The University participates in the Commonwealth-sponsored VRS-administered statewide group life insurance program, which provides postemployment life insurance benefits to eligible retired and terminated employees. The Commonwealth also provides health care credits against the monthly health insurance premiums of its retirees who have at least fifteen years of state service. Information related to these plans is available at the statewide level in the Commonwealth’s CAFR.
The University’s annual postemployment benefits expense is actuarially determined in accordance with the parameters of GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, which calls for the measurement and recognition of the cost of other postemployment benefits (OPEB) during the periods when employees render their services. The statement also establishes comprehensive disclosures for OPEB obligations. OPEB refers to postemployment benefits other than pension benefits and includes postemployment health care benefits and other types of postemployment benefits if provided separately from a pension plan. The University implemented GASB Statement No. 45 prospectively as of June 30, 2008, with a zero net OPEB obligation at transition.
PLAN DESCRIPTION AND FUNDING POLICY
Optional Retirement Retiree Life Insurance Plans. University faculty who participate in the Optional Retirement Plans receive $10,000 in retiree life insurance. Medical Center employees who participate in the Optional Retirement Plan have a variety of retiree life insurance options depending on termination date and years of service. Benefit provisions for these plans are established and maintained by the University under the authority of the Board. The University pays the total cost of the insurance. The Optional Retirement Retiree Life Insurance Plans are single-employer plans administered by the University. The University does not issue stand-alone financial statements for the plans.
Retiree Health Plan. University employees who retire before becoming eligible for Medicare participate in the Retiree Health Plan, which mirrors the University’s Health Plan for active employees, until they are eligible for Medicare. At that time, University retirees can participate in the Commonwealth’s Medicare Supplement Plan. Benefit provisions for the Retiree Health Plan are established and maintained by the University under the authority of the Board. It is a single-employer plan administered by the University. The University does not issue stand-alone financial statements for this plan.
The contribution requirements of plan members and the University are based on projected pay-as-you-go financing requirements. For fiscal year 2015, the University contributed $3.4 million to the plan for retiree claims. Retirees receiving benefits contributed $4.5 million, or approximately 57 percent of the total premiums, through their required contributions, ranging from $500 to $2,185 per month.
ANNUAL OPEB COST AND FUNDED STATUS
The University’s annual OPEB cost (expense) is calculated based on the annual required contribution (ARC) of the employer, an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The total cost of providing postemployment benefits is projected, taking into account assumptions about demographics, turnover, mortality, disability, retirement, health care trends, and other actuarial assumptions. This amount is discounted to determine the actuarial present value of total projected benefits. The actuarial accrued liability (AAL) is the portion of the present value of the total projected benefits allocated to years of employment prior to the measurement date. The unfunded actuarial accrued liability (UAAL) is the difference between the AAL and actuarial value of assets in the plan.
Once the UAAL is determined, the ARC is determined as the normal cost and the amortization of the UAAL. This ARC is compared to actual contributions made and any difference is reported as the net OPEB obligation. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial accrued liabilities (or funding excess) over a period not to exceed thirty years.
The following table shows information on the actuarial accrued liability as of June 30, 2014, the most recent valuation of the plan. It also shows, for the current year and two preceding years, the components of the University’s annual OPEB costs, the amount actually contributed to the plans, and changes in the net OPEB obligation for the Optional Retirement Plans Retiree Life and the Retiree Health Plan.
|Current retirees, beneficiaries, dependents and terminated vested members||$20,641|
|Current active members||67,722|
|TOTAL ACTUARIAL ACCRUED LIABILITY||$88,363|
|Actuarial accrued liability as percentage of covered payroll||21.3%|
|Annual required contribution (ARC)||$11,270||$10,571||$11,766|
|Interest on net OPEB obligation||1,831||1,562||849|
|Adjustment to the ARC||(2,752)||(2,291)||(1,246)|
|Annual OPEB cost||10,349||9,842||11,369|
|Net increase in net OPEB obligation||6,524||5,975||9,379|
|Net OPEB obligation — beginning of year||40,681||34,706||25,327|
|NET OPEB OBLIGATION — END OF YEAR||$47,205||$40,681||$34,706|
|Percentage of annual OPEB cost contributed||37.0%||39.3%||17.5%|
As of June 30, 2015, the University has not funded these postemployment benefit plans.
ACTUARIAL METHODS AND ASSUMPTIONS
Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of events far into the future. Amounts determined regarding the funded status of the plan and the required annual 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 progress presented as required supplementary information following the Notes to the Financial Statements presents multi-year trend information that shows whether the actuarial value of plan assets is increasing or decreasing over time relative to the AAL for benefits.
Projections of benefits for financial reporting purposes are based on the substantive plans (as understood by the University 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 employer and plan members to that point. The projection of benefits for financial reporting purposes does not explicitly incorporate the potential effects of legal or contractual funding limitations on the pattern of cost sharing between the employer and plan members in the future. 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.
In the June 30, 2014 actuarial valuation, the University elected to use the entry age normal level dollar method. The actuarial assumptions include a 4.5 percent investment rate of return, which is a blended rate of the expected long-term investment returns on plan assets and the University’s investments calculated based on the funded level of the plan at the valuation date, and an annual health care cost trend rate and a drug cost trend rate of 8.0 percent for the fiscal year ended June 30, 2014, grading to 5.0 percent for the fiscal year ending June 30, 2026, and thereafter. All rates include a 4.0 percent inflation assumption. Past service liability is amortized over an open thirty-year period as a level dollar amount.