Notes to the Financial Statements

June 30, 2016

Note 13 Other Postemployment Benefits (OPEB)

The State sponsors two defined benefit OPEB plans: the State Employee OPEB Plan (SEOPEBP) and the Retired Teacher Healthcare Plan (RTHP). SEOPEBP is administered by the State Comptroller (Healthcare Policy and Benefit Division), and RTHP is administered by the Teachers' Retirement Board. None of these plans issues stand-alone financial statements. However, financial statements for these plans are presented in Note No. 14.

State Employee OPEB Plan
Plan Description
SEOPEBP is a single-employer defined benefit OPEB plan that covers retired employees of the State who are receiving benefits from any State-sponsored retirement system, except the Teachers' Retirement System and the Municipal Employees' Retirement System. The plan provides healthcare and life insurance benefits to eligible retirees and their spouses. Plan benefits, required contributions of plan participants and the State, and other plan provisions are described in Sections 5-257 and 5-259 of the General Statutes. As of June 30, 2015 (date of the latest actuarial valuation), the plan had 70,776 retirees and beneficiaries receiving benefits.

Plan Funding
The contribution requirements of the plan members and the State are established and may be amended by the State legislature, or by agreement between the State and employees unions, upon approval by the State legislature. The cost of providing plan benefits is financed approximately 100 percent by the State on a pay-as-you-go basis through an annual appropriation in the General fund. Administrative costs of the plan are financed by the State.

Retired Teacher Healthcare Plan
Plan Description
RTHP is a single-employer defined benefit OPEB plan that covers retired teachers and administrators of public schools in the State who are receiving benefits from the Teachers' Retirement System. The plan provides healthcare insurance benefits to eligible retirees and their spouses. Plan benefits, required contributions of plan participants and the State, and other plan provisions are described in Section 10-183 of the General Statutes. As of June 30, 2016 (date of the latest actuarial valuation), the plan had 40,160 retirees and beneficiaries receiving benefits.

Plan Funding
The contribution requirements of plan members and the State are established and may be amended by the State legislature. The cost of providing plan benefits is financed on a pay-as-you-go basis as follows: active teachers' pay for one third of plan costs through a contribution of 1.25 percent of their annual salaries, retired teachers pay for one third of plan costs through monthly premiums, and the State pays for one third of plan costs through an annual appropriation in the General Fund. Administrative costs of the plan are financed by the State.

Annual OPEB Cost and Net OPEB Obligation
The State's annual OPEB cost and the net OPEB obligation for each plan for the current fiscal year were as follows (amounts in thousands):

  SEOPEBP RTHP
Annual Required Contribution $1,443,716 $130,331
Interest on Net OPEB Obligation 456,117 44,139
Adjustment to Annual Required Contribution (464,237) (36,487)
Annual OPEB Cost 1,435,596 137,983
Contributions Made 546,284 19,960
Increase in net OPEB Obligation 889,312 118,023
Net OPEB Obligation - Beginning of Year 8,002,059 980,868
Net OPEB Obligation - End of Year $8,891,371 $1,098,891

In addition, other related information for each plan for the past three fiscal years was as follows (amounts in thousands):

  Fiscal
Year
Annual
OPEB
Cost
Percentage of
Annual OPEB
Cost Contributed
Net
OPEB
Obligation
SEOPEBP
2016 $1,435,596 38.1% $8,891,371
2015 $1,541,667 35.4% $8,002,059
2014 $1,560,006 33.0% $7,006,676
RTHP
2016 $137,983 14.5% $1,098,891
2015 $118,175 21.3% $980,868
2014 $192,851 13.5% $887,838

Funded Status and Funding Progress
The following is funded status information for the SEOPEBP and the RTHP as of June 30, 2015 and 2016, respectively, date of the latest actuarial valuations (amounts in million):    

  Actuarial   Actuarial   Unfunded        UAAL as a
   Value of   Accrued   AAL   Funded   Covered   Percentage of
   Assets   Liability (AAL)   (UAAL)   Ratio   Payroll   Covered Payroll
   (a)    (b)   (b-a)   (a/b)   (c)   ((b-a)/c)
SEOPEBP $229.6 $19,119.6 $18,890.0 1.2% $3,895.1 485.0%
RTHP $- $2,997.5 $2,997.5 0.0% $3,949.9 75.9%

Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding in progress, presented as required supplementary information following the notes to the financial statements, present multi-year trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued liability for benefits.

Actuarial Methods and Assumptions
Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the State and the plan members) and include the types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit costs between the State and plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations.

Significant methods and assumptions were as follows:

  SEOPEBP RTHP
Actuarial Valuation Date 6/30/2015 6/30/2016
Actuarial Cost Method Projected Unit Credit Entry Age
Amortization Method Level Percent of Pay, Closed, 30 Years Level Percent of Pay, Open
Remaining Amortization Period 22 Years 30 Years
Asset Valuation Method Market Value of Assets Market Value of Assets
Actuarial Assumptions:
Investment Rate of Return 5.70% 4.25% (includes inflation)
Projected Salary Increases 3.75% 3.25%-6.50% (includes inflation)
Healthcare Inflation Rate 10.00% graded to 5.00% over 5 years 2.75%

Other OPEB Plan
The State acts solely as the administrator and custodian of the assets of the Policemen and Firemen Survivors' Benefit Fund (PFSBF). The State makes no contribution to and has only a fiduciary responsibility for this fund. The fund does not issue stand-alone financial statements. However, financial statements for this fund are presented in Note No. 14.

Plan Description
PFSBF is a cost-sharing multiple-employer defined benefit OPEB plan that covers policemen and firemen of participating municipalities in the State. As of June 30, 2014 there were 9 municipalities participating in the plan with a total membership of 591 active members. The plan provides survivor benefits upon the death of an active or retired member of the fund to his spouse and dependent children. Plan benefits, contribution requirements of plan members and participant municipalities, and other plan provisions are described in Sections 7-323a to 7-323i of the General Statutes.

Contributions
Plan members are required to contribute one percent of their annual salary. Participating municipalities are required to contribute at an actuarially determined rate. Administrative costs of the plan are financed by participating municipalities.