liability (unfunded actuarial liability). See paragraph 47, A-6.

Unprojected unit credit actuarial cost method. See paragraph 47, B-1.

Year-based assumptions. See Select and ultimate rates.

ACTUARIAL TERMINOLOGY

47. This paragraph contains terms and definitions adopted by the Interim Actuarial Standards Board (now the Actuarial Standards Board) of the American Academy of Actuaries in 1988. The terms and definitions are reproduced, with permission, including the original section headings and item numbers, as published in "Appendix II: Pension Actuarial Terminology" of Actuarial Standard of Practice No. 4, Measuring Pension Obligations, approved for publication by the Actuarial Standards Board in October 1993. (31) Although specifically adopted in relation to pensions, these terms and definitions also are generally applicable to other postemployment benefits. Five items in the original (B-7, B-8, B-9, C-1, and C-6) are not included in this paragraph because they describe actuarial cost methods not included in the parameters or define terms not used in this Statement or in the related Statement. Terms with an asterisk are not used in this Statement or in the related Statement but have been included because they are used in the definitions of other terms.

Section A CORE TERMS

A-1. * Actuarial Present Value

The value of an amount or series of amounts payable or receivable at various times, determined as of a given date by the application of a particular set of Actuarial Assumptions. For purposes of this standard, each such amount or series of amounts is:

a. adjusted for the probable financial effect of certain intervening events (such as changes in compensation levels, Social Security, marital status, etc.).

b. multiplied by the probability of the occurrence of an event (such as survival, death, disability, termination of employment, etc.) on which the payment is conditioned, and

c. discounted according to an assumed rate (or rates) of return to reflect the time value of money.

A-2. Actuarial Cost Method or Funding Method

A procedure for determining the Actuarial Present Value of pension plan benefits and expenses and for developing an actuarially equivalent allocation of such value to time periods, usually in the form of a Normal Cost and an Actuarial Accrued Liability.

Note: An Actuarial Cost Method is understood to be a Closed Group Actuarial Cost Method unless otherwise stated.

A-3. Normal Cost or Normal Actuarial Cost

That portion of the Actuarial Present Value of pension plan benefits and expenses which is allocated to a valuation year by the Actuarial Cost Method.

Note 1: The presentation of Normal Cost should be accompanied by reference to the Actuarial Cost Method used.

Note 2: Any payment in respect of an Unfunded Actuarial Accrued Liability is not part of Normal Cost (see Amortization Payment).

Note 3: For pension plan benefits which are provided in part by employee contributions, Normal Cost refers to the total of employee contributions and employer Normal Cost unless otherwise specifically stated.

A-4. Actuarial Accrued Liability, Actuarial Liability, Accrued Liability, or Actuarial Reserve

That portion, as determined by a particular Actuarial Cost Method, of the Actuarial Present Value of pension plan benefits and expenses which is not provided for by future Normal Costs.

Note: The presentation of an Actuarial Accrued Liability should be accompanied by reference to the Actuarial Cost Method used; for example, by hyphenation ("Actuarial Accrued Liability--XYZ," where "XYZ" denotes the Actuarial Cost Method) or by a footnote.

A-5. Actuarial Value of Assets or Valuation Assets

The value of cash, investments and other property belonging to a pension plan, as used by the actuary for the purpose of an Actuarial Valuation.

Note: The statement of Actuarial Assumptions should set forth the particular procedures used to determine this value.

A-6. Unfunded Actuarial Accrued Liability, Unfunded Actuarial Liability, Unfunded Accrued Liability, or Unfunded Actuarial Reserve

The excess of the Actuarial Accrued Liability over the Actuarial Value of Assets.

Note: This value may be negative in which case it may be expressed as a negative Unfunded Actuarial Accrued Liability, the excess of the Actuarial Value of Assets over the Actuarial Accrued Liability, or the Funding Excess.

A-7. * Unfunded Frozen Actuarial Accrued Liability or Unfunded Frozen Actuarial Liability

An Unfunded Actuarial Accrued Liability which is not adjusted ("frozen") from one Actuarial Valuation to the next to reflect Actuarial Gains (Losses) under certain Actuarial Cost Methods. Generally, this amount is adjusted by any increments or decrements in Actuarial Accrued Liability due to changes in pension plan benefits or Actuarial Assumptions subsequent to the date it is frozen. Adjustments are made from one Actuarial Valuation to the next to reflect the addition of interest and deduction of Amortization Payments.

A-8. Actuarial Gain (Loss) or Experience Gain (Loss)

A measure of the difference between actual experience and that expected based upon a set of Actuarial Assumptions, during the period between two Actuarial Valuation dates, as determined in accordance with a particular Actuarial Cost Method.

Note 1: The effect on the Actuarial Accrued Liability and/or the Normal Cost resulting from changes in the Actuarial Assumptions, the Actuarial Cost Method or pension plan provisions should be described as such, not as an Actuarial Gain (Loss).

Note 2: The manner in which the Actuarial Gain (Loss) affects future Normal Cost and Actuarial Accrued Liability allocations depends upon the particular Actuarial Cost Method Used.

Section B ACTUARIAL COST METHODS

B-1. Unit Credit Actuarial Cost Method

A method under which the benefits (projected or unprojected) of each individual included in an Actuarial Valuation are allocated by a consistent formula to valuation years. The Actuarial Present Value of benefits allocated to a valuation year is called the Normal Cost. The Actuarial Present Value of benefits allocated to all periods prior to a valuation year is called the Actuarial Accrued Liability.

