From the accrual accounting perspective, the cost of postemployment healthcare benefits, like the cost of pension benefits, generally should be associated with the periods in which the costs occurs, rather than in the future years when it will be paid. Following the requirements of GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other than Pensions (GASB Statement No. 45), the District recognizes the cost of postemployment healthcare in the year when the employee services are received by reporting the accumulated liability from the prior years, and providing useful information in assessing potential demands on the District’s future cash flows.
Plan Description
The District contributes to a single-employer defined benefit “other postemployment benefit plan” (OPEB plan) as explained below. Benefit provisions are established and may be amended by the District’s Board subject to collective bargaining agreements. Unlike the pension plan (Note 15), the OPEB plan is administered by the District and not by a trust or equivalent arrangement. The OPEB plan does not issue a stand-alone financial report.
Las Vegas Valley Water District Notes to Basic Financial Statements (Continued) Under the OPEB plan, the District pays 100% of life insurance and group health insurance premiums for
eligible retirees and 85% for their dependents until the retirees become eligible for Medicare. The District’s insurance provider (Clark County) charges the District the same premiums for retirees who are not yet eligible for Medicare as for active employees. Therefore, the retiree premium rates are subsidized by the inclusion of current employees in setting rates.
Funding Policy
Subject to collective bargaining agreements, the contribution requirements of plan members and the District are established and may be amended by the District’s Board. There are no legal or contractual maximum contribution rates. The required contribution is based on pay-as-you-go financing requirements. For fiscal year 2009, actuarial projected age-adjusted premiums totaled $780,281. Retirees receiving benefits contributed $22,675, approximately 3%, resulting in District contributions of $757,606.
The District’s annual OPEB cost (expense) is calculated based on the annual required contribution (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal costs each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. For the fiscal year ended June 30, 2009, the following table shows the components of the District’s annual OPEB cost (expense) for the year, the amount contributed to the plan, and changes in the District’s net OPEB obligation.
Annual Required Contribution (ARC) $2,842,996
Interest on net OPEB obligation 84,058
Adjustment to annual required contribution
Annual OPEB cost (expense) 2,927,054
Contributions made 757,606
Increase in net OPEB obligation 2,169,448
Net OPEB obligation, beginning of the year 1,867,960 Net OPEB obligation, end of the year $4,037,408
The District’s annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for fiscal years 2009 and 2008 are shown below. Because GASB Statement No. 45 was implemented prospectively in fiscal year 2008, only two years are reported. The schedule will ultimately present information for the three most recent years.
Percentage of Net
Fiscal Annual Annual OPEB OPEB
Year OPEB Cost Cost Contributed Obligation
2008 $ 2,505,749 25.5% $1,867,960
2009 $ 2,927,054 25.9% $4,037,408
Funded Status and Funding Progress
As of June 30, 2006, the most recent actuarial valuation date, the plan was zero percent funded. The actuarial accrued liability for benefits was $15.8 million and the actuarial value of assets was $0, resulting in an unfunded actuarial accrued liability (UAAL) of $15.8 million. The covered payroll (annual payroll of active employees covered by the plan) was $87.0 million and the ratio of the UAAL to the covered payroll was 18.1%.
Las Vegas Valley Water District Notes to Basic Financial Statements (Continued) Actuarial valuations involve estimates of the value of reported amounts and assumptions about the probability
of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare costs. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress, presented as required supplementary information (RSI) immediately following the notes to the financial statements, will present in subsequent years, as additional valuations are obtained, 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. The reference to the schedule of funding progress presented as RSI does not represent or imply incorporation of the schedule into the notes to the basic financial statements.
Actuarial Methods and Assumptions
Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations.
In the July 1, 2006, actuarial valuation, the Projected Unit Credit Cost Method was used. Under this method, the actuarial present value of projected benefits is the value of benefits expected to be paid for current employees and retirees. The economic assumptions include a 4.5% discount rate, based on the expected long- term investment return on the District’s assets and an annual healthcare cost trend of 11% initially, reduced by 1% annually to an ultimate rate of 5% after six years.
The Actuarial Accrued Liability (AAL) is the actuarial present value of benefits attributed to employee service rendered prior to the valuation date. The AAL equals the present value of benefits multiplied by a fraction equal to service to date over service at expected retirement. The Normal Cost is the actuarial present value of benefits attributed to one year of service. This equals the present value of benefits divided by service at expected retirement. Since retirees are not accruing any more service, their normal cost is zero. In determining the ARC, the Unfunded Actuarial Accrued Liability (UAAL) is amortized as a level dollar amount over 30 years on an open period. At June 30, 2009, the remaining amortization period is 30 years. Insured Benefit
GASB Statement No. 45 defines an insured benefit as an OPEB financing arrangement whereby an employer pays premiums to an insurance company, while employees are in active service, in return for which the insurance company unconditionally undertakes an obligation to pay the postemployment benefits of those employees or their beneficiaries, as defined in the employer’s plan. Insured benefits are excluded from the calculation of annual OPEB cost and the net OPEB obligation.
The District provides long-term disability benefits for totally or partially disabled employees earning less than 20% of their indexed total monthly earnings by paying premiums to an insurer while the employees are in active service for covered events that occur during the premium period. Generally, benefits are paid only to totally disabled-separated employees.
Subject to collective bargaining agreements, benefit provisions are established and may be amended by the District’s Board. The obligation to pay the benefits has been effectively transferred from the District to an insurance company. The District has not guaranteed benefits in the event of the insurance company’s insolvency. For fiscal year 2009 and 2008, the District paid premiums of $791,813 and $720,182, respectively.
Las Vegas Valley Water District Notes to Basic Financial Statements (Continued)