The Actuarially Determined Contribution (ADC)

Key Benefit ConceptsOPEB, Services

An important item to consider when funding your post-employment benefits through a Trust is how much to contribute annually, which can depend on a number of variables.  Perhaps you are simply placing extra funds at the end of the fiscal year into your Trust or maybe you have a set dollar amount budgeted each year to contribute.  Regardless, your actuary should provide you with an Actuarially Determined Contribution (ADC) or ADC amortization schedule showing potential options of what you can contribute on an annual basis to reach the point of having your accumulated assets equal your accrued liabilities.

The ADC consists of two parts, one being an amortized portion of the current net accrued liabilities as of the measurement date and the other being a service cost amount.  The service cost is the amount that your current active employees are earning towards their post-employment benefits annually.  The current net accrued liabilities (defined as either the Net OPEB or Pension Liability) can be amortized over a period of 1 to 30 years.  The lower the period that this liability is amortized over, the greater the ADC will be as you are funding the same liability over a shorter period.

The calculated ADC options are not required amounts that need to be contributed, since as noted in a prior blog (, GASB does not require entities to fund their post-employment benefits through a Trust nor do they provide guidelines on how to fund such benefits.  Rather, these ADC options can provide guidance on what to fund if you want to achieve a $0 Net OPEB or Pension Liability over a specific period.

You do have the ability to select a new ADC based on a different amortization period each year if you so choose. We typically recommend selecting an amortization period and resulting ADC that is at the level the District intends to fund for the next two years.  Further, in the case of WI School Districts amounts contributed to the Trust may be eligible for additional state aid.  However, in this instance aid will only be provided on the amounts up to the determined ADC and not exceeding.  Therefore, it is important to select the right ADC to maximize your potential aid.

For further information on funding your post-employment benefits and how to select an ADC, contact us today!