Note 1: The description of this method should state the procedures used, including:

(a) how benefits are allocated to specific rune periods;

(b) the procedures used to project benefits, if applicable; and

(c) a description of any other method used to value a portion of the pension plan's benefits.

Note 2: Under this method, the Actuarial Gains (Losses), as they occur, generally reduce (increase) the Unfunded Actuarial Accrued Liability.

B-2. Entry Age Actuarial Cost Method or Entry Age Normal Actuarial Cost Method

A method under which the Actuarial Present Value of the Projected Benefits

of each individual included in an Actuarial Valuation is allocated on a level basis over the earnings or service of the individual between entry age and assumed exit age(s). The portion of this Actuarial Present Value allocated to a valuation year is called the Normal Cost. The portion of this Actuarial Present Value not provided for at a valuation date by the Actuarial Present Value of future Normal Costs is called the Actuarial Accrued Liability.

Note 1: The description of this method should state the procedures used, including:

(a) whether the allocation is based on earnings or service;

(b) where aggregation is used in the calculation process;

(c) how entry age is established;

(d) what procedures are used when different benefit formulas apply to various periods of service; and

(e) a description of any other method used to value a portion of the pension plan's benefits.

Note 2: Under this method, the Actuarial Gains (Losses), as they occur, reduce (increase) the Unfunded Actuarial Accrued Liability.

B-3. Attained Age Actuarial Cost Method

A method under which the excess of the Actuarial Present Value of Projected Benefits over the Actuarial Accrued Liability in respect of each individual included in an Actuarial Valuation is allocated on a level basis over the earnings or service of the individual between the valuation date and assumed exit. The portion of this Actuarial Present Value which is allocated to a valuation year is called the Normal Cost. The Actuarial Accrued Liability is determined using the Unit Credit Actuarial Cost Method.

Note 1: The description of this method should state the procedures used, including:

(a) whether the allocation is based on earnings or service;

(b) where aggregation is used in the calculation process; and

(c) a description of any other method used to value a portion of the pension plan's benefits.

Note 2: Under this method, the Actuarial Gains (Losses), as they occur, reduce (increase) the Unfunded Actuarial Accrued Liability.

Note 3: The differences which regularly arise between the Normal Cost under this method and the Normal Cost under the Unit Credit Actuarial Cost Method will affect the determination of future Actuarial Gains (Losses).

B-4. Aggregate Actuarial Cost Method

A method under which the excess of the Actuarial Present Value of Projected Benefits of the group included in an Actuarial Valuation over the Actuarial Value of Assets is allocated on a level basis over the earnings or service of the group between the valuation date and assumed exit. This allocation is performed for the group as a whole, not as a stun of individual allocations. That portion of the Actuarial Present Value allocated to a valuation year is called the Normal Cost. The Actuarial Accrued Liability is equal to the Actuarial Value of Assets.

Note 1: The description of this method should state the procedures used, including:

(a) whether the allocation is based on earning's or service;

(b) how aggregation is used in the calculation process; and

(c) a description of any other method used to value a portion of the pension plan's benefits.

Note 2: Under this method, the Actuarial Gains (Losses), as they occur, reduce (increase) future Normal Costs.

B-5. Frozen Entry Age Actuarial Cost Method

A method under which the excess of the Actuarial Present Value of Projected Benefits of the group included in an Actuarial Valuation, over the sum of the Actuarial Value of Assets plus the Unfunded Frozen Actuarial Accrued Liability; is allocated on a level basis over the earnings or service of the group between the valuation date and assumed exit. This allocation is performed for the group as a whole, not as a sum of individual allocations. The Frozen Actuarial Accrued Liability is determined using the Entry Age Actuarial Cost Method. The portion of this Actuarial Present Value allocated to a valuation year is called the Normal Cost.

Note 1: The description of this method should state the procedures used, including:

(a) whether the allocation is based on earnings or service;

(b) how aggregation is used in the calculation process; and

(c) a description of any other method used to value a portion of the pension plan's benefits.

Note 2: Under this method, the Actuarial Gains (Losses), as they occur, reduce (increase) future Normal Costs.

B-6. Frozen Attained Age Actuarial Cost Method

A method under which the excess of the Actuarial Present Value of Projected Benefits of the group included in an Actuarial Valuation, over the sum of the Actuarial Value of Assets plus the Unfunded Frozen Actuarial Accrued Liability, is allocated on a level basis over the earnings or service of the group between the valuation date and assumed exit. This allocation is performed for the group as a whole, not as a sum of individual allocations. The Unfunded Frozen Actuarial Accrued Liability is determined using the Unit Credit Actuarial Cost Method. The portion of this Actuarial Present Value allocated to a valuation year is called the Normal Cost.

Note 1: The description of this method should state the procedures used, including:

(a) whether the allocation is based on earnings or service;

(b) how aggregation is used in the calculation process; and

(c) a description of any other method used to value a portion of the pension plan's benefits.

Note 2: Under this method, the Actuarial Gains (Losses), as they occur, reduce (increase) future Normal Costs.

Section C SUPPLEMENTAL GLOSSARY

C-2. Actuarial Assumptions

Assumptions as to the occurrence of future events affecting pension costs, such as: mortality, withdrawal, disablement and retirement; changes in compensation and Government provided pension benefits; rates of investment earnings and asset appreciation or depreciation; procedures used to determine the Actuarial Value of Assets; characteristics of future entrants for Open Group Actuarial Cost Methods; and other relevant items.

