Retiree Group Benefits

Quickly Approaching Changes for Measuring Retiree Group Benefits

Take a closer look at the changes for measuring retiree group benefits.

Nov 09, 2015

Quickly Approaching Changes for Measuring Retiree Group Benefits

The Actuarial Standards Board has finalized the Actuarial Standard of Practice (ASOP) used in determining liabilities under FASB ASC 715-60 and GASB 45. ASOP No. 6 (ASOP 6) provides guidance and recommended practices for actuaries who value retiree group benefits plans, including medical, dental and prescription drug plans. This standard is important for organizations that sponsor retiree benefit plans as it may have an impact on an employer’s retiree health care liabilities.

What the Change Means for You

There is one particular revision to ASOP 6 that will impact most employers that offer retiree health benefits through a pooled health plan. A pooled health plan is defined as a health benefit plan in which premiums are based at least in part on the claims experience of groups other than the group being valued. Examples include community rated plans and large pooled health plans such as NYSHIP.

The newly added standard for pooled health plans changes the way that a health care plan is valued. The revised ASOP 6 requires that the costs of the plan be age-specific. Past practice of utilizing unadjusted premiums as the underlying costs will no longer be an acceptable methodology (with limited exceptions). The cost of a particular retiree health plan is a major driver of the underlying liability. Therefore, transitioning from the commingled active & pre-65 retiree unadjusted premium methodology to the new age-specific methodology will likely result in a large unfavorable impact on the ASC 715-60 or GASB 45 liability.

For example, for retirees participating in NYSHIP, it is likely that the commingled active & pre-65 retiree premium is being used as the cost for pre-65 retirees. It is not unusual for the age specific cost of an average pre-65 retiree to be twice that of an average active; effectively lower cost actives are subsidizing higher cost pre-65 retirees. With the implementation of ASOP 6, the age specific pre-65 retiree cost is required to be valued and will likely result in a large increase to the pre-65 retiree portion of the liability.

Retiree Only Health Plans

For retiree only health plans where one unadjusted premium was previously utilized, there may be an impact due to ASOP 6 as well, however the impact will not be as severe. For example, age-specific costs for Medicare-eligibles will vary by age. Older retirees are more expensive than younger retirees. Since the valuation is a long term projection of future years of benefits, the overall liability may increase due to the aging population.

Timing for implementation is measurement dates on or after March 31, 2015; however if roll-forward techniques are used in the measurement, the standard is not effective until three years after the last full measurement before March 31, 2015. Earlier adoption is permitted.

The revised version of ASOP 6 includes more guidance regarding other topics such as health care trend selection, disclosures for plans with assets, and consistency with other ASOPs.

Please contact your Harbridge Consultant for further information on how the changes to ASOP 6 may impact your plan.

Harbridge Advisor is provided as a service to our clients. Harbridge Consulting Group does not practice law and this communication does not constitute legal advice.

Harbridge Consulting Group is a national employee benefits and actuarial consulting practice with extensive experience providing pension and healthcare actuarial and consulting services as part of the combined organization Benefit Plan Administrative Services, Inc. (BPAS).