STATE POST-RETIREMENT BENEFITS TRUST FUND AND THE
ELECTED OFFICIAL POST-RETIREMENT BENEFITS TRUST FUND
BOARD OF TRUSTEES
June 22, 2017
9:00 A.M.
Pending Minutes
Meeting Location: 350 N State Street STE C170
Board Members Attending: David Damschen, Nate Talley, and John Reidhead.
Others Attending: Steven Allred, Thom Roberts, Marcie Handy, Deborah Memmott, Kirt Slaugh, Carli Johanson and Allen Rollo.
Joining via Conference Call: Bob Russell-Korn Ferry Hay Group
The first item of business called for approval of the minutes from the November 10, 2016 meeting. Mr. Damschen requested that Governmental Accounting Standards Board (GASB) statements numbers (74 and 75) and titles be included in the third to last paragraph discussing new GASB standards. Mr. Reidhead made a motion to approve the minutes as amended, Mr. Talley seconded the motion. The motion passed unanimously, the vote of each Board member is noted below:
Damschen-Yes Talley-Yes Reidhead-Yes
Ms. Handy reviewed the May 31, 2017 financial statements for the State Employee Other Post Employment Benefit (OPEB) Trust Fund and noted that additions consisted of employer contributions and investment income of $28.7 million and $14.1 million, respectively, offset by a deduction for retiree health care benefits of $22.6 million, resulting in an increase in net position of $20.2 million to $257 million. Ms. Handy expects that, $3 million of employer contributions and $7 million of retiree health care benefits will be recorded in the financial statements for the remainder of fiscal year 2017. The trust fund had assets of $257 million and no liabilities. Assets consisted of cash of $(7.7) million, PTIF investment of $16.7 million, and investments of $248 million. The negative cash balance was a result of a correction of an entry made in the OPEB Trust Fund that should have been made in the Other Employ Benefits Trust Fund (OEBT) related to the movement of OEBT Fund activity in fiscal years 2015 and 2016 into the OPEB Trust Fund.
The Elected Official OPEB Trust Fund had employer contributions of $1.4 million and investment income of $1.2 million for total additions of $2.6 million, reduced by benefit payments of $504 thousand, resulting in a change in restricted net position of $2.1 million through the end of May. Assets consisted of PTIF investments of $1.5 million and $11 million of investments, offset by a benefit payable of $500 thousand for a net position of $12 million.
The OEBT Fund had employer contributions of $15.3 million and investment income of $9 thousand for total additions of $15.3 million, reduced by plan distributions of $11 million resulting in an increase in restricted net position of $4.3 million to $12.3 million. Total assets of $12.3 million consisted of cash, PTIF investments and investments of $7.8 million, $2 million, and $2.5 million, respectively.
Mr. Bob Russell from the Korn Ferry Hay Group reported the preliminary valuation results for December 31, 2016 actuarial study and noted that the Actuarial Accrued Liability (AAL) was $390 million with plan assets of $260 million resulting in an Unfunded Actuarial Accrued Liability (UAAL) of $130 million, which was $51 million lower than the 2014 UAAL, mainly due to an increase in plan assets of $54.4 million, reduced by an increase in the AAL of $3.4 million. The funding ratio increased from 53.2% as of the December 31, 2014 valuation to 66.6% for the December 31, 2016 valuation.
Mr. Russell noted some of the key changes related to the State adopting GASB 74, Financial Reporting for Postemployment Benefit Plan Other Than Pension Plans and GASB 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions compared to GASB 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. One key change is related to the discount rate used to calculate the present value of future cash flows for net retiree claims. The discount rate used in the previous actuarial study was 4.5%, but under GASB 74/75 the same discount rate may be used if plan assets are projected to always be sufficient to pay projected benefits when due, otherwise the rate for a 20 year AA municipal bond is required is used as the default discount rate. In addition, similar to pension reporting, the change in liability due to a one percent increase/decrease in discount rate is presented in the footnotes.
Mr. Russell recommended that the State adopt an updated mortality table, the RP2014 table and 75% of the MP2015 projection scale reflecting improvements in longevity in future generations. The impact of the recommended changes is approximately a 1% net decrease in AAL.
Another key change is that GASB 45 allowed for amortization of the UAAL for a period of up to 30 years using an open or closed period, under GASB 74/75, the unfunded actuarial liability, the Net OPEB Liability (NOL), is recognized in the year the standards are adopted. Changes in the actuarial liability are recognized in annual OPEB expense based upon the nature of change as shown on slide 11 of the OPEB Board presentation. In addition, the new standards have new footnote disclosures as shown on slide 12 of the OPEB Board presentation. Finally, Mr. Russell presented the funding considerations under GASB 75 as shown on slide 13.
Mr. Reidhead made a motion to adopt the actuaries’ recommendation concerning mortality assumptions, Mr. Talley seconded the motion. The board unanimously approved the motion, the vote of each Board member is noted below:
Damschen-Yes Talley-Yes Reidhead-Yes
Ms. Handy noted that due to transfer of 525 USOR employees from the Office of Education to Work Force Services the Board should consider the transfer contributions estimated at $4.1 million and investment earnings related to the contributions from the Education OPEB pool to the General OPEB pool. The amount of investment earnings related to the $4.1 million has yet to be determined. Mr. Talley made a motion to approve the Division of Finance recommended transfer of an estimated $4.1 million of contributions from the Education Pool to the General Pool, Mr. Reidhead seconded the motion. The board unanimously approved the motion, the vote of each Board member is noted below:
Damschen-Yes Talley-Yes Reidhead-Yes
There were no other items of business, so Mr. Reidhead made a motion to adjourn. The meeting was adjourned.