NOTICES
PENNSYLVANIA eHEALTH PARTNERSHIP AUTHORITY
Financial Statements
INDEPENDENT AUDITORS' REPORT
[46 Pa.B. 7912]
[Saturday, December 17, 2016]To the Executive Director
Pennsylvania eHealth Partnership Authority
Harrisburg, PennsylvaniaWe have audited the accompanying financial statements of the PENNSYLVANIA eHEALTH PARTNERSHIP AUTHORITY (the ''Authority''), a component unit of the Commonwealth of Pennsylvania, as of and for the year ended June 30, 2016, and the related notes to the financial statements, which collectively comprise the Authority's basic financial statements as listed in the table of contents.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the Authority as of June 30, 2016, and the respective changes in financial position and cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Adoption of Governmental Accounting Standards Board Statements
As discussed in Note 1 to the financial statements, during the year ending June 30, 2016, the Authority adopted the provisions of Governmental Accounting Standards Board's Statement No. 72, ''Fair Value Measurement and Application'', Statement No. 76, ''The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments'', and Statement No. 79, ''Certain External Investment Pools and Pool Participants''. Our opinion is not modified with respect to these matters.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the schedule of the Authority's proportionate share of the net pension liability and the schedule of the Authority's contributions on pages 19-20 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquires of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
Omission of Management's Discussion and Analysis
Management has omitted the management's discussion and analysis that accounting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements. Such missing information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. Our opinion on the basic financial statements is not affected by this missing information.
ZELENKOFSKE AXELROD LLC
Harrisburg, Pennsylvania
October 25, 2016
STATEMENT OF NET POSITION
JUNE 30, 2016
ASSETS Investments $2,229,889 Interest Receivable 1,077 Due From Primary Government 2 Grants Receivable 725,789 TOTAL ASSETS 2,956,757 DEFERRED OUTFLOWS OF RESOURCES Deferred Outflows of Resources from Pensions 1,277,537 TOTAL DEFERRED OUTFLOWS OF RESOURCES 1,277,537 LIABILITIES Current Liabilities: Accounts Payable 850,570 Other Liabilities 58,823 Noncurrent Liabilities: Compensated Absences 76,519 Other Post Employment Benefits 111,301 Pension Liability 2,726,162 TOTAL LIABILITIES 3,823,375 DEFERRED INFLOWS OF RESOURCES Deferred Inflows of Resources from Pensions 49,427 TOTAL DEFERRED INFLOWS OF RESOURCES 49,427 NET POSITION Restricted 361,492 TOTAL NET POSITION $361,492
__________
__________The accompanying notes are an integral part of the financial statements.
STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION
YEAR ENDED JUNE 30, 2016
Operating Revenues Contributions: Commonwealth $1,500,000 Intergovernmental Revenue 1,698,274 TOTAL OPERATING REVENUES 3,198,274 Operating Expenses Personnel 1,684,406 Operations 3,399,758 TOTAL OPERATING EXPENSES 5,084,164 OPERATING LOSS (1,885,890) Nonoperating Revenues Interest income 11,171 NONOPERATING REVENUES 11,171 Decrease in Net Position (1,874,719) NET POSITION, Beginning of Year 2,236,211 NET POSITION, End of Year $361,492
