Download
1 / 13
130 likes | 287 Vues
This workshop, held on April 24, 2007, focuses on the implications of Governmental Accounting Standards Board (GASB) Statement No. 45 for Mecklenburg County. It discusses the liabilities related to retiree benefits, the need for accurate reporting, and the annual required contribution (ARC). The workshop reviews financial valuation results based on various funding scenarios, explores funding options, and outlines the impact on credit ratings. Lastly, it touches on relevant legislative initiatives aimed at empowering local governments in managing these obligations effectively.
E N D
Other Post Employment Benefits Public Policy Workshop April 24, 2007
Overview • Overview • Valuation & Financial Results • Funding Options • Credit Rating Implications • Legislative Initiatives • Conclusion
Overview • GASB 45 – requires accounting for and reporting of the liability related to benefits provided to retirees by State and local governments. • For Mecklenburg County, the effective date is FY 2007-2008. • Liability is not new, but calculating and disclosing the amount of the liability is new. • Private sector has been reporting this since 1993. • Requires reporting of, not funding of the liability.
Valuation & Financial Results • County hired Mercer HR Consulting to prepare actuarial valuation. • Purpose of Valuation:a) Identify the County’s total liability.b) Determine the Annual Required Contribution (ARC). • ARC consists of two components:a) Amortization of the accrued liability.b) Normal Cost.(Includes the current PAYGO portion) • Valuation included three scenarios based on different funding & investment strategies.
Valuation & Financial Results • Funded Plan – Assumes full funding of annual required contributions and assets would be invested in a mix of equities and fixed income investment vehicles (60% stocks, 40% bonds). Discount Rate: 7.5% • 50% Funded Plan – assumes partial funding of the plan and assets would be invested in a mix of equities and fixed income investment vehicles (60% stocks, 40% bonds).Discount Rate: 5.5% • Unfunded Plan: assumes no additional funding and assets would be invested using the guidelines in the County’s existing investment policy.Discount Rate: 3.5%
Credit Rating Implications • All three credit rating agencies have indicated that a government’s management of its OPEB obligations will be part of future credit analysis and ratings. • Unfunded liabilities that continue to grow put pressure on a government’s credit rating. • Government’s are expected to demonstrate a plan to manage this liability for the long term.
Credit Rating Implications • Fitch will view negatively an issuer that chooses not to address the liability in any substantive way. • Moody’s expects government’s to have implemented a plan to address the liability within three years. • S&P will view OPEB liabilities the same way it analyzes unfunded pension obligations. Poorly funded pension plans can constrain the credit quality of an issuer.
Legislative Initiatives • Mecklenburg County Legislation: would permit the County to invest in equities; not permissible under current State law. • State Treasurer’s Legislation: would permit the Treasurer’s office to invest OPEB contributions on behalf of local governments.
Conclusion • The Board of Commissioners will have to consider these funding options as part of budget deliberations. • Can request the actuary to provide different funding options if the Board would like other options to consider.
