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Revised Numbered Letter 2018-3: Additional clarity and guidance

April 28, 2020 Article 2 min read
Britni McDole David Helisek Ashley Frase

The Michigan Department of Treasury released additional clarity and guidance in calculating and reporting actuarially determined contributions for other postemployment benefit systems, in order to remain in compliance with Public Act 202 of 2017.

Speaking chamber with empty seats in a semi-circle layout/format. Public Act 202 of 2017 (the “Act”) established reporting requirements for all local units of government that offer or provide defined benefit other postemployment benefit (OPEB) plans. In September 2018, the Treasury released Numbered Letter 2018-3 to provide further guidance in calculating and reporting the actuarially determined contribution (ADC). In March 2020, following a 30-day public comment period on the proposed changes, the Treasury released a revision to Numbered Letter 2018-3, which provides additional clarity and guidance regarding compliance with the Act.

The revised numbered letter emphasizes two key points:

  • The actuarially determined contribution, regardless of a local unit’s funding policy, must be calculated as normal cost plus the amortization of the UAAL in order to comply with the Act.
  • The actuarially determined contribution, calculated in accordance with the Act, must be disclosed in a local unit’s financial statements.

Calculating the actuarial determined contribution

Because OPEB costs are being funded on a pay-as-you-go basis for many governments, some actuaries are calculating the ADC to mirror the PAYGO amounts. Additionally, others are calculating the ADC to comply with a government’s funding policy, which isn’t always aligned with a traditional “normal cost plus amortization” approach, particularly for OPEB. Regardless of a unit’s funding policy, the revised Numbered Letter emphasizes the requirement for the actuary to calculate the ADC as the normal cost plus the amortization of the unfunded actuarial accrued liability. This may result in a change to the manner in which certain ADC calculations are currently done.

Financial statement reporting

Generally accepted accounting principles (GAAP) requires disclosure of the ADC within a government’s financial statements in the required supplementary information section in all circumstances except when a trust hasn’t been established to set aside OPEB plan assets. Even as the number of instances where this occurs is dwindling due to the state’s requirement to fund the normal cost for employees first hired after June 30, 2018, we’re still aware of circumstances where no trust exists. In this case, the ADC should be disclosed in the footnotes to the financial statements.

Failure to comply

Local governments that don’t comply with the revised Numbered Letter could find that their audited financial statements are rejected by the Treasury, their Form 5572 subjections aren’t accepted, and that the calculation of underfunded status is limited solely to the funded ratio criteria.

Local governments that don’t comply with the revised Numbered Letter could find that their audited financial statements are rejected by the Treasury.

The Treasury has also emphasized that noncompliance with Numbered Letter 2018-3 would be considered statutory noncompliance, requiring audit firms to disclose the noncompliance in the footnotes and report a finding for statutory noncompliance.

Additional information

Numbered Letter 2018-3, along with frequently asked questions, can be found by visiting the Michigan Department of Treasury’s website. Questions can also be directed to

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