Notes to the Financial Statements
June 30, 2008
Note 14 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 (Retirement and Benefits 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. 15.
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.
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. In addition, the
State contributed $10 million this year to finance the cost of providing plan
benefits. Administrative costs of the plan are financed by the State.
As of June 30, 2008, an interim actuarial valuation of the plan disclosed that the plan had an estimated accrued liability of $23.7 billion. Because the valuation was limited in scope, required disclosures on funded status and funding progress of the plan were not made in this note.
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, 2008 (date of the latest actuarial valuation), the plan had 30,619 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% 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 | $ 1,602,739 | $ 116,123 |
| Interest on Net OPEB Obligation | - | - |
| Adjustment to Annual Required Contribution | - | - |
| Annual OPEB Cost | 1,602,739 | 116,123 |
| Contributions Made | 463,697 | 20,770 |
| Increase in net OPEB Obligation | 1,139,042 | 95,353 |
| Net OPEB Obligation - Beginning of Year | - | - |
| Net OPEB Obligation - End of Year | $ 1,139,042 | $ 95,353 |
In addition, other related information for each plan for the current fiscal year was as follows:
| Annual | Percentage of | Net | |
|---|---|---|---|
| OPEB | Annual OPEB | OPEB | |
| Cost | Cost Contributed | Obligation | |
| SEOPEBP | $ 1,602,739 | 28.9% | $ 1,139,042 |
| RTHP | $ 116,123 | 17.9% | $ 95,353 |
Funded Status and Funding Progress
The following is funded status information for the RTHP as of June 30,
2008, date of the latest actuarial valuation (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) | ||||||
| RTHP | $ - | $ 2,318.8 | $ 2,318.8 | 0.0% | $ 3,399.3 | 68.2% |
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 multiyear 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:
| RTHP | |
|---|---|
| Actuarial Valuation Date | 6-30-08 |
| Actuarial Cost Method | Individual Entry Age |
| Amortization Method | Level Percent Open |
| Remaining Amortization Period | 30 Years |
| Asset Valuation Method | n/a |
| Actuarial Assumptions: | |
| Investment Rate of Return | 4.50% |
| Projected Salary Increases | 4.0%-7.5% |
| Healthcare Inflation Rate | 9% Initial, 4% Ultimate |
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. 15.
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
6/30/08 there were 8 municipalities participating in the plan with a total
membership of 600 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.