__________
__________The accompanying notes are an integral part of the financial statements.
STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 2016
Cash Flows from Operating Activities: Cash receipts from contributions $1,500,059 Cash receipts from intergovernmental revenues 1,117,518 Cash paid for personnel services (1,364,968) Cash paid for operating expenses (2,926,536) Net cash used in operating activities (1,673,927) Cash Flows from Investing Activities: Net investment activity 1,663,197 Interest on investments 10,730 Net cash provided by investing activities 1,673,927 Change in cash — Cash, Beginning of Year — Cash, End of Year $—
__________
__________Reconciliation of Operating Loss to Cash Flows Used in Operating Activities: Operating Loss $(1,885,890) Adjustments to reconcile operating loss to net cash provided by operating activities: Effects of changes in operating assets and liabilities: Grants receivable (580,756) Other Assets (210,732) Due from primary government 59 Accounts payable 430,525 Due to primary government (12,106) Compensated absences (11,376) Other post employment benefits 56,704 Other liabilities 539,645 Net cash used in operating activities $(1,673,927)
__________
__________The accompanying notes are an integral part of the financial statements.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 2016NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Organization
The Pennsylvania eHealth Partnership Authority (the ''Authority'') was established by Act 121 of 2012 (effective July 5, 2012), as an independent agency of the Commonwealth of Pennsylvania (the ''Commonwealth''). The Authority took over the work of its predecessor, the PA eHealth Collaborative, a separate fund of the Commonwealth. The purpose of the Authority is to improve healthcare delivery and healthcare outcomes in Pennsylvania by providing, as appropriate, leadership and strategic direction for public and private, federally-funded and state-funded investments in health information technology (HIT) initiatives, including electronic health information exchange (eHIE) capabilities and other related HIT initiatives.
The Authority's operations are administered by a board of directors consisting of fifteen members including the following: the Secretary of Health or a designee; the Secretary of Public Welfare, or a designee; seven members are appointed by the Governor; three members are appointed by the President pro tempore of the Senate, in consultation with the Majority and Minority Leaders of the Senate; and three members are appointed by the Speaker of the House of Representatives, in consultation with the Majority and the Minority Leaders of the House of Representatives.
The Authority is a component unit of the Commonwealth reporting entity due to the Commonwealth's ability to impose its will on the Authority. The Authority is presented as an enterprise fund on the accrual basis of accounting.
B. Measurement Focus and Basis of Accounting
The Authority follows Generally Accepted Accounting Principles (GAAP). GAAP allows specialized accounting for government entities, which is governed by pronouncements set by the Government Accounting Standards Board (GASB).
The Authority is considered a special-purpose government since it is engaged solely in business-type activities under GASB Statement No. 34. The Authority's financial statements are prepared using the economic resources measurement focus and accrual basis of accounting. Under the accrual basis of accounting revenues are recorded when earned and expenses are recorded when they have been incurred. The statements are intended to report the Authority as an economic unit that includes all measurable assets and liabilities, financial and capital, of the institution.
All activities of the Authority are accounted for within a single proprietary (enterprise) fund. A proprietary fund is used to account for operations that are (a) financed and operated in a manner similar to private business enterprises where the intent of the governing body is that the costs (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges; or (b) where the governing body has decided that periodic determination or revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, account ability, or other purpose.
The Authority follows the Government Accounting Standards Board (GASB) Statement No. 34, Basic Financial Statements and Management's Discussion and Analysis. Within the Statements of Revenues, Expenses and Changes in Net Position, Statement No. 34 requires operating income and expenses to be separated from non-operating income in order to show net operating income. Operating income and expenses are defined as those activities directly related to the Authority's primary business of providing employment through economic development lending. Non- operating revenues and expenses consist of those revenues and expenses that are related to financing and investing types of activities and result from non-exchange transactions, such as investment income/loss.
When an expense is incurred for purposes for which both restricted and unrestricted net positions are available, the Authority's policy is to apply restricted net position first, then unrestricted net position as they are needed.
C. Net Position
Restricted Net Position—This category presents external restrictions imposed by creditors, grantors, contributors or laws and regulations of other governments and restrictions imposed by law through constitutional provisions or enabling legislation.
D. Investments
The Authority values its investments at fair value. The fair value of the Authority's investments are based upon values provided by external investment managers and quoted market prices.
E. Use of Estimates
The preparation of financial statements requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
F. Statement of Cash Flows
The Authority considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. Cash equivalents are stated at cost, which approximates fair value.
G. Pensions
For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Pennsylvania State Employees' Retirement System (SERS) and additions to/deductions from SERS' fiduciary net position have been determined on the same basis as they are reported by SERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value.
