Employee Benefit Fund (Fund 73) Requirements

Date:December 21, 2005, Effective for Fiscal Years Beginning July 1, 2005 and later

To: Interested Parties

From: Kathy Guralski,
School Finance Auditor

Subject: Employee Benefit Fund (Fund 73) Requirements

This document provides current DPI requirements concerning establishment of a benefit trust by school districts for post-employment benefits. Financial information in a school district annual report to the department must be based on the accounting system prescribed by the State Superintendent.

These requirements apply to all post-employment benefit plans where the district is providing for such benefits by contributions to a legally established irrevocable trust. Unless a school district has established such a trust, post employment benefits are reported as a cost when payment for the benefit is made. This is a "pay as you go" method, in contrast to recording cost "when earned," that is, recording a cost as employees are providing services to the district. Upon establishment of such a trust, a district has elected to no longer record cost on the “pay as you go” method and therefore, all current retiree costs are paid by the trust, not by general operating funds. Any payment to current retirees made with general operating funds is considered part of the ARC.

The department recognizes that post-employment benefits may represent a significant liability that must be funded. The department also acknowledges that it is fiscally appropriate to have the cost and funding recognized and provided for such benefits as they are earned. The Wisconsin Uniform Financial Accounting Requirements "WUFAR" for school districts has a separate accounting fund, "Employee Benefit Trust Fund" (Fund 73) for reporting resources set aside and held in a trust arrangement for post-employment benefits.

The following are conditions and considerations in the use of the Employee Benefit Trust Fund:

The post-employment benefits accounted for in the Fund must result from a contractual agreement as compensation for employee services. The district's obligation to pay for the benefits must accumulate during employment although the actual benefits are provided and payment for the provided benefits does not occur until after employment.
The school board must agree, in a formal, legally constituted trust agreement to establish a trust to hold and disburse resources set aside for the post-employment benefits. Employees eligible for benefits paid through the trust shall be notified that they may obtain a copy of the trust agreement upon request. The department must be provided with a copy of the trust agreement and board minutes approving the establishment of the trust.
Physical segregation of trust assets must be made. The Trust Fund may not be merely an accounting shell consisting of a fund on the district's accounting records. Trust Fund assets cannot be used for purposes other than to provide benefits for which the trust was established. An employer may amend or terminate the trust, but no assets may revert to the employer unless all liabilities have been satisfied.
The department, in establishing accounting and reporting requirements for post-employment benefits, is not making a legal determination as to the authority of the school district to provide a particular benefit, nor is it making a limitation on benefits that the district has authority to provide.
A written opinion must be obtained from the district's legal counsel that the trust, as established, is within the authority of school board. This opinion must state that the trust complies with applicable state statutes, federal laws and regulations. The department must be provided with a copy of this opinion.
The district must consult with appropriate professionals regarding Internal Revenue Service and other regulatory agencies filing and reporting requirements applicable to the trust. The district shall determine that the trust has met all such requirements.
The Wisconsin Employment Relations Commission must be consulted on issues concerning the effect of providing and costing post-employment benefits on qualified economic offer calculations.
Individuals performing the trustee role for the Fund must be informed that they have a fiduciary responsibility concerning transactions of the Fund.
Contributions to the Trust Fund shall be as per contractual agreements if such agreements specify the district make required contributions to a legally established trust.
The Codification of Governmental Accounting and Financial Reporting Standards (GASB Cod. Sec. P20) issued by the Governmental Accounting Standards Board, "GASB," has identified acceptable cost methods to determine the annual required contribution (ARC) necessary to fund government employee benefit plans on an actuarial method. The department must be provided with a copy of the actuarial annual required contribution or other acceptable cost method calculation. For plans with a total membership of 200 or more an actuarial annual required contribution should be performed at least biennially. For plans with a total membership of fewer than 200 an actuarial annual required contribution or other acceptable cost method calculation should be performed at least triennially.
The United States Office of Management and Budget, in OMB Circular A-87, has established the standards for determining costs eligible to be charged to federally funded financial programs. Post employment benefit costs calculated using an actuarial method recognized by generally accepted accounting principles are allowable if the payments are to be made to a trustee to maintain a Trust Fund or reserve for the sole purpose of providing post-employment benefits. Contributions in a fiscal year that are less than the ARC actuarially determined amount may be eligible to be claimed against federal programs dependent upon program regulations. Eligible costs are to be allocated to Federal awards and all other activities in a manner consistent with the pattern of benefits attributable to the individuals or group(s) of employees whose salaries and wages are chargeable to such Federal awards and other activities.
State special education categorical aid, per statute 115.88(1), is based on salary related cost for specified staff employed. Contributions in a fiscal year less than or equal to the ARC determined amount will be eligible for state special education categorical aid administered by the DPI. Circular A-87 requires federally funded programs have employee costs accorded consistent treatment with non-federally funded activities. Eligible costs are to be allocated to special education and all other activities in a manner consistent with the pattern of benefits attributable to the individuals or group(s) of employees whose salaries and wages are chargeable to such categorical awards and other activities.
The following contributions to the trust fund are to be reported as "Other Support Services" (function 290 000) and an employee benefit (200 series object):

13.1. Contributions determined by using a "terminal" method where the currently determined value of an individual's future benefits is contributed to the Trust Fund at the time of employment termination, retirement or benefit commencement.

13.2. Contributions, although computed on the basis of the ARC, that are made only for a selected group of employees eligible for the benefit. An example is making a contribution to the Fund based on the ARC for special education employees only.

13.3.Contributions in excess of the ARC to the extent that an unfunded liability exists. Contributions in excess of this limit must be recorded as a deferred charge against future year contributions. Contributions in excess of the ARC are not eligible for categorical state aid in the current year.
Contributions of amounts less than the annual required contribution (ARC) and up to the annual required contribution for all benefit eligible employees is to be reported as an employee benefit (200 series object) code and associated with the function account corresponding to the activities of the employee. Such coding will permit the benefit contribution to be claimed against categorical aided programs.
The district must fund contributions (i.e. make payment to the trust) by June 30, for the fiscal year then ended.
All contributions to a post-employment benefit trust made in accordance with the provisions of this letter and charged to the district's General Fund will be an aided cost as computed under the current equalization aid formula.
The audited financial statements must contain note disclosures that the GASB has identified as minimum disclosure requirements for financial statements presented in accordance with generally accepted accounting principles.
The requirements identified in this letter are subject to future revision to be in compliance with state and federal legal requirements and with GASB pronouncements.
Copies of the following information must be provided to Kathy Guralski, Wisconsin Department of Public Instruction, 125 South Webster Street, P.O. Box 7841, Madison, Wisconsin, 53707-7841:

19.1. Most Recent Actuarial Valuation or Other Acceptable Cost Method Calculation
19.2. Employee Benefit Trust Agreement and any amendments
19.3. Legal Opinion
19.4. Board Approval

Please contact Kathy Guralski at (608) 266-3862 with any questions regarding this information.

For questions about this information, contact dpifin@dpi.wi.gov (608) 267-9114

Last updated on 2/25/2008 11:56:30 AM