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WS -3 WORK SESSION MEMORANDUM To: City Council From: Al Rolek Date: April 4, 2011 Re: GASB 43/45 Government Accounting Standards Board (GASB) Statement No. 45 requires governmental entities to account for and report in their financial statements any obligations for Other Postemployment employee Benefits (OPEB), other than pensions. The City of Lino Lakes implemented GASB 45 effective January 1, 2008 and hired an actuary to determine the City's liability for its postemployment healthcare benefits. The City does not contribute to healthcare costs after an employee retires from the city. However, MN Statutes allow a city employee that retires after age 50 with 20 years of service to continue coverage under the City's healthcare program until age 65. Although the City does not pay directly for the benefits of the retiree, the group may experience increased premium rates over a period of years due to the inclusion of retirees in the group. This is known as an Implicit Rate Subsidy. In addition, MN Statutes require the city to carry and contribute to the healthcare benefits of public safety employees who are retired due to disabilities, or families of public safety employees killed in the line of duty, the same as they would an active employee. The State reimburses the City for a portion of these costs. The actuary's report does not take into consideration these reimbursements. The actuarial study uses a number of assumptions to determine the annual OPEB costs, the contributions made toward these costs, and the accrual of OPEB obligations over an extended period of time. In reality, the City pays for these liabilities annually on a pay - as- you -go basis. However, the actuary takes into account future liabilities of the city and these liabilities must be reported in the city's financial statements. The City annually reports its OPEB liability in the Notes to the Financial Statements found in the Comprehensive Annual Financial Report. The net OPEB obligation at the end of 2009 was $44,734, and the estimate for 2010 is $64,035. Again, this figure represents the city's future OPEB costs given the set of actuarial assumptions. Page 2