C-3. Actuarial Valuation

The determination, as of a valuation date, of the Normal Cost, Actuarial Accrued Liability, Actuarial Value of Assets, and related Actuarial Present Values for a pension plan.

C-4. * Actuarially Equivalent

Of equal Actuarial Present Value, determined as of a given date with each value based on the same set of Actuarial Assumptions.

C-5. Amortization Payment

That portion of the pension plan contribution which is designed to pay interest on and to amortize the Unfunded Actuarial Accrued Liability or the Unfunded Frozen Actuarial Accrued Liability.

C-7. * Open Group/ Closed Group

Terms used to distinguish between two classes of Actuarial Cost Methods. Under an Open Group Actuarial Cost Method, Actuarial Present Values associated with expected future entrants are considered; under a Closed Group Actuarial Cost Method, Actuarial Present Values associated with future entrants are not considered.

C-8. Pay-as-You-Go

A method of financing a pension plan under which the contributions to the plan are generally made at about the same time and in about the same amount as benefit payments and expenses becoming due.

C-9. * Projected Benefits

Those pension plan benefit amounts which are expected to be paid at various future times under a particular set of Actuarial Assumptions, taking into account such items as the effect of advancement in age and past and anticipated future compensation and service credits. That portion of an individual's Projected Benefit allocated to service to date, determined in accordance with the terms of a pension plan and based on future compensation as projected to retirement, is called the Credited Projected Benefit.

C-10. Terminal Funding

A method of funding a pension plan under which the entire Actuarial Present Value of benefits for each individual is contributed to the plan's fund at the dine of withdrawal, retirement or benefit commencement.

Table 1--Probability of Remaining Employed until Assumed
Retirement Age, by Age (23)--Default Values (24)

Age                         Assumed Age

      50 and over    49      48      47      46      45

20       0.296      0.300   0.304   0.309   0.314   0.319
21       0.321      0.326   0.330   0.335   0.340   0.346
22       0.349      0.354   0.359   0.364   0.370   0.376

23       0.379      0.384   0.389   0.395   0.401   0.408
24       0.410      0.416   0.421   0.428   0.434   0.441
25       0.440      0.446   0.453   0.460   0.467   0.474

26       0.472      0.478   0.485   0.493   0.500   0.508
27       0.503      0.510   0.517   0.525   0.533   0.542
28       0.534      0.541   0.549   0.558   0.566   0.575

29       0.564      0.572   0.580   0.589   0.598   0.607
30       0.593      0.602   0.610   0.620   0.629   0.639
31       0.622      0.631   0.640   0.650   0.660   0.670

32       0.650      0.659   0.669   0.679   0.689   0.700
33       0.677      0.687   0.696   0.707   0.718   0.730
34       0.703      0.713   0.723   0.734   0.745   0.758

35       0.729      0.739   0.749   0.761   0.772   0.785
36       0.753      0.764   0.775   0.787   0.799   0.812
37       0.777      0.788   0.799   0.811   0.824   0.837

38       0.799      0.811   0.822   0.835   0.847   0.861
39       0.821      0.832   0.844   0.857   0.870   0.884
40       0.841      0.853   0.865   0.878   0.891   0.906

41       0.860      0.873   0.885   0.899   0.912   0.927
42       0.879      0.891   0.904   0.918   0.932   0.947
43       0.896      0.909   0.922   0.936   0.950   0.965

44       0.912      0.925   0.938   0.953   0.967   0.983
45       0.928      0.941   0.955   0.969   0.984   1.000
46       0.943      0.957   0.970   0.985   1.000   1.000

47       0.958      0.971   0.985   1.000   1.000   1.000
48       0.972      0.986   1.000   1.000   1.000   1.000
49       0.986      1.000   1.000   1.000   1.000   1.000

50+   For ages 50+, the probability of remaining employed
      until retirement age is 1.000.

(23) Age could be the entry age or the attained (current) age
of the plan member, depending upon the calculation being made.

(24) These default probabilities were adapted from data maintained
by the U.S. Office of personnel Management regarding the experience
of the employee group covered by the Federal Employees Retirement
System.

Table 2--Expected Future Working Lifetimes of Employees,
by Age (25)--Default Values (26)

Age                   Assumed Retirement Age

      75   74   73   72   71   70   69   68   67   66   65

20    22   22   21   21   21   21   20   20   20   19   19
21    23   23   22   22   22   21   21   21   20   20   20
22    24   23   23   23   22   22   22   21   21   21   20

23    25   24   24   24   23   23   22   22   22   21   21
24    26   25   25   24   24   24   23   23   22   22   22
25    26   26   26   25   25   24   24   23   23   23   22

26    27   27   26   26   25   25   24   24   24   23   23
27    28   28   27   27   26   26   25   25   24   24   23
28    29   28   28   27   27   26   25   25   24   24   23

29    29   29   28   28   27   26   26   25   25   24   24
30    30   29   29   28   27   27   26   26   25   24   24
31    30   30   29   28   28   27   26   26   25   25   24

32    30   30   29   28   28   27   27   26   25   25   24
33    31   30   29   29   28   27   27   26   25   25   24
34    31   30   29   29   28   27   27   26   25   24   24

