FUND 73 ACCOUNTING AND MANAGEMENT WITH

CHANGING BENEFITS

Marc Duff, Deputy Chief Financial OfficerRacine Unified School District

Michele Gundrum, School Finance AuditorWisconsin Department of Public Instruction

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Changing Benefits, Changing Fund 73

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What’s in Fund 73?

OPEB - Valued in actuarial study Wide variety of benefits included

Supplemental Stipend Type Pension - Valued in study

Traditional Pension - Separate valuation (only a few districts have this, similar to WRS)

Fully funded HRAs Active employee current use Active employee for use during retirement

TSAs Prefunded Termination Benefits

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Traditional OPEB and Supplemental Stipend

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Traditional OPEB-Stipend

OPEB and Supplemental Stipend Type Pension benefits - Valued in actuarial Study THREE MAJOR SEPARATE CASH TRANSACTIONS! DO NOT MINGLE THEM! NO NETTING!

Contribution to the Trust Payment of Retiree Benefits from

Trust Implicit Rate Subsidy (also retiree

benefit)

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Contribution to the Trust

Expenditure is charged to Object 218 and allocated to the active employees fund, function and project

Contributions to the trust need to be physical CASH movement IN FULL from district to trust Fund Function Obj/Src Project

Debit xxE xxxxxx 218 xxx

Credit xxB 711000

Cash Contribution from district to Fund 73 trust

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Contribution to the Trust

Variation would be to record Due To (812000) payables and Due From receivables (714000) throughout the year.

If contribution exceeds the ARC, the amount in excess is not allocated to active employees and is not eligible for categorical aid or federal grants All 10E-292000-218 OR Allocated between funds and still 292000-218

District determines amount to contribute Amount of retiree benefits may help determine

amount, but completely separate transaction

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Payment of Retiree Benefits - Option 1

All retiree benefits funded into the trust must be paid from the trust

Option 1 - If a district is able to pay vendors directly from the trust:

Fund Function Obj/Src

Debit 73E 420000 991

Credit 73B 711000

Payment of retiree benefits to vendor

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District can choose to have Fund 10 pay the benefits throughout the year, but Fund 73 MUST pay Fund 10 back IN CASH and IN FULL.

Keep the transactions clean!!!!! NOT a district expenditure. Never make

the retiree benefit payment any 2xx Object. Should be set up as a Due From Fund 73 receivable.

Payment of Retiree Benefits - Option 2

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Fund Function Obj/Src

Debit 10B 714000

Credit 10B 711000Payment by district to insurance vendor for retiree benefits. Set up receivable from Fund 73

Fund Function Obj/Src

Debit 73E 420000 991

Credit 73B 812000

Record payable to the district for reimbursement of retiree benefits from trust

Payment of Retiree Benefits - Option 2

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Implicit Rate Subsidy

Implicit Rate Subsidy is an expenditure of the trust (retiree benefit) if retirees are on the district’s health insurance plan, UNLESS Self-funded and trust pays actual medical costs ETF State Group Health Plan - Community Rated Plan premiums rated separately for retirees Immaterial as determined by actuary

Fund 73 trust must pay the district IN CASH and IN FULL for the Implicit Rate Subsidy.

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Implicit Rate Subsidy

Implicit rate subsidy is paid to the district and reduces the healthcare costs of active employee plan members with health insurance. Credit Object 241, MUST BE ALLOCATED to

employee fund, function and project Even if no contribution that year, implicit rate

subsidy payback applies. Implicit rate subsidy calculation includes any

amounts paid directly from retiree to insurance company. Sample of Activity was updated.

Do not use amount from study, must be applied to actual health and long term care insurance costs.

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Sample of Activity - Exhibit A

Sample of Activity - Exhibit B

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Implicit Rate Subsidy

Fund Function Obj/Src

Debit 73E 420000 994

Credit 73B 711000

Payment to district for Implicit Rate Subsidy

Fund Function Obj/Src Project

Debit xxB 711000

Credit xxE xxxxxx 241 xxx

Cash received from Fund 73 Trust for Implicit Rate Subsidy

Allocated as a credit to active employee healthcare premiums, Object 241, to the active employee’s fund, functions and projects.

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Retiree may pay a portion of their premiums.

