2011-12 Financial Statements Changes Information Session for School Boards and External Auditors Financial Analysis and Accountability Branch Fall 2012.

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  • Slide 1
  • 2011-12 Financial Statements Changes Information Session for School Boards and External Auditors Financial Analysis and Accountability Branch Fall 2012 1
  • Slide 2
  • Employee future benefit plan changes, New Sick Day plan and Regulatory Amendments 2
  • Slide 3
  • Agenda Employee future benefits background Provisions in Memorandum of Understanding Changes to Employee future benefits New Sick Day Plan Impact of Plan Changes Accounting for Plan Changes Impact to 2011-12 Financial Statements Impact to 2012-13 Revised Estimates Regulatory Changes Legislation 3
  • Slide 4
  • Employee Future Benefits Background Retirement Gratuity liability (vested sick days) represents the accumulated sick days that are paid out as a lump-sum to an employee upon retirement Post Employment/compensated absences liability consists mainly of accumulated (non-vested) sick days for use as future paid sick leave Retirement Gratuity Plans vary across boards Some boards have a minimum years of service requirement Some boards have % payouts which vary from 35% - 50% Some boards have capped payout amounts Boards vary in the maximum number of allowable accumulated days 4
  • Slide 5
  • Retirement Gratuity Plans The most common type of Retirement Gratuity Plan offered is: 20 or 24 sick days per year with any unused days accumulated up to a maximum number (200 or 260 days in many plans), of which 50% may be paid out at retirement (equivalent to half a salary at retirement) Some boards have closed their retirement gratuity plans by limiting them to employees hired before a certain date and have offered new employees other benefits in lieu (hybrid plans): Some boards offer yearly lump-sum payments based on the number of unused sick days which can be contributed to an RRSP Other boards offer a payout for each day over and above a maximum number of accumulated days Provisions in the Memorandum of Understanding apply to all forms of retirement gratuities all forms of retirement gratuities will cease 5
  • Slide 6
  • Retirement Gratuity Plans Contd Approximately 40% of boards currently have open plans (retirement gratuity available to all employees), while most others have closed or hybrid plans (grandfathered plan to employees hired before a certain date and new reduced provision for newer employees) For boards with open plans, future benefit expenses have continued to increase every year as new teachers enter the plan The liabilities for boards with open plan have been increasing at a more rapid pace than those boards with closed or hybrid plans Currently, boards have few reserves set aside to provide for future cash payout of retirement gratuities 6
  • Slide 7
  • Retirement - Health, Life and Dental benefits Represent benefits for retirees up to the age of 65 Incidence rates for retirees are higher creating higher premium rates than those for active employees However, many collective agreements allow retirees to continue paying the premium rate of an active employee For many boards, retirees are included in the same experience pool as active employees for health, life and dental benefits and therefore, benefit from a lower premium rate than they otherwise would have paid if they were in a separate experience pool Some boards also partially fund the premium paid by retirees The structure of these plans has created an unfunded liability for the Ministry that is growing at approximately $25M per year Variation in degree of benefits provided across boards 7
  • Slide 8
  • Memorandum of Understanding (MOU) Ontario English Catholic Teachers Association (OECTA), Association des enseignantes et des enseignants franco-ontariens (AEFO), Association of Professional Student Services Personnel (APSSP), Education Assistants and the Ministry of Education negotiated a new collective agreement that outlines new provisions related to employee future benefits: Changes to retirement gratuities plan Eliminates non-vested sick days Provides for a new short-term sick leave plan Restricts current health/dental/life benefits received after retirement to existing retirees and to new retirements in 2012-13 Changes will significantly reduce boards unfunded liabilities and related expenses Result in one-time savings for boards and on-going savings 8
  • Slide 9
  • Highlights of MOU Retirement Gratuity and Non-vested sick days Effective August 31, 2012, employees currently eligible for a retirement gratuity shall have accumulated sick days vested, up to the maximum eligible under the retirement gratuity plan Upon retirement, employees eligible for retirement gratuity as at August 31, 2012 shall receive payout based on employees current accumulated vested days (up to maximum eligible amount under plan) and years of service and salary at that date. Effective September 1, 2012, all accumulated non-vested sick days shall be eliminated 9