H. Deferred Outflows/Inflows of Resources
The Statement of Net Position reports separate sections for deferred outflows and deferred inflows of resources. These separate financial statement elements represent a consumption or acquisition of net position that applies to a future period(s) and so will not be recognized as an outflow or inflow of resources (expense/revenue) until then. The Authority has one item that qualifies for reporting in these categories: deferred outflows/inflows related to pensions.
Deferred outflows/inflows of resources related to pensions are described further in Note 3. The components of deferred outflows of resources and deferred inflows of resources, other than the difference between the projected and actual earnings on investments, are amortized into pension expense over a closed period, which reflects the weighted average remaining service life of all SERS members beginning the year in which the deferred amount occurs (current year). The annual difference between the projected and actual earnings on SERS investments is amortized over a five-year closed period beginning the year in which the difference occurs (current year).
I. Adoption of Governmental Accounting Standards Board Statements
In February 2015, the GASB issued Statement No. 72, ''Fair Value Measurement and Application''. In June 2015, the GASB issued Statement No. 76, ''The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments''. In January 2016, the GASB issued Statement No. 79, ''Certain External Investment Pools and Pool Participants''. The adoption of these statements had no impact on the Authority's financial statements.
J. Pending Changes in Accounting Principles
In June 2015, the GASB issued Statement No. 73, ''Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68''. The Authority is required to adopt Statement No. 73 for its fiscal year 2017 financial statements.
In June 2015, the GASB issued Statement No. 74, ''Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans''. The Authority is required to adopt Statement No. 74 for its fiscal year 2017 financial statements.
In June 2015, the GASB issued Statement No. 75, ''Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions''. The Authority is required to adopt Statement No. 75 for its fiscal year 2018 financial statements.
In August 2015, the GASB issued Statement No. 77, ''Tax Abatement Disclosures''. The Authority is required to adopt Statement No. 77 for its fiscal year 2017 financial statements.
In December 2015, the GASB issued Statement No. 78, ''Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans''. The Authority is required to adopt Statement No. 78 for its fiscal year 2017 financial statements.
In January 2016, the GASB issued Statement No. 80, ''Blending Requirements for Certain Component Units—An Amendment of GASB Statement No. 14''. The Authority is required to adopt Statement No. 80 for its fiscal year 2017 financial statements.
In March 2016, the GASB issued Statement No. 81, ''Irrevocable Split-Interest Agreements''. The Authority is required to adopt Statement No. 81 for its fiscal year 2018 financial statements.
In March 2016, the GASB issued Statement No. 82, ''Pension Issues—an amendment of GASB Statements No. 67, No. 68, and No. 73''. The Authority is required to adopt Statement No. 82 for its fiscal year 2017 financial statements.
The Authority has not yet performed analysis to determine the impact of these statements.
NOTE 2: DEPOSIT AND INVESTMENT RISK
The Commonwealth's fiscal code, as amended, authorizes the Authority to invest in obligations of the U.S. government and government-sponsored agencies and instrumentalities; certificates of deposits, fully insured or collateralized; certain commercial paper and repurchase agreements; highly rated bank promissory notes or investment funds or trusts; and ''prudent man'' investments as determined by the Authority's depository (i.e. Commonwealth Treasury Department).
All of the Authority's investments are invested in the Liquid Asset Pool of the Commonwealth which is managed by the Commonwealth's Treasury Department (the Treasury Department).
The deposit and investment policies of the Treasury Department are governed by Sections: 301, 301.1 and 505 of the Pennsylvania Fiscal Code (Act of 1929 P.L. 343), and Section 321.1 of the Pennsylvania Administrative Code (Act of 1929 P.L. 177. No. 175).
Treasury deposits must be held in insured depositories approved by the Board of Finance and Revenue and must be fully collateralized. The Fiscal Code grants the Treasury Department the authority to invest in any deposits and investments subject. This authority is subject, however, to the exercise of that degree of judgment and care under the circumstances then prevailing which persons of prudence, discretion and intelligence who are familiar with such matters exercise in the management of their own affairs not in regard to speculation but in regard to the permanent disposition of the funds considering the probable income to be derived therefrom as well as the probable safety of their capital. Treasury Department deposits and investments may include equity securities and mutual funds.
