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Other Postemployment BenefitsFinancial Accounting Webcast
Kathy Guralski, Auditor, School Finance Team
Lori Ames, Consultant, School Finance Team
June 28, 2006
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Agenda
Intro & Media Site Technical Issues Trust Contribution Amount Financial Accounting Annual Meeting Reporting Requirements Questions & Answers Polls
Presentation Assumptions
This presentation is focused on the financial accounting requirements as it relates to a trust. Given those parameters, we make the following assumptions: The actuarial study or alternative method has
been completed. The Annual Required Contribution is known. The District has already established an Employee
Benefit Trust (Fund 73).
Presentation Assumptions
If you need information relating to the actuarial determination or establishment of a trust, please refer to the following document.
“Employee Benefit Fund (Fund 73) Requirements” located at:
http://www.dpi.wi.gov/sfs/ben_trust.html
Trust Contribution Amount
The amount of postemployment benefits to be funded in any given year is dependent on various factors.
Size of the district’s liability Requirements for current year payment for
post employment benefits Available resources in the district’s budget Amount of the district’s fund balance
Potential Contribution Amounts
The District may choose to fund: the entire unfunded actuarial accrued
liability plus normal cost in a single payment
The annual required contribution An amount less than the annual required
contribution An amount more than the annual required
contribution but not in excess of the actuarial accrued liability plus normal cost
Trust Contribution Amount
In order for a trust contribution to recorded in the current fiscal year, a physical segregation of assets must occur by June 30th.
In other words, the contribution should be made and the cash have cleared the district’s bank account by June 30th.
Contribution Amounts and Applicable State Aid
General Equalization Aid Any contribution to the trust, not in excess
of the unfunded actuarial accrued liability plus normal cost will be included in the calculation of shared cost.
Positive tertiary aid districts – may receive additional equalization aid
Negative tertiary aid districts – may fall more heavily into negative aid
Contribution Amounts and Applicable State Aid
Federal and State Grants If the grant allows, a school district may
include all costs of funding eligible staff postemployment benefits, up to a maximum of the annual required contribution (ARC), in the calculation of costs subject to federal and state grants.
Contribution Amounts and Applicable State Aid
State Categorical Aid ( i.e. special education categorical aid) A school district may include all costs of
funding eligible staff postemployment benefits, up to a maximum of the annual required contribution (ARC), in the calculation of costs subject to categorical aid.
Financial Accounting
Concept: District decides to set up a trust District decides on current fiscal year contribution
amount Physically makes a contribution to the trust Pay all future retiree benefits from the trust
http://www.dpi.wi.gov/sfs/doc/ben_acct.doc
Financial Accounting
Steps to funding the trust
Allocate contributionamount to
proper account codes
Financial Accounting
Make contribution and allocate to proper account codes Determine which postemployment benefits to
include in the funding and the employee groups that are eligible for those benefits
Equitable distribution of the contribution DPI sample methods
Financial Accounting
Make contribution and allocate to proper account codes Method A
Determine amount of eligible payroll for the employees included
Divide the value of the postemployment benefits for the group by the eligible payroll for the group to get a contribution rate
Apply the contribution rate to each employee
Financial Accounting
Example facts: Contribution to trust $275,820 # of total employees in group funded 150 Total payroll of employees in
group funded$4,500,000
Financial Accounting
Allocation under Method A: Divide $275,820 by $4.5 million for a
contribution rate of 6.13% Apply the contribution to each employee
Susie has a wage of $35,000 times 6.13% equals $2,145.50 annually
Susie has a bi-monthly wage of $1,458 times 6.13% equals $89 each pay period
Financial Accounting
Make contribution and allocate to proper account codes Method B
Divide the contribution dollar amount for the group by the eligible employees in the group to get a contribution dollar amount
Apply the dollar amount to each employee
Financial Accounting
Example facts: Contribution to trust $275,820 # of total employees in group funded 150
Financial Accounting
Allocation under Method B: Divide $275,820 by 150 employees for a
contribution amount of $1,838.80 annually Apply the contribution to each employee
Susie has $1,838.80 benefit annually Susie has a bi-monthly benefit of $77 each pay
period
Financial Accounting
Allocate contributionamount to
proper account codes
Steps to funding the trust
Record financial transactions for
contribution made
Financial Accounting
When contribution is made may affect the timing of the journal entries and transactions recorded: Contribution accounted for during the year
through the payroll system Contribution accounted for when lump sum
amount is paid to trust
Financial Accounting
Entries to account for contribution during the year through the payroll system : 1) 10E XXXXXX 218 $ 77
27E XXXXXX 218 77
10B 811600 $77
27B 811600 77
Financial Accounting
Example facts: Contribution to trust $275,820 # of total employees in group funded 150 # of special education employees
included in group funded 10
Financial Accounting
Entries to account for contribution during the year through the payroll system : 1) 10E XXXXXX 218 $257,432
27E XXXXXX 218 18,388
10B 811600 $257,432
27B 811600 18,388
Financial Accounting
Entries to account for contribution made to trust : 2) 10B 811600 $257,432
27B 811600 18,388
10B 711000 $257,432
27B 711000 18,388
Financial Accounting
Entries to account for contribution at year end when lump sum amount is paid to trust: 3) 10E XXXXXX 218 $257,432
27E XXXXXX 218 18,388
10B 811600 $257,432
27B 811600 18,388
4) 10B 811600 $257,432
27B 811600 18,388
10B 711000 $257,432
27B 711000 18,388
Financial Accounting
Contribution in excess of ARC When the contribution to the trust exceeds the
ARC amount, the difference between ARC and contribution would not be allocated to employee functions but rather would be reported in fund 10, function 291000, object 218.
