Accounting standards and actuarial guidelines are subject to constant review and revision over time, with a focus on improving the clarity and accuracy of reporting. At Burke Group our commitment is to remain at the forefront of these changes. Recently two new guidelines have been published which could significantly impact the liabilities, reporting, and potentially how employers choose to structure their benefits in the future.

The first development of note is that in May the Actuarial Standards Board published Actuarial Standard of Practice Number 6 (ASOP 6), which governs how medical plans are valued. The practical impact of this publication is that “community rating” has effectively been eliminated as a designation, meaning that all medical plans are required to be treated as experience rated or self-funded in the future.

This means that:

• For employer who currently offer community rated plans, or plans that are treated as community rated due to being pooled in a state or consortium plan, this will result in an increase (probably significant) in the Actuarial Accrued Liability (AAL), and all of the associated expenses.
• Even retirees who do not contribute towards coverage but are allowed to remain in the medical plan will represent a liability to the employer.

This also means that even employers who previously did not have an actuarial liability, and did not need to have valuations done, may now have a liability and need to have valuations done. As always you should discuss this with your auditor to see if this now applies to you. We would also be happy to discuss your plan with you to see if you now need to have valuations done.

This change goes into effect for all employers with a measurement date on or after March 31, 2015.

The second change is that the Government Accounting Standards Board (GASB) in June issued a preliminary draft of changes to GASB 45. While these changes are not final yet, the new standard is currently slated to go into effect for fiscal years beginning after December 15, 2016. Prudent employers may want to begin planning for these changes now.

Significant changes:

• Employers with less than 200 employees will no longer be eligible for triennial valuations.
• Larger employers are “encouraged” to have valuations done more frequently than biennially.
• The accounting methodology will change, requiring the immediate recognition of the Actuarial Accrued Liability (AAL).
• The actuarial cost method has been restricted to Entry Age Normal over a Level Percent of Pay.
• Guidelines for the setting of discount rates have been clarified.
• The addition of eight different “what if” scenarios that need to be presented in disclosures.

In short, we are looking at a significant revision in how benefits are calculated and reflected by employers over the next 3 years. At Burke Group we will be working with everyone to ease you through this transition. If you have any questions about how this could potentially impact your plan, you are welcome to contact either myself or Vince Cassano at Burke Group by calling (585) 624-5500.