35    31   30   29   29   28   27   27   26   25   24   24
36    31   30   29   29   28   27   26   26   25   24   23
37    31   30   29   28   28   27   26   25   25   24   23

38    31   30   29   28   27   27   26   25   24   23   23
39    30   30   29   28   27   26   26   25   24   23   22
40    30   29   29   28   27   26   25   24   23   23   22

41    30   29   28   27   26   26   25   24   23   22   21
42    30   29   28   27   26   25   24   23   22   22   21
43    29   28   27   26   25   25   24   23   22   21   20

44    29   28   27   26   25   24   23   22   21   20   19
45    28   27   26   25   24   23   22   22   21   20   19
46    27   27   26   25   24   23   22   21   20   19   18

47    27   26   25   24   23   22   21   20   19   18   17
48    26   25   24   23   22   21   20   19   19   18   17
49    26   25   24   23   22   21   20   19   18   17   16

50+   For ages 50+, expected future working lifetime
      equals assumed retirement age minus age.

Age                Assumed Retirement Age

      64   63   62   61   60   59   58   57   56   55

20    19   19   18   18   18   17   17   17   16   16
21    19   19   19   18   18   18   17   17   17   16
22    20   20   19   19   19   18   18   17   17   17

23    21   20   20   19   19   19   18   18   18   17
24    21   21   20   20   19   19   19   18   18   17
25    22   21   21   20   20   19   19   19   18   18

26    22   22   21   21   20   20   19   19   18   18
27    23   22   21   21   20   20   19   19   18   18
28    23   22   22   21   21   20   20   19   19   18

29    23   22   22   21   21   20   20   19   19   18
30    23   23   22   21   21   20   20   19   18   18
31    23   23   22   21   21   20   20   19   18   18

32    23   23   22   21   21   20   19   19   18   17
33    23   23   22   21   21   20   19   18   18   17
34    23   22   22   21   20   20   19   18   17   17

35    23   22   21   21   20   19   18   18   17   16
36    23   22   21   20   20   19   18   17   17   16
37    22   22   21   20   19   18   18   17   16   15

38    22   21   20   19   19   18   17   16   16   15
39    21   21   20   19   18   17   17   16   15   14
40    21   20   19   18   18   17   16   15   14   13

41    20   20   19   18   17   16   15   14   14   13
42    20   19   18   17   16   15   15   14   13   12
43    19   18   17   17   16   15   14   13   12   11

44    19   18   17   16   15   14   13   12   11   10
45    18   17   16   15   14   13   12   11   10    9
46    17   16   15   14   13   12   11   11   10    9

47    16   15   14   13   13   12   11   10    9    8
48    16   15   14   13   12   11   10    9    8    7
49    15   14   13   12   11   10    9    8    7    6

50+   For ages 50+, expected future working lifetime
      equals assumed retirement age minus age.

Age                 Assumed Retirement Age

      54   53   52   51   50   49   48   47   46   45

20    16   16   15   15   15   14   14   14   13   13
21    16   16   15   15   15   15   14   14   14   13
22    16   16   16   15   15   15   14   14   14   13

23    17   16   16   16   15   15   14   14   14   13
24    17   17   16   16   15   15   15   14   14   13
25    17   17   16   16   15   15   l5   14   14   13

26    17   17   16   16   16   15   15   14   14   13
27    17   17   16   16   15   15   14   14   13   13
28    17   17   16   16   15   15   14   14   13   13

29    17   17   16   16   15   15   14   13   13   12
30    17   17   16   15   15   14   14   13   12   12
31    17   16   16   15   15   14   13   13   12   11

32    17   16   15   15   14   14   13   12   11   11
33    16   16   15   14   14   13   12   12   11   10
34    16   15   15   14   13   13   12   11   10   10

35    16   15   14   13   13   12   11   10   10    9
36    15   14   14   13   12   11   11   10    9    8
37    15   14   13   12   11   11   10    9    8    7

38    14   13   12   12   11   10    9    8    7    7
39    13   12   12   11   10    9    8    7    7    6
40    13   12   11   10    9    8    7    7    6    5

41    12   11   10    9    8    8    7    6    5    4
42    11   10    9    8    8    7    6    5    4    3
43    10    9    8    8    7    6    5    4    3    2

44     9    9    8    7    6    5    4    3    2    1
45     9    8    7    6    5    4    3    2    1    0
46     8    7    6    5    4    3    2    1    0    0

47     7    6    5    4    3    2    1    0    0    0
48     6    5    4    3    2    1    0    0    0    0
49     5    4    3    2    1    0    0    0    0    0

50+   For ages 50+, expected future working lifetime
      equals assumed retirement age minus age.

(25) See footnote 23.

(26) See footnote 24.