As of June 30, 2016, the Treasury Department manages the Commonwealth Investment Program (CIP). Treasury is required to exercise careful judgment in determining those investments that are appropriate for each Commonwealth fund based upon distinct investment criteria such as income needs, cash flow requirements, investment time horizons, and risk tolerance. All investments are made in accordance with the statutory authority described in the preceding paragraph. The CIP investment pool structure invests in both equity securities and fixed income securities to achieve the investment objectives of the funds of the Commonwealth Investment Program. Asset allocation targets among cash, equity securities, fixed income securities and alternative are established in order to meet these overall objectives.
Treasury has created two separate Pools within the Commonwealth Investment Program, each with its own distinct investment strategies, goals, and holdings that reflect the differing needs of Commonwealth funds for income, cash flows, and investment risk tolerance. A highly liquid vehicle, Pool 99 (Liquid Asset Pool), is a stable share price investment vehicle that invests exclusively in fixed income securities, primarily of short duration; in essence a money market fund. A less liquid vehicle, Pool 198 (Common Investment Pool), is a variable share price investment vehicle that seeks to generate additional investment return over time by investing in a diversified portfolio of fixed income, equity, and alternative securities.
As of June 30, 2016, the balance of the Authority's investments held in the Commonwealth Investment Pool was $2,229,889.
NOTE 3: RETIREMENT BENEFITS
General Information about the Pension Plan
Plan Description
All employees of the Authority participate in the Pennsylvania State Employees' Retirement System (SERS), a cost-sharing multiple-employer defined benefit pension plan established by the Commonwealth to provide pension benefits for employees of state government and certain independent agencies. Membership in SERS is mandatory for Authority (and other state) employees. Article II of the Commonwealth's constitution assigns the authority to establish and amend the benefit provision of the plan to the General Assembly. SERS issues a publicly available financial report that can be obtained at www.sers.pa.gov.
Benefits Provided
SERS provides retirement, death, and disability benefits. Member retirement benefits are determined by taking years of credited service, multiplied by final average salary, multiplied by 2%, multiplied by class of service multiplier. Authority employees participate in one of the following class of service categories: Class A, Class AA, Class A-3 or Class A-4. According to the State Employees' Retirement Code (SERC), all obligations of SERS will be assumed by the Commonwealth should SERS terminate.
Contributions
Section 5507 of the SERC (71 Pa.C.S. § 5507) requires the Commonwealth and other employers whose employees are SERS members to make contributions to the fund on behalf of all active members and annuitants necessary to fund the liabilities and provide the annuity reserves required to pay benefits. SERS funding policy, as set by the board, provides for periodic active member contributions at statutory rates. The SERS funding policy also provides for periodic employer contributions at actuarially determined rates based on SERS funding valuation, expressed as a percentage of annual retirement covered payroll, such that they, along with employee contributions and an actuarially determined rate of investment return, are adequate to accumulate assets to pay benefits when due. However, Act 2010-120 imposes rate increase collars (limits on annual rate increases) on employer contributions. The collar for Commonwealth fiscal year 14/15 was 4.5% and will remain at that rate until no longer needed. The Authority's retirement contribution, as a percentage of covered payroll, by class is as follows:
Year Ended June 30 Class A Class AA Class A-3 Class A-4 2016 19.89% 24.86% 17.18% 17.18% 2015 15.94% 19.92% 13.77% 13.77% 2014 12.10% 15.12% 10.46% 10.46% Contributions to the pension plan from the Authority were $211,544 for the fiscal year ended June 30, 2016.
Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions
At June 30, 2016, the Authority reported a liability of $2,726,162 for its proportionate share of the net pension liability. The net pension liability was measured as of December 31, 2015, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The Authority's proportion of the net pension liability was based on a projection of the Authority's long-term share of contributions to the pension plan relative to the projected contributions of all participating agencies, actuarially determined. At December 31, 2015, the Authority's proportion was 0.015%, which was a decrease of .026% from its proportion measured as of December 31, 2014.