Financial Accounting
Example: Contribution $275,820 ARC $200,000 Allocated to proper employee function $200,000 Reported to function 291000, object 218 $75,820
Financial Accounting
Accounting for the contribution in fund 73: 1) 73B 711000 $275,820
73R 951$275,820
Financial Accounting
Allocate contributionamount to
proper account codes
Record financial transactions for
contribution made
Steps to funding the trust
Withdraw retireebenefits from trust
Pay health provider/retiree
for benefit
Financial Accounting
All future retiree benefits paid from trust Amount withdrawn will include cost of benefit to
be paid provider plus implicit rate subsidy The implicit rate subsidy will be allocated in the
same manner as the original contribution but will reduce the employees health benefit, object 240 rather than the 218.
Financial Accounting
Example facts: Contribution to trust $275,820 # of total employees in group funded 150 # of special education employees
included in group funded 10 Insurance premium paid $479 Value of retiree premium $699 Implicit rate subsidy $220 # of retirees on plan 15
Financial Accounting
Retiree benefits paid: 15 retirees at a premium value of $699/month
each equals $125,820 that needs to be withdrawn from the trust.
Trust either pays health provider directly or reimburses district who paid health provider for retirees on one invoice including active employees.
Financial Accounting
Trust pays directly to health provider: 73E 420000 991 $125,820
73B 711000 $125,820
Trust reimburses district: 73E 420000 991 $125,820
73B 711000 $125,820
Financial Accounting
Example facts: Contribution to trust $275,820 # of total employees in group funded 150 # of special education employees
included in group funded 10 Insurance premium paid $479 Value of retiree premium $699 Implicit rate subsidy $220 # of retirees on plan 15 Cost of insurance premium $86,220 Implicit rate subsidy withdrawn $39,600
Financial Accounting
Withdrawal of $125,820 Retirees insurance in fund 10 $
86,220 Implicit Rate Subsidy
Fund 10 (140 employees) $ 36,960 Fund 27 (10 employees) $ 2,640
$125,820
Financial Accounting
District originally reported the payment to the health provider as an expenditure
Original entry was a debit to fund 10, function 290000, object 210 for the $86,200 and a credit to cash for payment to health provider
District originally reported the payment to the health provider as a liability
Original entry was a debit to fund 10, balance sheet account 811600 and credit to cash for payment to health provider
Financial Accounting
District originally reported the payment as an expenditure 10B 711000 $123,180 27B 711000 2,640
10E 290000 210 $ 86,22010E XXXXX 240 36,96027E XXXXX 240 2,640
District originally reported the payment as a liability 10B 711000 $123,180
27B 711000 2,640 10B 811600 $ 86,220 10E XXXXX 240 36,960
27E XXXXX 240 2,640
Contribution same dollar amount as “pay as you go”
What if your district elects to contribute only enough to the trust to pay the current year retiree costs?
Often referred to as contributing the same dollar amount as the district would expend on the “pay as you go” method
No effect on shared cost
Contribution same dollar amount as “pay as you go”
For you to draw out the insurance premium plus the implicit rate subsidy you need to make a contribution larger than the “pay as you go” or the actual cost to the insurance provider.
The implicit rate subsidy when withdrawn from the trust will reduce the total expenditures of the district so that the net between the two will equal the “pay as you go”
Contribution same dollar amount as “pay as you go”
Example: Contribution $125,820 Expenditure Payment to Ins. Co. $ 86,220 Liability Reimbursement from trust $125,820
Implicit rate subsidy $ (39,600) Expenditure Pay as you go amount $ (86,220) Liability
Retiree makes a contribution towards health benefit
If the retiree makes a contribution towards the insurance premium that should be accounted for in fund 73 as a revenue
Retiree makes a contribution towards health benefit
Example: Sally is a retiree who contributes $30
towards her insurance premium. She pays the district the $30.
73B 711000 $30
73R 952 $30
Annual Reporting Requirements
Wisconsin Act 99 , new legislation in regards to trusts, relates to the investment by school districts of funds held in trust to provide postemployment benefits.
Act 99 also requires additional annual reporting. (even if the district chooses not to invest under this new authority)
Annual Reporting Requirements
Reporting required for ALL Districts who have established a trust accounted for in fund 73
Annual Meeting – Common or Union High School Districts
Public Budget Hearing – Unified School Districts
Annual Reporting Requirements
Information to be reported:
Amount in the trust Investment return earned since the last
annual meeting Total of disbursements made since the last
annual meeting Name of the investment manager if
investment authority has been delegated.
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