Table 3--Default Factors for Calculating Age-Adjusted Premiums
for Ages under 65

Average
Age of
 Plan
Members       Midpoint Age (from paragraph 40d(1)(e))

           52     53     54     55     56     57     58

  25      2.88   3.00   3.12   3.24   3.37   3.51   3.65
  26      2.77   2.88   3.00   3.12   3.24   3.37   3.51
  27      2.67   2.77   2.88   3.00   3.12   3.24   3.37

  28      2.56   2.67   2.77   2.88   3.00   3.12   3.24
  29      2.46   2.56   2.67   2.77   2.88   3.00   3.12
  30      2.37   2.46   2.56   2.67   2.77   2.88   3.00

  31      2.28   2.37   2.46   2.56   2.67   2.77   2.88
  32      2.19   2.28   2.37   2.46   2.56   2.67   2.77
  33      2.11   2.19   2.28   2.37   2.46   2.56   2.67

  34      2.03   2.11   2.19   2.28   2.37   2.46   2.56
  35      1.95   2.03   2.11   2.19   2.28   2.37   2.46
  36      1.87   1.95   2.03   2.11   2.19   2.28   2.37

  37      1.80   1.87   1.95   2.03   2.11   2.19   2.28
  38      1.73   1.80   1.87   1.95   2.03   2.11   2.19
  39      1.67   1.73   1.80   1.87   1.95   2.03   2.11

  40      1.60   1.67   1.73   1.80   1.87   1.95   2.03
  41      1.54   1.60   1.67   1.73   1.80   1.87   1.95
  42      1.48   1.54   1.60   1.67   1.73   1.80   1.87

  43      1.42   1.48   1.54   1.60   1.67   1.73   1.80
  44      1.37   1.42   1.48   1.54   1.60   1.67   1.73
  45      1.32   1.37   1.42   1.48   1.54   1.60   1.67

  46      1.27   1.32   1.37   1.42   1.48   1.54   1.60
  47      1.22   1.27   1.32   1.37   1.42   1.48   1.54
  48      1.17   1.22   1.27   1.32   1.37   1.42   1.48

  49      1.12   1.17   1.22   1.27   1.32   1.37   1.42
  50      1.08   1.12   1.17   1.22   1.27   1.32   1.37
  51      1.04   1.08   1.12   1.17   1.22   1.27   1.32

  52      1.00   1.04   1.08   1.12   1.17   1.22   1.27
  53      0.96   1.00   1.04   1.08   1.12   1.17   1.22
  54      0.92   0.96   1.00   1.04   1.08   1.12   1.17

  55      0.89   0.92   0.96   1.00   1.04   1.08   1.12
  56      0.85   0.89   0.92   0.96   1.00   1.04   1.08
  57      0.82   0.85   0.89   0.92   0.96   1.00   1.04

  58      0.79   0.82   0.85   0.89   0.92   0.96   1.00
  59      0.76   0.79   0.82   0.85   0.89   0.92   0.96
  60      0.73   0.76   0.79   0.82   0.85   0.89   0.92

Average
Age of
 Plan
Members   Midpoint Age (from paragraph 40d(1)(e))

           59     60     61     62     63     64

  25      3.79   3.95   4.10   4.27   4.44   4.62
  26      3.65   3.79   3.95   4.10   4.27   4.44
  27      3.51   3.65   3.79   3.95   4.10   4.27

  28      3.37   3.51   3.65   3.79   3.95   4.10
  29      3.24   3.37   3.51   3.65   3.79   3.95
  30      3.12   3.24   3.37   3.51   3.65   3.79

  31      3.00   3.12   3.24   3.37   3.51   3.65
  32      2.88   3.00   3.12   3.24   3.37   3.51
  33      2.77   2.88   3.00   3.12   3.24   3.37

  34      2.67   2.77   2.88   3.00   3.12   3.24
  35      2.56   2.67   2.77   2.88   3.00   3.12
  36      2.46   2.56   2.67   2.77   2.88   3.00

  37      2.37   2.46   2.56   2.67   2.77   2.88
  38      2.28   2.37   2.46   2.56   2.67   2.77
  39      2.19   2.28   2.37   2.46   2.56   2.67

  40      2.11   2.19   2.28   2.37   2.46   2.56
  41      2.03   2.11   2.19   2.28   2.37   2.46
  42      1.95   2.03   2.11   2.19   2.28   2.37

  43      1.87   1.95   2.03   2.11   2.19   2.28
  44      1.80   1.87   1.95   2.03   2.11   2.19
  45      1.73   1.80   1.87   1.95   2.03   2.11

  46      1.67   1.73   1.80   1.87   1.95   2.03
  47      1.60   1.67   1.73   1.80   1.87   1.95
  48      1.54   1.60   1.67   1.73   1.80   1.87

  49      1.48   1.54   1.60   1.67   1.73   1.80
  50      1.42   1.48   1.54   1.60   1.67   1.73
  51      1.37   1.42   1.48   1.54   1.60   1.67

  52      1.32   1.37   1.42   1.48   1.54   1.60
  53      1.27   1.32   1.37   1.42   1.48   1.54
  54      1.22   1.27   1.32   1.37   1.42   1.48

  55      1.17   1.22   1.27   1.32   1.37   1.42
  56      1.12   1.17   1.22   1.27   1.32   1.37
  57      1.08   1.12   1.17   1.22   1.27   1.32

  58      1.04   1.08   1.12   1.17   1.22   1.27
  59      1.00   1.04   1.08   1.12   1.17   1.22
  60      0.96   1.00   1.04   1.08   1.12   1.17

Table 4--Default Factors for Calculating Age-Adjusted Premiums
for Ages 65 or Older (No Medicare Coordination)

Average
Age of
 Plan
Members   Midpoint Age (from paragraph 40d(1)(f))

           65     66     67     68     69     70

  25      4.75   4.90   5.04   5.20   5.35   5.51
  26      4.57   4.71   4.85   5.00   5.15   5.30
  27      4.40   4.53   4.66   4.80   4.95   5.10

  28      4.23   4.35   4.48   4.62   4.76   4.90
  29      4.06   4.19   4.31   4.44   4.57   4.71
  30      3.91   4.03   4.15   4.27   4.40   4.53

