Transcript OPEBs: Implementation Issues For Public Power

OPEBs: Implementation Issues For
Public Power
APPA 2005 Business & Finance Conference
September 27, 2005
Jeffrey M. Tuttle, Vice President – Human Resources
Objectives
• Overview of GASB 43 & 45
• Generic Implications For Public Power
• Share Some Of CPS Energy’s Response
Overview
• Nation’s Largest Municipally Owned Energy Company
(Over 610,000 Electric & 300,000 Natural Gas Customers),
Supporting The Nation’s 8th Largest City
• Founded In 1860, Bought By City In 1942
• Highest Financial Rating of Any Electric System In US (AA+)
• Over $7 Billion in Assets, $1.4-1.5 Billion In Revenue &
Roughly 3,900 Employees
• Over 5,500 Megawatts of Generation Capacity (Nuclear,
Coal, Gas, Oil, & Wind)
GASB 43 & 45
• GASB (GASB 43) entitled "Financial Reporting for
Postemployment Benefit Plans Other Than Pension Plans"
was enacted in April, 2004. GASB 43 requires the accrual of
liabilities of other postemployment benefits (OPEB) generally
over the working career of plan members rather than on a
pay-as-you-go basis, which is the current practice for most
government sponsored plans.
• GASB 45 entitled "Accounting and Financial Reporting by
Employers for Postemployment Benefits Other Than
Pensions" was enacted in June, 2004. GASB 45 requires the
accrual of the OPEB expense over the same time period.
• The term "postretirement" is sometimes used instead of
"postemployment".
GASB 43 & 45
Continued
• GASB 43 & 45 requires that the promise made to provide
retirees benefits must now be accrued during the working
years of employees and recognized as a financial obligation of
the employer.
• Obligations must be reported on financial statements of all
large public sector employers beginning the first tax
reporting period after December 15, 2006, smaller employers
have up to 2008.
• The obligation represents the actuarial present value of
OPEBs expected to be paid to or on behave of the employees
under the terms of the plan.
GASB 43 & 45
Continued
• OPEBs Are Post Employment Benefits Other Than Pension
And Generally Takes The Form of Defined Benefit Health,
Dental, Vision, Prescription Drug, and Life Insurance.
• Private Sector & Non-Profit Employers Have Been Subject to
OPEB Reporting Since The Early 1990s Under FASB 106
Rules.
GASB Rules Will
Effect Most of Us
• According to the Kaiser Family Foundation’s Employer
Health Benefits 2004 Annual Survey, 77% of public sector
employers employing more than 200 workers offer some
form of retiree health care benefits.
• The effects will grow in the future considering the aging
workforce, reduced and restricted budgets, increased
competition, etc..
• Rating Agencies have indicated that they will now consider
GASB 45 obligations in their financial analyses of our
companies.
Implications For
Public Power
• Modify our plans/commitments for our
retirees (major effect on recruitment &
retention of qualified employees).
• Start funding OPEB expenses in trust funds
(a drain on tight bottom lines).
• Financing impacts – ability to borrow and
interest rates.
CPS Energy Response
• CPS Energy has been funding OPEBs since
1982/1983.
– Health Trust established January 1, 1982, assets
in excess of $130 million
– Group Life Trust established December 15, 1983,
assets in excess of $44 million
– Disability Trust established November 1, 1983,
assets in excess of $4 million
CPS Energy Response
• Initiated extensive health care claim and
benchmarking study in 2005.
–
–
–
–
Review claim data
Review provider networks
Review plan design
Consider consumer-driven options
CPS Energy Response
• Review of Medicare Modernization Act
(Medicare Part D – Prescription Drug
Coverage)
• Several Options Reviewed:
– Retain Current Plan & Take Subsidy, Retirees
Turn Down Part D
– Retain Current Plan & Integrate With Part D,
Retirees Sign Up For Part D
– Exit Retiree Prescription Drug Coverage, Have
Retirees Sign Up For Part D
Pros/Cons of Part D Subsidy
• Advantages
– Eligible for tax free federal subsidy equal to 28% of Rx
spending between $250 - $5,000 per person ($1,330
maximum)
– CPS maintains control over benefit design and cost
sharing policy
– Positive retiree perception (no disruption of coverage)
• Cons
– Employer must file annual actuarial equivalence report
– Retirees must not enroll in Part D
– Will the subsidy survive budgetary and political
pressures?
Questions
Jeff Tuttle
210-353-4360 (office)
210-289-8400 (mobile)
[email protected] (e-mail)