Governmental Accounting Standards Board (GASB) Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other than Pensions (OPEB) (GASB-75) is in the process of being implemented by many state and local governments. For those governments that recently implemented the new pension standards, many of the provisions of GASB-75 are familiar. The actuarial valuation process is similar to pensions. The note disclosure and required supplementary information are also similar. But for many employers, there will be significant differences.
Major Differences Between Pensions and OPEB for Employers
The information being presented for OPEB will be different than pensions for many employers.
First, many employers have their own plans (known as single employer plans) rather than being members of a larger plan, such as a statewide retirement system (PERS). Therefore, much of the underlying data will be audited at the employer (or a health care plan or administrator contracted by the employer).
Second, OPEB may have been traditionally financed through ‘pay-as-you-go.’ In such a system, the employer reported any accumulated deficiencies in OPEB funding as compared to actuarially required (or determined) contributions. GASB-75 now requires reporting a liability in the Employer’s Statement of Net Position, representing the actuarially calculated total OPEB liability, less any assets that are accumulated in an irrevocable trust dedicated to the OPEB liability. This amount may be very different than the former net OPEB obligation.
Third, if the employer manages a single employer plan, the employer may have to reexamine what the employer has traditionally included as part of an OPEB amount (or if the employer should have presented as OPEB). (Multiple-employer plans may have more well-defined policies and procedures). In accordance with GASB-75, the majority of OPEB is related to retiree (not current employee) medical benefits. However, it also includes retiree vision, dental and similar benefits. In some cases, death benefits, long-term care insurance, disability and other forms of insurance or retirement benefits if provided separately from a pension plan are also OPEB. Termination benefits are not OPEB unless the termination has an effect on an OPEB benefit. An example of this would be if a government offers an early retirement incentive in the form of health care benefits for a specific period of time as a result of longevity of service. The incentive then extends preexisting retiree health care benefits to an earlier age, instead of at normal retirement age. Care must be taken in deciding what OPEB is in other circumstances. Activities such as workers’ compensation are not OPEB. Workers’ compensation is provided during an employee’s service.
Fourth, OPEB may be eliminated or curtailed if insurance is utilized. If the risk of providing benefits after employment for OPEB events is covered by the payment of insurance premiums, reporting of OPEB would be limited. If an insured plan exists, risk also transfers to the insurer. In other situations, employers force retirees to subscribe to a Medicare plan upon eligibility. In such cases, the risk transfers to Medicare, potentially curtailing the employer’s exposure. This is commonly known as the “Medicare Toggle.”
Fifth, OPEB plan amendments can occur through legislation or contract at a far greater frequency than many pension plans. In some cases, changes to pensions requires a state constitutional amendment.
Finally, calculating an OPEB liability is highly dependent on medical claims costs, insurance rates and other plan-specific elements. The actuary considers a number of factors including:
As medical costs and trends are volatile and must consider factors such as new research, technology, education about illnesses, even geographic location, in addition to age and other data, calculating an OPEB liability is far different than pensions.
Putting it All Together
If an employer has OPEB, the employer should have documentation regarding:
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