Governmental Accounting Standards Board Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (GASB 75) is going to change the government-wide statements for many governmental employers significantly. GASB 75 was issued in June 2015 and became effective for fiscal years beginning after June 15, 2017, which directly impacts the financial statements for many governmental entities whose fiscal year ends June 30, 2018, and beyond.
Why GASB 75?
The new reporting requirements for an employer’s other post-employment benefits (OPEB) parallel the changes in reporting requirements as outlined by GASB Statement No. 68, Accounting and Financial Reporting for Pensions (GASB 68), which applies similar accounting and financial reporting principles to pension plans. Like GASB 68, GASB 75 intends to improve accounting and financial reporting by state and local governments for post-employment benefits other than pensions by changing the way OPEB liabilities are calculated and increasing transparency in reporting.
Basic Overview of GASB 75
GASB 75 replaces GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions and establishes new standards for recognizing and measuring liabilities, expense/expenditures, deferred outflows of resources, and deferred inflows of resources regarding OPEB. The new GASB statement requires the presentation of liability for OPEB obligations in the employer’s financial statements.
- New Terminology and Calculations. The total OPEB liability under the new standard will be equal to the actuarial accrued liability for the plan. For plans administered through a qualifying trust, the net OPEB liability is equal to the total OPEB liability minus the fiduciary net position. For the plans not managed through a qualifying trust, the net OPEB liability will equal the total OPEB liability, as there is no fiduciary net position. The previous annual required cost is replaced by the new OPEB expense calculation.
- Entire unfunded OPEB liability will appear in the Statement of Net Position. GASB 45 focused more on the funding of the annual required contribution (ARC). If the ARC was fully funded each year, it is possible that little or no liability has been reported. GASB 75 changes the focus from, “ required annual contributions adequate?” to, “how large is the net OPEB liability?” and recording that liability on the Statement of Net Position.
- Actuarial valuation and measurement dates. GASB 75 allows for a measurement date of the total OPEB liability of up to twelve (12) months prior to the reporting date (fiscal year end), and the actuarial valuation should be as of a date no more than 30 months and day earlier than the employer’s most recent fiscal year end.
- More frequent valuations. Biennial valuations are now required for all plans, although more frequent annual valuations are still encouraged. Triennial valuations for smaller plans (less than 200 members) are no longer allowed. However, the alternative measurement method continues to be available for plans with less than 100 members.
- Additional disclosures. GASB 75 introduces more robust and comprehensive information in the notes to the financial statements. In addition to descriptions of the types of benefits and covered employees, how plan contributions are determined, and assumptions/methods used to calculate the OPEB liability, the standard will also require a description of changes of assumptions and other inputs. “Sensitivity analysis” of the impact of healthcare cost trend rates and discount rates and balances of deferred outflows/inflows of resources are also required. Additional disclosure requirements will also depend on the OPEB plan type.
- Additional schedules. The required supplementary information includes a 10-year schedule of changes in the net (or total) OPEB liability and a 10-year schedule of contributions. Governments are also now required to present notes to the RSI schedules regarding factors that significantly affect the trends in the schedules.
Types of OPEB
OPEB are divided into the two categories:
- Post-employment healthcare benefits, such as medical, dental, vision, hearing, and other health-related insurance; and
- Other forms of post-employment benefits, such as life insurance, long-term disability, long-term care benefits, and other non-pension benefits.