City of Seal Beach 9/28/15*

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The 26 agencies that are not recognizing the full amount of their Annual Retired Contribution as expense in the current period [sic] should comply the requirement to do so." As discussed above, the City recognizes the full amount of its Annual Required Contribution as an expense in the current reporting period. The recommendation has already been implemented and no further action is needed by the City to comply with this recommendation.

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The agencies surveyed should recognize their retiree health care benefits in employee compensation in conformity with GAAP. This recommendation has not yet been implemented, but will be implemented in the future, if the State Controller updates its forms to include a line item for the City to identify the difference Hon. Glenda Sanders, Presiding Judge Orange County Superior Court September 28, 2015 'Ai GASB STATEMENT 45 ON OPEB ACCOUNTING BY GOVERNMENTS A FEW BASIC QUESTIONS AND ANSWERS 1. Why was Statement 45 on OPEB accounting by governments necessary? Statement 45 was issued to provide more complete, reliable, and decision-useful financial reporting regarding the costs and financial obligations that governments incur when they provide postemployment benefits other than pensions (OPEB) as part of the compensation for services rendered by their employees. Postemployment healthcare benefits, the most common form of OPEB, are a very significant financial commitment for many governments. 2. How was OPEB accounting and financial reporting done prior to Statement 45? Prior to Statement 45, governments typically followed a "pay-as-you-go" accounting approach in which the cost of benefits is not reported until after employees retire. However, this approach is not comprehensive—only revealing a limited amount of data and failing to account for costs and obligations incurred as governments receive employee services each year for which they have promised future benefit payments in exchange. 3. What does Statement 45 accomplish? • When they implement Statement 45, many governments will report, for the first time, annual OPEB cost and their unfunded actuarial accrued liabilities for past service costs. This will foster improved accountability and a better foundation for informed policy decisions about, for example, the level and types of benefits provided and potential methods of financing those benefits. The Standard also: • Results in reporting the estimated cost of the benefits as expense each year during the years that employees are providing services to the government and its constituents in exchange for those benefits. Provides, to the diverse users of a government's financial reports, more accurate information about the total cost of the services that a government provides to its constituents. Clarifies whether the amount a government has paid or contributed for OPEB during the report year has covered its annual OPEB cost. Generally, the more of its annual OPEB cost that a government chooses to defer, the higher will be (a) its unfunded actuarial accrued liability and (b) the cash flow demands on the government and its tax or rate payers in future years. Provides better information to report users about a government's unfunded actuarial accrued liabilities (the difference between a government's total obligation for OPEB and any assets it has set aside for financing the benefits) and changes in the funded status of the benefits over time. 4. What are the most common misconceptions about Statement 45? a. That it requires governments to fund OPEB. Statement 45 establishes standards for accounting and financial reporting. How a government actually finances benefits is a policy decision made by government officials. The objective of Statement 45 is to more accurately reflect the financial effects of OPEB transactions, including the amounts paid or contributed by the government, whatever those amounts may be. b. That it requires immediate reporting of a financial-statement liability for the entire unfunded actuarial accrued liability. Statement 45 does not require immediate recognition of the unfunded actuarial accrued liability (UAAL) as a financial-statement liability. The requirements regarding the reporting of an OPEB liability on the face of the financial statements work as follows: Governments may apply Statement 45 prospectively. At the beginning of the year of implementation, nearly all governments will start with zero financial- statement liability. From that point forward, a government will accumulate a liability called the net OPEB obligation, if and to the extent its actual OPEB contributions are less than its annual OPEB cost, or expense. The net OPEB obligation (not the same as the UAAL) will increase rapidly over time if, for example, a government's OPEB financing policy is pay-as- you-go, and the amounts paid for current premiums are much less than the annual OPEB cost. Statement 45 does, however, also require the disclosure of information about the funded status of the plan, including the UAAL, in the notes to the financial statements-and the presentation of multi-year funding progress trend information as a required supplementary schedule. c. That it requires governments to report "future costs" for OPEB. It is misleading and incorrect to describe accrual accounting for OPEB as requiring the expensing of "future costs." From an accrual accounting standpoint (the basis of accounting required for all transactions in the government-wide financial statements), the reported expenses relate entirely to transactions (exchanges of employee services for the promised future benefits) that already have occurred. Statement 45 requires governments to report costs and obligations incurred as a consequence of receiving employee services, for which benefits are owed in exchange. The normal cost component of annual expense is the portion of the present value of estimated total benefits that is attributed to services received in the current year. The annual expense also includes an amortization component representing a portion of the UAAL, which relates to past service costs. Estimated benefit costs associated with projected future years of service are not reported.