CASH is not district funds and should be deposited directly into trust (Option 1, next slide)

If the district can’t deposit directly into trust, cash should go into a Due to Fund 73 liability account and be paid IN CASH and IN FULL to the trust. (initially recorded as Option 2, next slide)

Retiree paid portion of benefits

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Retiree paid portion of benefits

Fund Function Obj/Src Project

Debit 10B 711000

Credit 10B 812000

Retiree Portion of Premium payable to Fund 73

Fund Function Obj/Src Project

Debit 73B 711000

Credit 73R 952

Retiree Portion of Premium deposited into trust

OPTION ONE

OPTION TWO

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Traditional OPEB-Stipend Guidance

Employee Benefit Trust Fund webpage Recent Communications (this presentation

and letters to districts) Benefit Trust Fund Requirements Special Ed Categorical Aid Eligibility

Worksheet Sample of Activity Account Descriptions and Sample Entries http://sfs.dpi.wi.gov/sfs_emp_benefit_trust_fu

nd

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Traditional Pensions

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Traditional Pension

Only a few districts have this, similar to WRS Contribution into the trust based on actuarial

study Contribution is Object 218, fund, function and

project of active employee plan members. Must be allocated!!!

Revenue into the Fund 73 trust is Source 953 Payment of retiree benefit expenditures from

Fund 73 trust is Object 992 Therefore, total Object 218 should equal the

sum of 73R-951 + 73R-953

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HRAs

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HRA differences

HRA/HSA document lists all scenarios under Payroll And Benefits http://sfs.dpi.wi.gov/sfs_wufaracct_code_ex

HRA is valued in actuarial study Accounting follows traditional OPEB At retirement, district will put $1,000 into an

HRA for each year worked, but does not put the full $1,000 into the trust every year. Unfunded liability exists. Also could fund, but not allocated under employee’s name in HRA account.

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HRA differences

HRA is fully funded when earned MUST GO INTO IRREVOCABLE ACCOUNT District puts away $1,000 in each year an

employee works for use at retirement. The full $1,000 is funded every year and is allocated and held in the HRA account in the employee’s name. Obligation is fully funded and will not be valued in

the actuarial study. Allocated to employee fund, function and

project!!!! Earnings belong to trust - can pay fees or be

allocated to employee accounts

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HRA payment to trust for active employees future use in retirement

Allocated to each employee’s individual fund, function and project and object 219.

Held in HRA account in each person’s name

Fund Function Obj/Src Project

Debit xxE xxxxxx 219 xxx

Credit xxB 711000

Payment to the trust for current employee HRA to be used at retirement

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HRA payment to trust for active employees current medical costs

The trust agreement allows for non-OPEB transactions.

Allocated to each employee’s individual fund, function and project and object 249.

Fund Function Obj/Src Project

Debit xxE xxxxxx 249 xxx

Credit xxB 711000

Payment to the trust for current employee HRA

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HRA payment to trust for retirees current medical costs (pay as you go)

The trust agreement allows for non-OPEB transactions.

Expenditure for retired employees to use for current medical costs.

This was not prefunded into the trust while active employee

Fund Function Obj/Src Project

Debit xxE 292000 290 None/019

Credit xxB 711000

Payment to the trust for retirees HRA (pay as you go)

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The activity in Fund 73 for all HRAs that are not valued in the OPEB study is the same.

Fund Function Obj/Src Project

Debit 73B 711000

Credit 73R 955

Receipt of district payment to trust for HRAs not valued in study

Debit 73E 420000 993

Credit 73B 711000

Payment of HRA medical costs from the trust for HRAs not valued in study

Fund 73 HRA Activity -not valued in study

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HRA Guidance

WUFAR Accounting Issues and Coding Examples Under Payroll and Benefits http://sfs.dpi.wi.gov/sfs_wufaracct_code_ex

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Other Benefits in Fund 73

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Other Benefits in the Trust

TSAs If not in actuarial study, fully funded in year earned.

