The Westmont School District provides postemployment health care benefits through a cost-sharing plan administered through the State Teachers OPEB Plan (STOP). In its financial statements for its fiscal year ending June 30, 2017, STOP reported that the collective net liability of all member districts was $2,000,000 and the collective expense was $1,800,000 (all dollar amounts are in thousands). The district's share of contributions to the plan is 2 percent.
1. In its financial statements for its fiscal year-ending June 30, 2016, a year before it had to implement the "new" GASB standard relating to OPEB, the district's required contribution to the plan was $30,000. As it had in prior years, the district made its contribution in full and thereby did not have to report an OPEB liability. Suppose that in fiscal year ending 2017, when it had to implement the new standard, the district's percentage share of the required contributions remained the same.
a. How much of an OPEB liability would the district now have to report?
b. How much of an OPEB expense would it have to report?
2. The new GASB standard requires each member of the plan to indicate how the net OPEB liability would change if the health care cost rate increased and decreased by 1 percent. How would an increase in the health care cost rate affect the net OPEB liability as reported by the Westmont School District?
3. Officials of the Westmont School District contend that, as was required by the "old" rules, as long as it makes its required contribution to the plan it should not have to report an OPEB liability. It notes that it has no control over the plan inasmuch as the OPEB benefits and other policies related to the plan are established by the state and that all investment decisions are made by the state. Therefore, it argues the plan is really that of the state and the state should have to report a liability for any unfunded amounts. Do you agree? What argument can you make in support of the new GASB standard?
4. Suppose that you are the chief financial officer of the district. A member of the board of trustees criticized the new GASB rules in the local newspaper, claiming that the new rules will increase district expenses and force it to either raise property taxes or make severe cuts to educational programs. How would you respond to the member?