For the fiscal year ended June 30, 2016, the Authority recognized pension expense of $555,455. At June 30, 2016, the Authority reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:
Deferred Outflows of Resources Deferred Inflows of Resources Differences between expected and actual experience $55,202 $— Net difference between projected and actual investment earnings on pension plan investments 277,574 — Changes of assumptions 80,993 — Differences between employer contributions and proportionate share of contributions 7,338 18,544 Changes in proportion 741,911 30,883 Authority contributions subsequent to measurement date 114,519 — ______ ______ $1,277,537 $49,427 ______ ______ $114,519 reported as deferred outflows of resources related to pensions resulting from Authority contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2017. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows:
Year ended June 30: 2017 $301,549 2018 301,549 2019 301,549 2020 204,030 2021 4,914 Thereafter - ______ $1,113,591 ______ Actuarial assumptions
Every five years, SERS is required to conduct an actuarial experience study to determine whether the assumptions used in its annual actuarial valuations remain accurate based on current and anticipated demographic trends and economic conditions. The 18th Investigation of Actuarial Experience study for the period 2011—2015 was released in March 2016. The actuary, under oversight of the SERS Board, reviewed economic assumptions (such as the assumed future investment returns and salary increases) as well as demographic assumptions (such as employee turnover, retirement, disability, and death rates). Some assumption adjustments increased projected cost and some decreased projected cost, but the overall result was a slight increase to the net pension liability.
Economic assumption recommendations resulting from the experience study included: keeping the targeted investment return rate assumption at 7.5%; keeping the inflation rate at 2.75%; keeping the general salary growth rate at 3.05%; and decreasing career salary growth rates, by varying amounts depending upon the employee's length of service at all service levels. In addition to the five-year experience study, SERS reviews its investment return assumption in light of economic conditions every year as part of its annual valuation.
Most demographic assumptions remained the same as or similar to experience over the last five years. However, the experience study did recommend changing some assumptions, which are highlighted as follows. The study recommended decreasing disability retirement rates for all active members. Additionally, it recommended adjusting superannuation separation rates, early retirement separation rates, and withdrawal rates for certain active member groupings (gender, age, years of service) in both the general and special membership classes. Furthermore, it recommended decreasing most annuitant and survivor mortality rates.
The board adopted the actuarial assumptions set forth in the 18th Investigation of Actuarial Experience at its March 2016 meeting. The study can be viewed at www.SERS.pa.gov.
The following methods and assumptions were used in the December 31, 2015 actuarial valuation. These methods and assumptions were applied to all periods included in the measurement:
Investment rate of return 7.50% net of expenses including inflation Projected salary increases average of 5.70% with range of 3.85%—9.05% including inflation Inflation 2.75% Mortality rate projected RP-2000 Mortality Tables adjusted for actual plan experience and future improvement Cost of living adjustments (COLA) ad hoc and thus are not considered to be substantively automatic The long-term expected real rate of return on pension plan investments is determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Best estimates of arithmetic real rates of return for each major asset class included in SERS current and target asset allocation as of December 31, 2015, are summarized in the following table:
Asset Class Target Allocation Long-term
Expected Rate
of ReturnAlternative Investments 15.00% 8.50% Global Public Equity 40.00% 5.40% Real Assets 17.00% 4.95% Diversifying Assets 10.00% 5.00% Fixed Income 15.00% 1.50% Liquidity Reserve 3.00% 0.00% ______ Total 100.00% ______ ______ Discount Rate
The discount rate used to measure the total pension liability was 7.50%. The projection of cash flows used to determine the discount rate assumed that employee contributions will be made at the rates applicable for each member and that employer contributions will be made based on rates determined by the actuary and as set by statute. Based on those assumptions, SERS fiduciary net position was projected to be available to make all projected future benefit payments of current active and non-active SERS members. Therefore, the long-term expected rate of return on SERS investments was applied to all periods of projected benefit payments to determine the total pension liability.
