OPEB (Other Post-retirement Employee Benefits or Retiree Healthcare)

We have had 30 years of experience calculating the liabilities and expense for OPEB in the private sector (FAS 106, ASC 715-60, ASC 965 and CAS).  Adjusting to the public sector requirements of GASB 45 was a logical extension of our earlier work.  We have been invited to address the Society of Actuaries on proper technique for setting actuarial assumptions. We have also been invited to lead a seminar of Government Finance Officers on how to read a GASB45 report.

The valuation of these benefits combines the most complicated aspects of defined benefit pension valuation and group health insurance projections.

• Whereas defined benefit plans require the pension actuary to project salaries as the employee work-force ages, post-retirement medical plans require the consideration of the health care trend variable, which does not inflate at a constant rate.
• In contrast, whereas group insurance actuaries are comfortable with projections for one year at a time, the post-retirement benefit projection incorporates assumptions relating to the entire life span of a workforce.

Therefore, the selection of assumptions for mortality, turnover, retirement, medical inflation, etc., cannot be done cavalierly.  We have the knowledge to choose a reasonable combination of assumptions that makes sense for each individual client.

OPEB for School Districts

The IMRF has mandated minimum requirements for public school systems in the State of Illinois.  Once the employee is eligible for early retirement under the provisions of IMRF, the school district must make health care available to the employee through age 65.  Retirees may be required to pay for the coverage, usually at the “COBRA” rate, but the cost of providing early retirees is generally greater than the revenue received from the payments from the retirees.  This difference is referred to as the “implicit subsidy.”  At minimum, the school district must show the total cost of the implicit subsidy to its non-teaching employees.

More often, the School Districts also offer a variety of explicit subsidies to teachers and administrators.  Sometimes, the Districts offer additional benefits to non-teaching employees.  Each sort of benefit is in effect a promise.  The role of the actuary is to compute the inherent value of that promise.

Some School Districts require that staff members make commitment to retire up to four years in advance.  When such commitments are made, the value of the promise increases and is more easily determinable.  Many actuaries ignore the role of such commitments in valuing the liabilities of the School District.  At Serota & Associates, we have developed special programming language to calculate the liability of each employee who has made a commitment to retire.