GASB Issues New Standards on Retiree Benefits Reportingby
The Governmental Accounting Standards Board (GASB) on Tuesday unanimously approved two standards that provide improvements to how state and local governments report other postemployment benefits (OPEB), such as retiree health insurance, on their balance sheets.
The board also approved a third standard that establishes financial reporting requirements for pensions and pension plans that are outside the scope of the pension rules the standard-setting board published in 2012.
All three standards were first proposed by the GASB in May 2014.
The most significant component of the two OPEB standards – GASB Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, and GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions – is that state and local governments would be required to recognize their net OPEB liabilities on the face of their financial statements, providing all financial statement users with a more comprehensive understanding of significant OPEB promises than is currently available, according to the GASB.
The new OPEB standards parallel the pension standards the GASB issued in 2012 – GASB Statement No. 67, Financial Reporting for Pension Plans, and GASB Statement No. 68, Accounting and Financial Reporting for Pensions.
“These OPEB standards usher in the same fundamental improvements in accounting and financial reporting that were previously introduced for pensions,” GASB Chairman David Vaudt said in a written statement. “Because OPEB promises represent a very significant liability for many state and local governments, it is critical that taxpayers, policymakers, bond analysts, and others are equipped with enhanced information, which will enable them to better assess the related financial obligations and annual costs of providing OPEB.”
Statement 74 addresses the financial reports of defined benefit OPEB plans administered through trusts that meet specified criteria. The rule requires a statement of fiduciary net position, as well as a statement of changes in fiduciary net position. The standard also requires more extensive note disclosures and required supplementary information (RSI) related to the measurement of the OPEB liabilities for which assets have been accumulated, including information about the annual money-weighted rates of return on plan investments. Statement 74 also provides note disclosure requirements for defined contribution OPEB plans.
Statement 75 requires governments to report a liability on the face of the financial statements for the OPEB that they provide. In addition:
- Governments that are responsible only for OPEB liabilities related to their own employees and that provide OPEB through a defined benefit OPEB plan administered through a trust that meets specified criteria will report a net OPEB liability – the difference between the total OPEB liability and assets accumulated in the trust and restricted to making benefit payments.
- Governments that participate in a cost-sharing OPEB plan administered through a trust that meets the specified criteria will report a liability equal to their proportionate share of the collective OPEB liability for all entities participating in the cost-sharing plan.
- Governments that do not provide OPEB through a trust that meets specified criteria will report the total OPEB liability related to their employees.
Statement 75 also requires governments in all types of OPEB plans to present more extensive note disclosures and RSI about their OPEB liabilities. Among the new note disclosures is a description of the effect on the reported OPEB liability of using a discount rate and a healthcare cost trend rate that are one percentage point higher and one percentage point lower than assumed by the government. The new RSI includes a schedule showing the causes of increases and decreases in the OPEB liability and a schedule comparing a government’s actual OPEB contributions to its contribution requirements.
The third standard, GASB 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, complete the suite of pension standards by establishing requirements for those pensions and pension plans that are not administered through a trust meeting specified criteria.
The provisions in Statement 74 are effective for financial statements for periods beginning after June 15, 2016. The provisions in Statement 75 are effective for fiscal years beginning after June 15, 2017. The provisions in Statement 73 are effective for fiscal years beginning after June 15, 2015 – except those provisions that address employers and governmental nonemployer contributing entities for pensions that are not within the scope of Statement 68. Those provisions are effective for financial statements for fiscal years beginning after June 15, 2016. Earlier application is encouraged.
The three standards will be posted on the GASB website in late June.