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AUDIT: 2015 -GASB 45 - OPEB STROM & ASSOCIATES, PC Certified Public Accountants P.O.Box 1980 Billings,Montana 59103 Board of County Commissioners Jefferson County Boulder,MT 59632 To the Board of County Commissioners,Jefferson County: We have performed the following calculation of other post-employment benefit liability(OPEB)in accordance with government accounting standards board statement number 75(GASB-75)for the year ended June 30,2015. As noted in the attached footnotes the calculation used various assumptions which are the responsibility of management of Jefferson County. The alternative measurements method used the entry age normal method as required by GASB-75. Due to the change in method,other assumptions,and benefit terms(as noted in the attached footnotes)the estimated actuarial accrued liability(AAL)which should be recorded for the current year has changed from$1,589,180 to$848,849. The following journal entries are proposed as examples of how the entry should be recorded in the Solid Waste Fund of Jefferson County. This entry was proposed assuming 7%of the covered payroll of Jefferson County relates to the Solid Waste fund. If a different percentage is used,adjustment to the entry should be made accordingly. Solid Waste Fund Debit: OPEB Liability $44,506 Credit Restatements $44,506 Government Wide(not recorded in individual funds) Debit: OPEB Liability $695,825 Credit: Restatements $695,825 This results in an overall OPEB liability recorded on the government wide statement of net position governmental activities of $789,430 and in the solid waste fund of$59,419 for a total liability of$848,849. Calculations used data and assumptions provided by management that are unaudited. These data and assumptions are the responsibility of management of Jefferson County and use of the final AAL and footnote disclosures is provided for approval and use at the discretion of management of Jefferson County. STROM&ASSOCIATES,PC Billings,Montana August 31,2015 NOTE XX. OTHER POST EMPLOYMENT BENEFITS Plan Description—The County provides the same health care plan to all of its members. The County had fewer than 100 plan participants and thus qualified to use an Alternative Measurement Method instead of an actuarial valuation to determine the OPEB liability. Valuations involve estimates of the reported amounts and assumptions about the probability of events far into the future and estimated amounts are subject to continued revision as actual results are compared with past expectation and new estimates are made about the future. Projections of benefits for the plan are based on types of benefits provided under the current plan. The County implemented GASB-75 in the current year and made applicable changes to valuation method and assumptions as noted below. Funding Policy- The government pays OPEB liabilities on a pay as you go basis. The trust fund for future liabilities has not been established. Benefits Provided—The County provides healthcare benefits for retirees and their dependents. Retirees are required to pay 100% of the health insurance premium to retain the healthcare benefits. The County covers 100% of the premiums for active employees. Emplovees covered by benefit terms. At July 1,2014,the following employees were covered by the benefit terms: Active employees 70 Retired employees 2 Total OPEB Liability The County's total OPEB liability of $848,849 was measured as of July 1, 2014, and was determined by alternative measurements method using Entry Age Normal method. Assumptions and other inputs. The total OPEB liability in the July 1, 2014 entry age normal method was determined using the following assumptions and other inputs,applied to all periods included in the measurement,unless otherwise specified: Inflation 1.49% Salary increases 3.00% Discount rate(adjusted for inflation rate) 1.00% Health care cost rate trend Year %Increase 2015 5.20% 2016 4.90% 2017 4.70% 2018 4.90% 2019 5.30% 2020 5.60% 2021 5.70% 2022 5.60% 2023 and after 5.70% Retiree's share of benefit related costs 1000/. Changes in the Total OPEB Liability Balance at June 30,2014 $ 6,168 911 Changes for the year: Service cost 123,207 Interest 61,391 Changes of benefit terms 78,932 Changes in assumptions or other inputs (5,398,994) Benefit payments (184.598) Net Changes (5.320.0621 Balance at June 30,2015 $ 848,849 Changes in benefit terms were increased premiums from$7,541 to$8,462 yearly. The County changed the estimated retirement age from 62 to 63 based on the prior 10 years history of retirees. The current year discount rate of 1%is based on an estimated long term rate of return adjusted for estimated inflation. Estimated health cost trend rates were reduced by approximately 1%each year to better reflect estimated upcoming increases in health insurance cost. Estimated salary increases were changed from 2.8%to 3.00%. The alternative measurement method was changed from the"Unit Credit Cost Method" to the "Entry age normal method" and amortized as a level percentage of payroll to comply with government accounting standards board statement number 75(GASB- 75). Estimated premium payments for retirees were changed from 100%to 0%to reflect the actual County premium payments for retirees. Sensitivity of the total OPEB liability to changes in the discount rate. The following presents the total OPEB liability of the County well as what the County's total OPEB liability would be if it were calculated using a discount rate that is (- percentage-point lower(0%)or l-percentage-paint higher(2%)than the current discount rate: 1%Decrease Discount Rate 1%Increase OU Total OPEB Liability $ 886,243 $ 848,849 $ 796,812 Sensitivity of the total OPEB liability to changes in the healthcare cost trend rates. The following presents the total OPEB liability of the County, as well as what the County's total OPEB liability would be if it were calculated using healthcare cost trend rates that are 1-percentage-point lower (% decreasing to %) or l-percentage-point higher (% decreasing to %) than the current healthcare cost trend rates: Healthcare Cost 1%Decrease Trend Rates I%Increase (42%to4.7%1 (52%to5.7%1 Total OPEB Liability $ 736,137 $ 848,849 $ 984,920 The County did not have deferred outflows or inflows of resources associated with the OPEB liability. REQUIRED SUPPLMENTARY INFORMATION Schedule of changes in the County's total OPEB liability and related ratios Total OPEB Liabilitv June 30,2015 Service cost $ 123,207 Interest 61,391 Changes of benefit terms 78,932 Changes of assumptions or other inputs (5,398,994) Benefit payments (184,598) Net change in total OPEB liability (5,320,062) Total OPEB liability—beginning 6,168.911 Total OPEB liability—ending % 848.849 Covered-employee payroll $ 3,155,604 Total OPEB liability as a percentage of covered-employee payroll 27% Notes to schedule: Changes ofhenejIt terms. Amounts presented reflect increased premiums from$7,541 to$8,462 yearly. Changes of assumptions. Changes of assumptions and other inputs reflect the effects of changes in the estimated retirement age from 62 to 63,change in the estimated discount rate to 1%,reduction of estimated health cost trend rates approximately 1%each year, changes in estimated salary increases from 2.8%to 3%, change in the measurement method from unit credit cost to entry age normal,and changes in the estimated premium provided to retirees by the County from 100%to 0%. Information in this schedule is provided for only one year,prior year information is not available. AUDIT: 2015 ARC - GASB 45