Accounting & Auditing

GASB Approves Other Post-Employment Benefits Exposure Drafts

June 2014

At its meeting on May 28, 2014, the Governmental Accounting Standards Board (GASB) voted to approve three new exposure drafts. The post-employment benefits (OPEB) exposure drafts are expected to provide financial statement users with a more comprehensive measure of the needed resources to make good on benefits state and local governments have promised, along with the annual costs related to those promises. The changes mirror the fundamental improvements in accounting and financial reporting approved by GASB in 2012 for pensions (the first phase of the post-employment benefits project). Governments would be required to recognize their net OPEB liabilities on the face of their financial statements. The third exposure draft proposes requirements for pensions and pension plans outside the scope of the pension standards released in 2012. GASB expects to release the exposure drafts in mid-June 2014. Comments will be due by August 29, 2014.

Similar to the pension standards, GASB will issue a proposed standard for the employer and another for the OPEB plan. Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (OPEB Employer Exposure Draft) includes guidance for reporting by governments that provide OPEB to their employees and for governments that finance OPEB for employees of other governments, such as retiree health insurance benefits. If finalized, the standard will have a significant effect on balance sheets of government employers that have not set aside assets to pay for those benefits.

The second exposure draft, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans (OPEB Plan Exposure Draft), addresses reporting by OPEB plans that administer those benefits. The plan exposure draft addresses financial reports of defined benefit OPEB plans administered through trusts that meet certain criteria; it also details proposed note disclosure requirements for defined contribution OPEB plans.

The third exposure draft, Accounting and Financial Reporting for Pensions and Financial Reporting for Pension Plans That Are Not Administered through Trusts That Meet Specified Criteria, and Amendments to Certain Provisions of GASB Statements 67 and 68, would establish requirements for pensions and pension plans not administered through a trust meeting specified criteria.

OPEB Employer Exposure Draft

Governments have an obligation to pay OPEB based on the level of retirement benefits promised to employees in exchange for their service. The employer exposure draft proposes significant changes to how a government would calculate and report its annual expense and long-term liability for the defined benefit OPEB they provide for the purpose of reporting them in the annual audited financial statements. For governments that provide OPEB through a defined benefit OPEB plan administered through a trust that meets specified criteria, this liability would be the net OPEB liability—the difference between the total OPEB liability and net position accumulated in the trust. The proposals do not apply to how a government measures OPEB for the purpose of determining whether to set assets aside to fund future OPEB payments and, if so, how much to set aside.

These OPEB trusts would be required to meet all three of the following criteria:

  • Contributions to the OPEB plan from the government and other entities, as well as earnings on those contributions, are irrevocable.
  • OPEB plan assets are dedicated to providing OPEB to the plan members.
  • OPEB plan assets are protected from creditors.

For governments that do not provide OPEB through such a trust, the total OPEB liability would be the liability reported by the government.

The OPEB Employer Exposure Draft also proposes significant changes to how a government would calculate its OPEB liability and annual expense. These proposed changes include:

  • For OPEB administered through a trust meeting the criteria, projected OPEB payments would be discounted to their present value using the long-term expected rate of return on OPEB plan assets administered through a trust, if the trust meets specified criteria to the extent plan assets are expected to be available to make projected benefit payments and be invested using a strategy to achieve that return. To the extent these conditions are not met, the projected OPEB payments would be discounted using a 20-year, tax-exempt, high-quality general obligation municipal bond yield or index rate.
  • For OPEB not administered through a trust meeting the criteria, projected OPEB payments would be discounted to their present value using the 20-year, tax-exempt rate referenced above.
  • Governments would use a single actuarial cost allocation method, the “entry age actuarial cost method.”
  • Governments immediately would recognize additional components of OPEB expense.

The proposed standard would require governments in defined benefit OPEB plans to present more extensive note disclosures and required supplementary information about their OPEB liabilities.

In an effort to reduce costs for smaller governments, the exposure draft proposes to retain the option to use a specified alternative measurement method in place of an actuarial valuation for purposes of determining the total OPEB liability for benefits provided through plans in which there are fewer than 100 plan members (active and inactive).

OPEB Plan Exposure Draft

The OPEB Plan Exposure Draft addresses the financial reports of defined benefit OPEB plans administered through trusts meeting the criteria. The OPEB plan document also addresses how assets accumulated for purposes of providing OPEB through defined benefit OPEB plans not administered through trusts meeting the criteria should be reported. In addition, the document proposes note disclosure requirements for defined contribution OPEB plans administered through trusts meeting the criteria.

Contact your BKD advisor for more information.

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