  • Slide 10
  • Highlights of MOU Short-term sick leave and disability plan (STLDP) Employee shall be paid 100% of regular salary for up to 10 non- accumulating days of absence due to illness and; shall be entitled up to an additional 120 days short term sick leave paid at 66.67% of regular salary and; be eligible for 90% of regular salary (short-term leave and disability plan) in accordance with the provisions in MOU An employee is eligible for STLDP under the following conditions (subject to third party adjudication process): 1)All, or any part of, an absence of 5 consecutive work days, occurs beyond the 10 sick leave days paid at 100% 2)An absence of any duration beyond 10 sick leave days paid at 100% salary due to an ongoing or intermittent medical condition, such as recurring illness or any form of chronic condition 10
  • Slide 11
  • Short-term sick leave plan - Examples Example 1: An employee has used 10 sick days paid at 100% and requires an additional 2 consecutive or non-consecutive days off - The employee would be paid 66.67% for the 2 additional days Example 2: An employee has used 10 sick days paid at 100% and takes an additional 7 consecutive days off - The employee would be paid 90% for the 7 additional days - subject to 3 rd party adjudication Example 3: An employee has used 10 sick days paid at 100% and takes an additional 5 non-consecutive days off due to an on-going illness - The employee would be paid 90% for the 5 additional days subject to 3rd party adjudication 11
  • Slide 12
  • Highlights of MOU Benefits After Retirement for Health, Life and Dental As of September 1, 2013 any new retiree who has access to health/life/dental benefits and pays premiums for such benefits shall be included in an experience pool segregated from all active employees, such that the pool is self-funded. As of September 1, 2013, no new retirees shall be eligible for employer contributions to any post-retirement benefits (retiree pays 100% of premium). Existing retirees and any employee retiring before September 1, 2013 will continue to be included in the experience pool in which they are presently included and pay appropriate premiums. Employer contributions where they exist will continue. 12
  • Slide 13
  • Highlights of MOU WSIB and Maternity Leave WSIB benefits shall be maintained in accordance with 2008-2012 local collective agreement. Where the WSIB top-up is deducted from sick leave, the board shall maintain same level of top-up without deduction from sick leave. WSIB liability is expected to increase for those boards that have top-up arrangement in place. For those boards who are not self-insured for WSIB (Schedule 1 employer) and therefore did not report a liability before, will now report a liability for the top-up portion. The level of top-up provided to an employee will be based on provisions in previously negotiated collective agreement For employees who have run out of sick days, top-up re-instated Sept 1 st Employees shall receive 100% of salary for not less than a 6 week period following the birth of a child. 13
  • Slide 14
  • Accounting Treatment for Retirement Gratuity Actuarial assumptions used in valuing the retirement gratuity obligation prior to the plan change included future salary escalation and the future banking and usage of sick days and future increases in payout factor based on service With the current plan change, future payout is frozen at August 31, 2012 salary, further accumulation and usage of banked sick days is eliminated, and employees years of service is recognized as of August 31, 2012 As a result of the plan changes, most boards will experience a one-time change to their obligation and future years expenses Most boards will experience a reduction to their obligation and expenses, few boards may experience an increase The degree to which the obligation and expenses change will depend on whether boards have open or closed plans and on the parameters of the plan that existed before the change (ie. capped payouts, eligibility criteria, etc..) Future services of employees will no longer qualify for benefits and therefore changes to the plan will be deemed a plan curtailment 14
  • Slide 15
  • Accounting Treatment for Retirement Gratuity PSAB 3250.075 defines a plan curtailment as an event that significantly reduces the expected years of future service of present employees, or eliminates the accrual of defined benefits for some or all of their future services As a result of the plan changes, boards will report a curtailment gain or loss This will impact how existing unamortized actuarial gains/losses are recognized PSAB handbook section 3250.078 states: gains and losses determined upon a plan curtailment should be accounted for in the period of curtailment Therefore, all existing unamortized gains and losses prior to the plan change should be recognized when determining a curtailment gain or loss Actuaries will provide the calculated curtailment gain/loss and new liability to school boards If boards in consultation with auditors disagree with approach, they should call the ministry for further discussion 15
