060308 GASB45City of Virginia Beach
City of Virginia Beach
GASB 45
GASB 45
OPEB Trust
OPEB Trust
June 3, 2008
June 3, 2008
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GASB Statement 45
GASB Statement 45
The Governmental Accounting Standards Board’s
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statement requires financial disclosure of retirement
health benefit (and other) liabilities similar to current
pension reporting.
Local governments must recognize both the current
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cost and unfunded accrued actuarial liability for benefits
earned to date.
Full funding of liability is not required, but funding levels
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willbe considered by bond rating agencies.
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Trust Fund to Fund
Trust Fund to Fund
GASB 45 Liability
GASB 45 Liability
•GASB rules don’t require funding, but assets set aside in
dedicated trust can offset the liabilities
–If contributions are irrevocable, dedicated to providing benefits,
and legally protected from creditors of employer and plan
administrator
–GASB allows retiree medical liability to be determined using
more favorable actuarial assumptions, such as a higher discount
rate, if employer funds promised benefits
•Pre-funding better matches the expense of the plan with
the cash outlay
•Pre-funding secures the benefit and reduces the build up
of an unfunded liability on the balance sheet
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Summary of GASB 45 Liability
Summary of GASB 45 Liability
($ Millions)Unfunded 4.0%Funded 7.5%
CitySchoolsTotalCitySchoolsTotal
Actuarial Accrued Liability$119.9$100.1$220.1$84.7$72.3$157.0
Annual Required Contribution12.310.923.210.39.219.5
Expected 2008 Costs5.35.310.65.35.310.6
Cash Flow Increase0.00.00.05.03.98.9
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TRUST
TRUST
•Trust enables City to use higher discount rate
•City may not divert assets of an OPEB Trust for any
purpose other than exclusive benefit of active or former
employees dependents, or beneficiaries entitled to
OPEB
•Trust will state that:
(i) all benefits subject to change
(ii) benefits are determined as part of the annual budget
process
(iii) benefits are subject to annual appropriation
(iv) employees do not have vested benefits until retirement
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Options
Options
1.Separate Trust
2.Pooled Trust
3.VRS (Not available)
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Virginia Pooled OPEB Trust
Virginia Pooled OPEB Trust
•Only pooled OPEB Trust in Virginia:
–Shared costs
–More investment options
•Cost Structure
–Lifetime membership fee of $5,000 will cover the participant’s initial
legal costs and help defray program start-up expenses
–Participant custodial fee -$500 per year for Comerica Bank
–VML/VACoFinance Program will defer its program administration costs
for the first year in order to assist in the successful start-up of the
program
–Fee projected to be under 0.5% after critical mass reached
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An Initiative of VACo & VML
An Initiative of VACo & VML
The Pooled OPEB Trust Fund is a
joint effort of the Virginia Association
of Counties and Virginia Municipal
League:
? VACo-VML OPEB survey of local
governments (June 2007)
? Exploratory meeting with local officials
(May 2007)
? VACo-VML Pooled OPEB Trust Fund
Task Force (Summer-Fall 2007)
? Staffing by VML/VACo Finance, with
Kaufman & Canoles serving as
Counsel to program
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Governance
Governance
Board of Trustees for Virginia Pooled Trust
Board of Trustees for Virginia Pooled Trust
? Five to nine members: Founding
members serve minimum of first six
years; other members elected in
weighted vote of all participants
Local Finance Boards
Local Finance Boards
? Required by Code; provide direction to
Trust Fund on behalf of locality
? Director of Finance –City
? Treasurer –City
? Citizen with expertise
? Schools may join City’s Local Finance
Board
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Roles
Roles
Board of Trustees –Pooled Trust
Board of Trustees –Pooled Trust
? Investment policy and guidelines
? Asset allocation & risk
? Investment advisor/consultant –Evaluation Associates -Milliman
? Custodian bank selection –Comerica
? Performance evaluation, quarterly
? Next meeting June 6
Local Finance Board
Local Finance Board
? Monitor investment results
? Represent beneficial interest of City
? Investment elections from alternatives
? Select actuarial service providers
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Investment Portfolio
Investment Portfolio
Actively managed portfolio with
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index funds for certain asset
classes –results in higher rates
of return and lower costs.
Documents allow Trustees to
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provide up to two additional
portfolios with different
risk/return profiles.
–Small Cap Manager being selected
–International Fund Manager being
planned
–Others
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Investment Consultant
Investment Consultant
•Evaluation Associates, LLC
–Norwalk, CT
–Full service investment consulting firm
–$250 billion in client assets, 140 institutional clients
–66 employees, including
•23 consultants
•11 dedicated research analysts
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Investment Consultant
Investment Consultant
•Linda Schlissel–Principal, Senior Consultant
–28 years experience with Evaluation Associates since
1979
–Clients range in size from $100m to $10B
–Pooled Trust Exp.:
•NY State Deferred Compensation (300 employers)
•Major League Baseball
–GASB 45 Client: DC Health & Life Ins. Trust
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Advantages of VACo/VML
Advantages of VACo/VML
1.A more diversified portfolio
2.Access to leading investment consultants & managers
with exceptional expertise and research capabilities
3.The lowest cost option; cost sharing and economies of
scale
4.Locally directed and controlled
5.Can transfer funds out at a future date if other options
become attractive
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Process
Process
June 10 council Agenda will include for consideration actions to:
June 10 council Agenda will include for consideration actions to:
–Create City Local Finance Board (LFB)
–Direct LFB to execute Trust JoinderAgreement
–Establish the Trust, approve the form of the Trust and Trust
JoinderAgreement
–Approve deposit of ARC by June 30, 2008
Local Finance Board will:
Local Finance Board will:
–Meet regularly
–Evaluate if trust should be moved in the future (requires notice)
–Represent the beneficial interest of the City in the Pooled Trust
Fund
–Monitor investment results
–Make investment elections as appropriate
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