  31      3.76   3.87   3.99   4.11   4.23   4.36
  32      3.61   3.72   3.83   3.95   4.07   4.19
  33      3.47   3.58   3.69   3.80   3.91   4.03

  34      3.34   3.44   3.54   3.65   3.76   3.87
  35      3.21   3.31   3.41   3.51   3.62   3.72
  36      3.09   3.18   3.28   3.38   3.48   3.58

  37      2.97   3.06   3.15   3.25   3.34   3.44
  38      2.86   2.94   3.03   3.12   3.21   3.31
  39      2.75   2.83   2.91   3.00   3.09   3.18

  40      2.64   2.72   2.80   2.89   2.97   3.06
  41      2.54   2.61   2.69   2.77   2.86   2.94
  42      2.44   2.51   2.59   2.67   2.75   2.83

  43      2.35   2.42   2.49   2.56   2.64   2.72
  44      2.26   2.32   2.39   2.47   2.54   2.62
  45      2.17   2.24   2.30   2.37   2.44   2.52

  46      2.09   2.15   2.21   2.28   2.35   2.42
  47      2.01   2.07   2.13   2.19   2.26   2.33
  48      1.93   1.99   2.05   2.11   2.17   2.24

  49      1.85   1.91   1.97   2.03   2.09   2.15
  50      1.78   1.84   1.89   1.95   2.01   2.07
  51      1.72   1.77   1.82   1.87   1.93   1.99

  52      1.65   1.70   1.75   1.80   1.86   1.91
  53      1.59   1.63   1.68   1.73   1.78   1.84
  54      1.52   1.57   1.62   1.67   1.72   1.77

  55      1.47   1.51   1.56   1.60   1.65   1.70
  56      1.41   1.45   1.50   1.54   1.59   1.63
  57      1.36   1.40   1.44   1.48   1.53   1.57

  58      1.30   1.34   1.38   1.42   1.47   1.51
  59      1.25   1.29   1.33   1.37   1.41   1.45
  60      1.20   1.24   1.28   1.32   1.36   1.40

Average
Age of
 Plan              Midpoint Age
Members      (from paragraph 40d(1)(f))

           71     72     73     74     75

  25      5.68   5.85   6.02   6.20   6.39
  26      5.46   5.62   5.79   5.97   6.14
  27      5.25   5.41   5.57   5.74   5.91

  28      5.05   5.20   5.35   5.52   5.68
  29      4.85   5.00   5.15   5.30   5.46
  30      4.67   4.81   4.95   5.10   5.25

  31      4.49   4.62   4.76   4.90   5.05
  32      4.31   4.44   4.58   4.71   4.86
  33      4.15   4.27   4.40   4.53   4.67

  34      3.99   4.11   4.23   4.36   4.49
  35      3.84   3.95   4.07   4.19   4.32
  36      3.69   3.80   3.91   4.03   4.15

  37      3.55   3.65   3.76   3.88   3.99
  38      3.41   3.51   3.62   3.73   3.84
  39      3.28   3.38   3.48   3.58   3.69

  40      3.15   3.25   3.34   3.44   3.55
  41      3.03   3.12   3.22   3.31   3.41
  42      2.91   3.00   3.09   3.18   3.28

  43      2.80   2.89   2.97   3.06   3.15
  44      2.69   2.78   2.86   2.94   3.03
  45      2.59   2.67   2.75   2.83   2.92

  46      2.49   2.57   2.64   2.72   2.80
  47      2.40   2.47   2.54   2.62   2.70
  48      2.30   2.37   2.44   2.52   2.59

  49      2.21   2.28   2.35   2.42   2.49
  50      2.13   2.19   2.26   2.33   2.40
  51      2.05   2.11   2.17   2.24   2.30

  52      1.97   2.03   2.09   2.15   2.22
  53      1.89   1.95   2.01   2.07   2.13
  54      1.82   1.88   1.93   1.99   2.05

  55      1.75   1.80   1.86   1.91   1.97
  56      1.68   1.73   1.79   1.84   1.89
  57      1.62   1.67   1.72   1.77   1.82

  58      1.56   1.60   1.65   1.70   1.75
  59      1.50   1.54   1.59   1.64   1.68
  60      1.44   1.48   1.53   1.57   1.62

Table 5--Default Factors for Calculating Age-Adjusted Premiums
for Ages 65 or Older (with Medicare Coordination)

Average
Age of
 Plan
Members   Midpoint Age (from paragraph 40d(2)(f))

           65     66     67     68     69     70

  25      2.38   2.45   2.52   2.60   2.68   2.76
  26      2.29   2.35   2.43   2.50   2.57   2.65
  27      2.20   2.26   2.33   2.40   2.47   2.55

  28      2.11   2.18   2.24   2.31   2.38   2.45
  29      2.03   2.09   2.16   2.22   2.29   2.36
  30      1.95   2.01   2.07   2.14   2.20   2.27

  31      1.88   1.94   1.99   2.05   2.11   2.18
  32      1.81   1.86   1.92   1.97   2.03   2.09
  33      1.74   1.79   1.84   1.90   1.96   2.01

  34      1.67   1.72   1.77   1.83   1.88   1.94
  35      1.61   1.65   1.70   1.76   1.81   1.86
  36      1.54   1.59   1.64   1.69   1.74   1.79