Object 219, allocated to employee fund, function and project

Revenue into the Fund 73 trust is 959 - Other Contributions Expenditure out of Fund 73 trust is Object 996 - TSA/Misc

Prefunded Termination Benefits - See Compensated Absences - Prefunding under Payroll and Benefits Carried on Balance Sheet until termination benefits

paid out. Expenditure occurs upon termination http://sfs.dpi.wi.gov/sfs_wufaracct_code_ex

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Reminders,New Guidance

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OPEB Trust Activity

All transactions with the trust need to be

CASH TRANSACTIONS Contributions to the trust need to be physical

cash movement from district to trust in full. Payment of Implicit Rate Subsidy needs to be

physical cash movement from trust to the district in full.

Benefits must be paid with physical cash movement from the trust in full.

NO NETTING!!!

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Deadlines

Contribution to the trust must be physically transferred to trust by July 30 to be counted as an expenditure for the year just ending on June 30.

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Fund 73 gains and losses

Book unrealized gains and losses Fund 73 only Object 998 - Unrealized Losses on

Investments Object 998 is used to recognize the decrease in

value of the Fund 73 investment. Used with Fund 73, function 420000 only.

Realized losses are coded to Object 964. Source 957 - Unrealized Gains on

Investments Source 957 is used to recognize the increase in

value of the Fund 73 investment. Realized gains are coded to Source 280.

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Benefits must be budgeted

Contribution for all benefits should be budgeted.

Amount of contribution is a decision by the district.

In some years, a district may not have a contribution at all. In these cases, there are enough funds in the trust that retiree benefits are still paid from the trust.

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PI-1202 Reporting Benefits

ALL 200 object codes!! All prefunded retirement benefits are allocated to

active employees and must be included in the 1202 Report - In general, all 21X should tie to active employees WRS OPEB Trust Contributions TSA Contributions HRA’s that are fully funded in the year earned Any other active employee benefit

Implicit Rate Subsidy credit to 241 Use budgeted amounts

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Terminating Use of Trust

Deplete the funds in the trust by paying out benefits Consider if district isn’t making contribution,

and just using trust, could impact shared costs.

District may spread closure out over a few years and still make some contribution to reduce impact on shared costs

Notify DPI that you have depleted trust funds and won’t be using it anymore.

Contact your legal counsel about the dissolution of the trust

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District Perspective Through Payroll

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Example of Fiscal Benefit of Using OPEB Trust

For RUSD, about 32% of OPEB costs can be attributed to federal grants or state categorical aid.

RUSD 2011-12 2012-13

Federal Grant Funds 371,215 366,087State Categorical Aid 425,738 404,502Local Grants 0 926TOTAL OPEB AID 796,953 771,515

Finite Funds – taken away from other use

Additional State Aid – outside the cap

• Since 2007 RUSD has set aside $7.2 million in the F73 OPEB trust.

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Method of Payroll Deduction

In discussing payroll deduction method with districts, most used a flat percent of payroll spread across all regular employees.

Others do not use a payroll deduction method while other districts are phasing out their OPEB trust.

Method of payroll deduction should be reasonably related to the employees eligible for the post employment benefit.

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Setting Up OPEB System Through Payroll

OPEB is set up as a benefit (Object 218) Determine payroll employer paid deduction method - Should be reasonably linked to OPEB benefit received (Health coverage, HRA, retirement supplement, etc.)

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Payroll Deduction Calculation Decisions

GOAL IS FOR AN ACCURATE RATE Before calculating the OPEB payroll deduction

percentage, decide what is the goal of the contribution.

- Pay-as-you-go cost plus 5%?

- Higher contribution to reduce OPEB liability?

- Lower amount due to 3 year rolling average for eligibility? Assumptions to use in calculation - Compensation adjustments

- Vacancy impacts

- Benefit adjustments

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Challenges – OPEB Payroll method

The payroll deduction method for generating the OPEB amounts will not be exact (e.g. vacancies, adjusted benefits, self-funded cost, retiree costs/drops, etc.)

Adjustments need to be spread across all 218 accounts

As a self-insured district, actual costs for retirees may not be known before the July 30 Fund 73 cash deposit deadline

Need to reconcile the district payroll system requirements with the detailed OPEB transaction requirements

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Resources and Contact

Michele Gundrum, School Finance Auditormichele.gundrum@dpi.wi.gov or 608-267-

9218

Benefit Trust Fund page: http://sfs.dpi.wi.gov/sfs_emp_benefit_trust_fun

d

WUFAR Accounting Issues and Coding Examples http://sfs.dpi.wi.gov/sfs_wufaracct_code_ex