  • Slide 16
  • Accounting treatment for Retirement Health, Life and Dental With the current plan change, most employees who were once eligible to pay the blended employees health and dental premium rate upon retirement and/or receive further subsidization of premiums from the board when retired, are no longer eligible As a result of the plan changes, most boards will experience a one-time change to their obligation and future years expenses The degree to which the obligation and expenses change will depend on demographics, the parameters of the plan that existed before the change, etc.. As there is a significant reduction in the number of employees who can now qualify for these benefits, this change will be deemed a plan curtailment Only those who are currently retired or will retire on or before August 31, 2013 can qualify for these benefits 16
  • Slide 17
  • Example of curtailment gain calculation Board A Accrued benefit obligation (ABO) before plan change :$1,500,000 Unamortized actuarial losses :$ 200,000 Liability before plan change :$1,300,000 ABO after plan change :$ 700,000 Reduction in ABO (gain) :($ 800,000) Reduced by unamortized act. losses : $ 200,000 Total curtailment gain to be reported :($ 600,000) Liability after plan change : $ 700,000 Entry Dr.Liability600,000 Cr.Curtailment Gain600,000 17
  • Slide 18
  • Impact to 2011-12 Financial Statements The impact of plan changes for retirement gratuity and retirement health, life and dental changes will come into effect August 31, 2012, and will need to be reflected in the 2011-12 financial statements The following changes will occur : One-time reduction to boards closing retirement gratuity and health, life and dental obligation will be disclosed in 2011-12 This will result in one-time savings to the board which will remain out of compliance in 2011-12 The impact of plan changes for non-vested sick days will come into effect September 1, 2012, however, the liability will be eliminated for 2011-12 Financial Statements and the gain reported out of compliance Note(s) will be required disclosing the changes made to employee future benefit plans and its impact, as well as the date legislation was passed For reporting purposes, the Ministry advises boards to have an actuarial valuation done as at August 31, 2012 based on the provisions agreed upon in the MOU even though some boards are not scheduled for review 18
  • Slide 19
  • Impact to 2012-13 Revised Estimates Reporting for Compliance Purposes 2012-13 Estimates included the phase-in of the difference between cash and PSAB expense for Retirement Health, Life and Dental, however, this will change for 2012-13 Revised Estimates 2012-13 Revised Estimates will now include the full PSAB expense and the phase-in of the Retirement Health, Life and Dental liability over a maximum of 10 years Boards will still be required to phase into compliance the gap between PSAB expense and cash for all other employee future benefits (Long-term disability, WSIB and other) within the next four years This change will help contain the rate at which the unfunded portion of these liabilities increase over time The opening liability for all other employee future benefits (LTD, WSIB) will remain out of compliance. 2011-12 full actuarial evaluation should be used to prepare the Revised Estimates 19
  • Slide 20
  • Impact to 2012-13 Previous TreatmentNew Treatment Benefits liabilities were excluded from budget compliance. Retirement gratuity liability (1) will be phased-in over boards EARSL. Retirement Health, Life and Dental liability will be phased-in over a maximum of 10 years. Other benefits liabilities (ie. WSIB, LTD) remain excluded from compliance. Benefits cash expenditures recorded for compliance, plus benefit enhancements. Budget compliance now based on PSAB expense for retirement gratuities and retiree benefits Other benefits difference between cash and PSAB expense phased in over 4 years. Expense should be lower than in the past due to the proposed changes. GSN benefits benchmark included 2% for retirement gratuities. The 2% will be phased-out over the provincial EARSL of 12 years. 20 (1) Cash expenditure in the past included pay-out for people that retired that year. Boards will now manage their PSAB expense and the phase-in of their retirement gratuity liability. Conceptually, over EARSL these two approaches would add to the same amount.
  • Slide 21
  • Example - Phasing in Retirement Gratuity/Retirement Health, life and dental liability for 2012-13 A 21 Retirement Gratuity liability after plan change (opening balance for 2012-13...

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