  37      1.48   1.53   1.58   1.62   1.67   1.72
  38      1.43   1.47   1.51   1.56   1.61   1.66
  39      1.37   1.41   1.46   1.50   1.55   1.59

  40      1.32   1.36   1.40   1.44   1.49   1.53
  41      1.27   1.31   1.35   1.39   1.43   1.47
  42      1.22   1.26   1.29   1.33   1.37   1.41

  43      1.17   1.21   1.25   1.28   1.32   1.36
  44      1.13   1.16   1.20   1.23   1.27   1.31
  45      1.09   1.12   1.15   1.19   1.22   1.26

  46      1.04   1.07   1.11   1.14   1.17   1.21
  47      1.00   1.03   1.06   1.10   1.13   1.16
  48      0.96   0.99   1.02   1.05   1.09   1.12

  49      0.93   0.96   0.98   1.01   1.04   1.08
  50      0.89   0.92   0.95   0.97   1.00   1.03
  51      0.86   0.88   0.91   0.94   0.97   0.99

  52      0.82   0.85   0.87   0.90   0.93   0.96
  53      0.79   0.82   0.84   0.87   0.89   0.92
  54      0.76   0.79   0.81   0.83   0.86   0.88

  55      0.73   0.75   0.78   0.80   0.83   0.85
  56      0.70   0.73   0.75   0.77   0.79   0.82
  57      0.68   0.70   0.72   0.74   0.76   0.79

  58      0.65   0.67   0.69   0.71   0.73   0.76
  59      0.63   0.65   0.66   0.68   0.71   0.73
  60      0.60   0.62   0.64   0.66   0.68   0.70

Average
Age of
 Plan               Midpoint Age
Members      (from paragraph 40d(2)(f))

           71     72     73     74     75

  25      2.84   2.92   3.01   3.10   3.20
  26      2.73   2.81   2.90   2.98   3.07
  27      2.62   2.70   2.78   2.87   2.95

  28      2.52   2.60   2.68   2.76   2.84
  29      2.43   2.50   2.57   2.65   2.73
  30      2.33   2.40   2.48   2.55   2.63

  31      2.24   2.31   2.38   2.45   2.53
  32      2.16   2.22   2.29   2.36   2.43
  33      2.07   2.14   2.20   2.27   2.33

  34      1.99   2.05   2.12   2.18   2.24
  35      1.92   1.98   2.03   2.10   2.16
  36      1.84   1.90   1.96   2.02   2.08

  37      1.77   1.83   1.88   1.94   2.00
  38      1.70   1.76   1.81   1.86   1.92
  39      1.64   1.69   1.74   1.79   1.85

  40      1.58   1.62   1.67   1.72   1.77
  41      1.52   1.56   1.61   1.66   1.71
  42      1.46   1.50   1.55   1.59   1.64

  43      1.40   1.44   1.49   1.53   1.58
  44      1.35   1.39   1.43   1.47   1.52
  45      1.30   1.33   1.37   1.42   1.46

  46      1.25   1.28   1.32   1.36   1.40
  47      1.20   1.23   1.27   1.31   1.35
  48      1.15   1.19   1.22   1.26   1.30

  49      1.11   1.14   1.17   1.21   1.25
  50      1.06   1.10   1.13   1.16   1.20
  51      1.02   1.05   1.09   1.12   1.15

  52      0.98   1.01   1.04   1.08   1.11
  53      0.95   0.98   1.00   1.03   1.07
  54      0.91   0.94   0.97   0.99   1.02

  55      0.88   0.91   0.93   0.96   0.99
  56      0.84   0.87   0.89   0.92   0.95
  57      0.81   0.83   0.86   0.88   0.91

  58      0.78   0.80   0.83   0.85   0.88
  59      0.75   0.77   0.79   0.82   0.84
  60      0.72   0.74   0.76   0.79   0.81

(1) Consistent with previous GASB pronouncements, the glossary and actuarial terminology presented in paragraphs 46 and 47 are authoritative elements of this Statement. Terms defined in those paragraphs ale printed in boldface type when they first appear.

(2) Throughout this Statement, the terms agent multiple-employer plan and agent plan refer to the aggregate of the individual plans of all participating employers. For agent plans, references to plan, single plan, each plan, and so forth, should be interpreted in that context.

(3) Paragraph 30c(4) requires disclosure of the terms of the contract and the outstanding balances. When a contract is recognized at its discounted present value, interest should be accrued using the effective interest method, unless use of the straight line method would not produce significantly different results.

(4) The fair value of an investment should reflect brokerage commissions and other costs normally incurred in a sale, if determinable.

(5) Paragraphs 24, 29, and 34a(4) include provisions for excluding benefits covered by allocated insurance contracts from benefit amounts reported by the plan and from the actuarially determined information required by this Statement.

(6) The net appreciation (depreciation) in the fair value of investments should include realized gains and losses on investments that were both bought and sold during the year. Realized and unrealized gains and losses should not be separately displayed in the financial statements. Plans may disclose realized gains and losses in the notes to the financial statements, provided that the amounts disclosed include all realized gains and losses for the year, computed as the difference between the proceeds of sale and the original cost of the investments sold. The disclosure also should state that (a) the calculation of realized gains and losses is independent of the calculation of net appreciation (depreciation) in the fair value of plan investments and (b) unrealized gains and losses on investments sold in the current year that had been held for more than one year were included in the net appreciation (depreciation) reported in the prior year(s) and the current year.