Sensitivity of the Authority's proportionate share of the net pension liability to change in the discount rate
The following presents the Authority's proportionate share of the 2015 net pension liability calculated using the discount rate of 7.50%, as well as what the Authority's proportionate share of the net pension liability would be if it were calculated using a discount rate that is one percentage point lower or one percentage point higher than the current rate:
1% Decrease
6.50%Current
discount rate
7.50%1% Increase
8.50%Authority's share of the net pension Liability as of the 12/31/15 measurement date $3,386,407 $2,726,162 $2,160,038 Pension plan fiduciary net position
Detailed information about the pension plan's fiduciary net position is available in the separately issued SERS financial report.
Payables to the Pension Plan
As of June 30, 2016, the Authority reported zero liability within the accounts payable and accrued liabilities on the Statement of Net Position for the Authority's share of contributions that had not yet been paid to SERS.
NOTE 4: POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS
Plan Description
The Commonwealth of Pennsylvania (the ''Commonwealth'') sponsors the Retired Employees' Health Program (REHP). We participate in the Commonwealth's REHP, a single-employer defined benefit postemployment healthcare plan administered by the Pennsylvania Employees' Benefit Trust Fund (PEBTF), acting as a third-party administrator on behalf of the Commonwealth's Office of Administration. The REHP provides health care and prescription drug plan benefits to eligible Commonwealth retirees, and their eligible dependents. The REHP's benefit provisions are established and may be amended by the Commonwealth of Pennsylvania's Office of Administration.
While the Commonwealth accounts for the REHP as a single employer plan, we account for our participation in the plan as a cost-sharing employer, because the plan is administered like a cost-sharing plan with a single actuarial valuation and the Commonwealth allocates annual OPEB costs to Commonwealth funds and component units, consistent with a pooling arrangement. Additionally, the Commonwealth structured the REHP so that employer contributions are irrevocable, plan assets are dedicated to providing benefits to retirees and their beneficiaries in accordance with the terms of the plan, and plan assets are legally protected from creditors of the employer(s) or plan administrator.
The REHP does not issue stand-alone financial statements, however the REHP note disclosures will be included in the Commonwealth's CAFR for the year ended June 30, 2016. For additional information on the REHP including the Commonwealth's total Other Post Employment Benefit (OPEB) expenses, funded status, funding progress, actuarial accrued liability, and the actuarial assumptions used to determine these amounts for the Commonwealth's REHP, a complete actuarial report is available for review at www.budget.pa.gov (select Publications and Reports and under the heading ''Actuarial Reports'' select ''Actuarial Valuation of the Commonwealth's Other Post-Employment Benefits: REHP (August 2015)).
Funding Policy
The Office of Administration and the Governor's Budget Office establish REHP contribution requirements. All employing agencies and certain plan members of the Commonwealth must contribute specified amounts to the REHP.
REHP plan members with a retirement date between July 1, 2005 and June 30, 2007, must contribute 1.0% of their final annual gross salary toward the cost of the REHP coverage. REHP plan members with a retirement date on or after July 1, 2007 but before July 1, 2011 are required to pay retiree contributions of 3.0% of either their final annual gross salary or final average salary, whichever is less. REHP plan members with a retirement date on or after July 1, 2011 are required to pay retiree contributions of 3.0% of their final average salary.
Upon enrollment in Medicare, Commonwealth employees who are currently paying 3.0% will pay retiree contributions of 1.5% of either their final annual gross salary or final average salary, whichever applies.
Surviving spouses and dependents of deceased retirees may continue to participate in the plan if they pay contributions at a rate designed to fund the full cost of the coverage.
For the year ended June 30, 2016, our annual contribution rate was $97,797, and we have made the required contribution to the REHP as determined by the Office of Administration.
The monthly contribution rate was based on a projected retiree cost for the related fiscal year times the number of current, active REHP eligible employees. Effective July 1, 2016, our contribution rate will be approximately $6,299 per month or $75,588 annually. This current level of funding generally represents an amount needed to fund ongoing annuitant health care costs for the current year with a small portion representing advance funding.
