Franklin Matters: The latest on Franklin's OPEB

Saturday, November 28, 2015

The latest on Franklin's OPEB

What is OPEB?

OPEB is "Other Post Employment Benefits"

What is Franklin's outstanding unfunded liability?

Per the latest actuarial report (shown below), the unfunded liability is 92.5 million dollars.

Is this an issue?

Yes, it is akin to a homeowner's mortgage, you need to have a plan to pay for it. Franklin has a plan to save for this liability and plans to increase their contribution to it as circumstances allow.

How is Franklin doing compared to other MA communities?

Franklin is doing better than most according to the actuarial update provided at the Town Council meeting on Nov 18th
http://www.franklinmatters.org/2015/11/live-reporting-opeb.html

Here is the cover letter from Sherman Actuarial Services, LLC (SAS):

"The Town of Franklin has engaged Sherman Actuarial Services, LLC (SAS) to prepare an actuarial valuation of their post-retirement benefits program as of June 30, 2015. This valuation was performed using employee census data, enrollment data, claims, premiums, participant contributions and plan provision information provided by personnel of the Town of Franklin. SAS did not audit these data, although they were reviewed for reasonability. The results of the valuation are dependent on the accuracy of the data.

The purposes of the valuation are to analyze the current funded position of the Town's post retirement benefits program, determine the level of contributions necessary to assure sound funding and provide reporting and disclosure information for financial statements, governmental agencies and other interested parties. This valuation report contains information required by the Governmental Accounting Standards Board's Statements Nos. 43 and 45, respectively entitled "Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans" and "Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions."

According to GASB principles, if the benefits are not prefunded, the rate earned by the General Asset Account must be used to select the discount rat used to measure the plan. To measure on that basis we have used a discount rate of 4.0%. The Town is currently partially prefunding the obligation with additional contributions of $400,000. Based on this policy, we have determined that a discount rate of 4.5% is appropriate for financial reporting purposes. If the Town were to commence fully prefunding the Annual Required Contribution instead of paying benefits when due plus $400,000, the measurement would likely be based on an 8.0% discount rate.

Section II provides a summary of the principal valuation results. Section VII provides a projection of funding amounts.

While the actuary believes that the assumptions are reasonable for financial reporting purposes, it should be understood that there is a range of assumptions that could be deemed reasonable that would yield different results. Moreover, while the actuary considers the assumption set to be reasonable based on prior plan experience, it should be understood that future plan experience may differ considerably from what has been assumed.

The report was prepared under the supervision of Daniel Sherman, an Associate of the Society of Actuaries and a Member of the American Academy of Actuaries, who takes responsibility for the overall appropriateness of the analysis, assumptions and results. Daniel Sherman is deemed to meet the General Qualification Standard and the basic education and experience requirement in the pension area. Based on over twenty years of performing FAS 106 valuations of similar complexity, Mr. Sherman is qualified by experience ·in retiree medical valuation. Daniel Sherman has met the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion contained herein.

The costs and actuarial exhibits presented in this report have been prepared in accordance with Generally Accepted Accounting Practices and the requirements of GASB 45. I am available to answer questions about this report. "