(7) Consistent with reporting investments at their fair value, interest income should be reported at the stated interest rate; any premiums or discounts on debt securities should not be amortized. Components (1) and (2) of net investment income may be separately displayed or may be combined and reported as one amount.

(8) Plans are not required to include in the reported amount of investment expense those investment-related costs that are not readily separable from (a) investment income (the income is reported net of related expenses) or (b) the general administrative expenses of the plan.

(9) The related Statement includes the requirements for notes to the Employer's financial statements concerning the employer's OPEB expense/expenditures.

(10) Information that should be reported about contributions from the employer(s) and from other contributing entities, if applicable, is addressed in the required supplementary information section (paragraphs 31-37) of this Statement.

(11) Paragraphs 118 and 120 of NCGA Statement 1, Governmental Accounting and Financial Reporting Principles, address the distinction between reserves and designations.

(12) Paragraph 35 requires plans to disclose the same elements of information for each of the three most recent actuarial valuations of the plan as RSI (schedule of funding progress).

(13) If a plan also elects to include in the annual financial report pro forma quantitative information about postemployment healthcare benefits (for example, pro forma calculations of the ARC, annual OPEB cost, or the funded status of the plan) recalculated to take into consideration a funding limitation, that information should be presented as supplementary information.

(14) The related Statement includes the requirements for RSI that should be presented in relation to the employer's OPEB expense/expenditures.

(15) The related Statement includes the same parameters for measuring OPEB expense/expenditures and related actuarially determined information to be disclosed by the employer(s). The related Statement also requires the employer(s) and the plan to use the same methods and assumptions when reporting similar or related OPEB information.

(16) See Actuarial Standard of Practice No, 6 (ASOP 6), Measuring Retiree Group Benefit Obligations, revised edition (Washington, DC: Actuarial Standards Board, December 2001), or its successor documents

(17) ASOP 6, as revised in December 2001, discusses the issue as follows:

   Use of Premium Rates--Although an analysis of the
   plan sponsor's actual claims experience is preferable,
   the actuary may use premium rates as the basis for initial
   per capita health care rates, with appropriate analysis
   and adjustment for the premium rate basis The actuary
   who uses premium rates for this purpose should
   adjust them for changes in benefit levels, covered population,
   or program administration. The actuary should
   consider that the actual cost of health insurance varies
   by age ..., but the premium rates paid by the plan
   sponsor may not. For example, the actuary may use a
   single unadjusted premium rate applicable to both active
   employees and non-Medicare-eligible retirees if
   the actuary has determined that the insurer would offer
   the same premium rate if only non Medicare eligible
   retirees were covered. [paragraph 3.4.5]

(18) Unprojected unit credit is acceptable for plans in which benefits already accumulated for years of service are not affected by future salary levels.

(19) See footnote 16.

(20) The total unfunded actuarial liability may be positive (actuarial accrued liability greater than the actuarial value of assets) or negative (actuarial accrued liability less than the actuarial value of assets, or funding excess). The term unfunded actuarial liability refers to either situation. Separate determination and amortization of the unfunded actuarial liability are not part of the aggregate actuarial cost method and are not required when that method is used, with regard to the computation of die ARC; however, the disclosure requirements of paragraphs 30d(1), 30d(2)(e)(iv), and 35 are applicable when that method is used.

(21) A funding excess (and related ratios) should be reported in the same manner as a positive unfunded actuarial liability. Plans with biennial or triennial valuations need not present duplicate information for the intervening years.

(22) The actuarial determination of the ARC generally is based on a projection of covered payroll for the period to which the ARC will apply. Some employers make contributions based on projected covered payroll; others contribute based on budgeted or actual covered payroll for the year. Any of those measures of covered payroll, consistently applied, is acceptable for the schedule of employer contributions. That is, comparisons between the ARC and contributions made should he based on the same measure of covered payroll, consistently applied, whether that measure is projected, budgeted, or actual covered payroll.

(27) The procedures described in paragraph 40d(2) would be applied only in cases in which retirees age 65 or older are included in a single, blended premium late assessed by the insurer or service provider. If separate premium rates are assessed for retirees age 65 or older, preparers would follow the steps in paragraph 40d(1) for age-adjusting blended premiums for under age 65 and would use the separately assessed premium rates (without additional age adjustment) for age 65 or older.

(28) The plan should be identified as an agent multiple-employer plan for financial reporting purposes. Correspondingly, the related Statement requires employers in such a plan to apply the financial reporting requirements of that Statement applicable to agent employers.

(29) Requirements for financial reporting by special-purpose governments engaged only in fiduciary activities (for example, a PERS) are discussed in paragraphs 139 through 141 of Statement 34, as amended.

(30) For some plans, it is anticipated that the actuarial methods and assumptions applied based on the funding policy before implementation of this Statement will not differ significantly from the parameters. Those plans should be able to provide information substantially in accordance with the parameters when this Statement is implemented. however retroactive application of the parameters is not required.

(31) Actuarial Standard of Practice No. 4 may be obtained from the Actuarial Standards Board, 1100 Seventeenth Street, NW, 7th Floor, Washington, DC 20036.

Unless otherwise specified, pronouncements of the GASB apply to financial reports of all state and local governmental entities, including general purpose governments; public benefit corporations and authorities; public employee retirement systems; and public utilities, hospitals and other healthcare providers, and colleges and universities. Paragraphs 4, 7, and 8 discuss the applicability of this Statement.

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