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The Plan: Complying with GASB 43/45 Audit Disclosure Requirements
Home > District Services > Business & Legal Reports

Prepared by: Ray Giles, Former Vice President, Community College League of California and Renee Graves, Partner, CPA, CGFM, Vicenti, Lloyd & Stutzman LLP

Summary of Report
Background
Some Definitions
GASB Implementation Dates
How to Comply with GASB 43/45 Audit Disclosure Requirements


Summary of Report

This report is intended to give a general description of the note disclosure information and accounting standards California community college districts will be required to follow and present to their auditors under the new GASB 43/45 accounting standards.

Background

The new accounting standards under GASB 45 require California community college districts to treat unfunded post-employment benefit obligations on an accrual basis, booking the liability as an expense to the college district.  According to GASB 45 and 43 standards documents as well as GASB’s Comprehensive Implementation Guide dated June 30, 2006, Statement 45 exists in an effort to improve the faithfulness of representations made by employers regarding other post-employment benefits (OPEB). 
 
Statement 43 establishes standards for reporting of OPEB plans, including the reporting of plan assets and liabilities, where applicable. 
 
Statement 45, in part, establishes standards of accounting and financial reporting for OPEB expenses and liabilities along with OPEB assets.  Statement 43 and Statement 45 do not, by themselves, create requirements for plans; they simply specify how the plans are to be reported in order to comply with the new standards.
 
The Community College League of California created, with the assistance of district chief business officers and directors of fiscal services, a joint powers authority (JPA), the Retiree Health Benefit Program, in 2005. Participation is open to all California community college districts. Membership allows districts to comply with the requirement of GASB that local government agencies invest their Annual Required Contribution (ARC) in an irrevocable trust in order for earmarked assets to be considered as plan assets. Districts that have joined, or in the future join, the JPA will comply with the GASB standard that requires local agencies create a plan to meet their OPEB liability.
 
The implementation process for GASB 45 includes four basic steps:
 
  1. A community college districts hires an actuary to calculate its Annual Required Contribution.
  2. OPEB expenses are recorded on the modified cash basis of accounting within the governmental funds (funds reported on the CCFS-311) and on the full accrual basis of accounting for propriety funds, fiduciary funds and in the government-wide financial statements prepared under the Business-Type Activity model.
  3. The district then decides whether to contribute all, none or part of the ARC into an irrevocable trust (i.e. the Retiree Health Benefit Program trust).
  4. Disclosure information is provided to the auditor according to GASB’s implementation schedule. 

Some definitions

GASB 43 Financial reporting for postemployment benefit plans other than pensions.
GASB 45 Accounting and financial reporting by employers for postemployment benefits other than pensions.
OPEB Other Postemployment Benefits—typically health insurance, dental and eye insurance, prescription drug, etc.
Substantive Plan
The specific description of retiree benefits (i.e. collective bargaining documents), OPEB costs and how specifically a district and its employees are paying those costs. The substantive plan includes not just the written plan for benefits and payment of those benefits, but includes any communication, past practice or “underlying promise” regarding cost sharing.
Plan Description
A written description of a district’s OPEBs, including how the benefits are paid and the liability is funded.
Retiree Health Benefit JPA
The League has created the Retiree Health Benefit Program JPA in order to allow districts to comply with GASB 45 standards by investing their Annual Required Contribution (or a portion of the ARC) in an irrevocable trust.
Audit Disclosure Requirements
Information the district is required, by GASB 45, to provide intheir audited financial statements (see implementation dates below).

GASB implementation dates

GASB 45 effective dates are phased in as follows:
 
  • Fiscal year 2007-8 for community college districts with total annual revenues of $100 million or more in 1998-99. (Phase I for implementation of GASB No. 34 and 35).
  • Fiscal year 2008-9 for districts with annual revenues from $10 million to $100 million in 1998-99. (Phase II for implementation of GASB No. 34
    and 35).
  • Fiscal year 2009-10 for districts with annual revenues less than $10 million in 1998-99. (Phase III for implementation of GASB No. 34 and 35).

How to Comply with GASB 43/45 Audit Disclosure Requirements

According to a recent GASB staff report, entitled “Other Postemployment Benefits: A Plain-Language Summary of GASB Statements No. 43 and No. 45,” the subsection “Notes to the Financial Statements” states: “To assist users in understanding the nature of a government’s OPEB and its efforts to finance its OPEB, the GASB standards require community college districts to prepare note disclosures to accompany the expense, expenditure, and liability information reported in the financial statements.”
 
Districts are generally required to provide relevant information about:
 
The Plan: Description of OPEBs provided and relevant documents. Includes a description of benefits provided for all employee groups, eligibility, number of employees and retirees covered, employer and employee obligations to contribute, authority under which benefits are provided and paid for, provisions for cost-of-living adjustments and any changes in benefits
 
Current Accounting and Funding Policy of Plan: Includes Annual OPEB cost, authority under which benefits are paid for by employees and employer, required contribution rates for active members and district in either dollars or as a percent of payroll as well as changes in the net OPEB obligation
 
The Annual Cost and Components of the District’s Annual Required Contribution: This information will be developed by the actuary in the course of completing their actuarial calculations.
           
Actuarial Accrued Liabilities for OPEB: Includes a three-year history of both annual OPEB cost and Unfunded Actuarial Liability (UAL), UAL as a percent of covered payroll, and amount and percent of change in OPEB liability.
 
Date of Actuarial Valuation and Explanation of Actuarial Methods and Assumptions: Refer to Paragraph 25dof GASB No. 45 for detailed explanations.
 
The progress made in funding the plan: Includes the funded status of the plan, a schedule of funding progress, funded ratio (Actuarial Valuation of Assets/Actuarial Accrued Liability), and copies of the two preceding valuations with notes on significant factors and trends.

Please note that your auditor will likely request additional or different information. This list is not intended to be a complete description of the note disclosures but to serve as an aid in preparing for the audit.

Renee S. Graves, CPA, CGFM
Vicenti, Lloyd & Stutzman LLP
2210 E. Route 66 Suite 100
Glendora, CA 91740
RGraves@vlsllp.com
(626) 857-7300
(626) 857-7302 fax

Ray Giles, Former Vice President of the
Community College League of California