The Statements of Funded Status and Funding Progress are disclosed in the Commonwealth's CAFR, Pension and Other Postretirement Benefits footnote for the year ended June 30, 2016. The June 30, 2016, Commonwealth's CAFR can be accessed on-line at www.budget.state.pa.us, select ''Financial Reports'' and select ''Comprehensive Annual Financial Reports''.
NOTE 5: RELATED PARTY
The Authority entered into an Interagency Agreement with the Commonwealth, through the Commonwealth Office of Administration to provide administrative and operational support services for the Authority. The Authority owns no capital assets; the employees performing service for the Authority are Commonwealth employees. As such, under the Interagency Agreement, the Authority reimburses the Commonwealth for services rendered by Commonwealth employees to the Authority. For the fiscal year ended June 30, 2016, the services provided by the Commonwealth to the Authority are recorded as Personnel Services totaled $1,684,406.
NOTE 6: CONTINGENCIES
Litigation
In the normal course of business, there may be various claims and suits pending against the Authority and its appointed officials. Management is of the opinion that these matters, if any, will not have a material adverse effect on the Authority's financial position at June 30, 2016.
Economic Dependency
The program operations of the Authority are funded through multiple grant funding streams. For fiscal year ending June 30, 2016, the Authority recognized $1,698,274 in grant funding. The administrative operations of the Authority are primarily funded through Commonwealth budget appropriations (see Note 8). Reduction of, or loss of, these funding sources could have a significant effect on the Authority's overall operations.
NOTE 7: PROGRAM OPERATIONS
The program operation expenses consist of the following:
Other Authority Program Operations $893,126 P3N Costs 1,616,000 Staff Augmentation 283,327 Payments to Federal Entities 607,305 ______ $3,399,758 ______ NOTE 8: COMMONWEALTH APPROPRIATION
For fiscal year 2015-2016, the Commonwealth of Pennsylvania approved a $1.5 million appropriation from the Commonwealth to the PA eHealth Partnership Authority, which is reflected in the Commonwealth contribution line on the financial statements.
NOTE 9: SUBSEQUENT EVENTS
On July 8, 2016, the Governor signed House Bill 1062 into law. Act 76 of 2016 creates the Pennsylvania eHealth Partnership Program within the Department of Human Services and repeals Act 121 of 2012.
Required Supplementary Information
Schedule of Authority's Proportionate Share of the Net Pension Liability
Pennsylvania State Employees' Retirement System
Last 10 Fiscal Years*
Fiscal Years Ended June 30
2016 2015 2014 Authority's proportion of the net pension liability (asset) 0.01499223% 0.01525873% 0.00681218% Authority's proportionate share of the net pension liability (asset) $2,726,162 $2,267,052 $930,774 Authority's covered-employee payroll $919,133 $928,697 N/A Authority's proportionate share of the net pension liability (asset) as a percentage of its covered-employee payroll 296.60% 244.11% N/A Plan fiduciary net position as a percentage of the total pension liability 58.9% 64.8% 66.7% * The amounts presented for each fiscal year were determined as of the calendar year-end that occurred within the fiscal year.
Fiscal year 2015 was the year of implementation; therefore, only information for the years available is presented.
Schedule of Authority's Contributions
Pennsylvania State Employees' Retirement System
Last 10 Years
Fiscal Year Ended June 30
2016 2015 Contractually required contribution $211,544 $180,543 Contributions in relation to the contractually required contribution (211,544) (180,543) _________________ Contribution deficiency (excess) $ — $ — _________________ _________________ Authority's covered-employee payroll $919,133 $928,697 Contributions as a percentage of covered-employee payroll 23.02% 18.71% Fiscal year 2015 was the year of implementation; therefore, only information for the years available is presented.
[Pa.B. Doc. No. 16-2219. Filed for public inspection December 16, 2016, 9:00 a.m.]
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