The Governmental Accounting Standards Board (GASB) has released GASB 75 “Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions” – a new accounting standards for public Other Post Employment Benefit (OPEB) plans which will replace GASB 45.
These Statements largely mirror recent changes to pension accounting made under GASB 67/68 and will significantly alter the measurement and reporting standards previously in place under GASB 45. This new Statement will move accounting for OPEB to the balance sheet and income statement from the notes disclosure, bringing more focus onto OPEB liabilities and related outflows/inflows. Implementation of these Statements is required for fiscal years beginning after June 15, 2017.
What Is Changing?
The biggest change under GASB 75 will be moving the OPEB Obligation to the plan sponsor’s balance sheet vs. the notes in the financial statement. This is being done with a series of new terminology which largely replaces currently familiar terms:
- Total OPEB Liability -replaces Actuarial Accrued Liability (AAL)
- Fiduciary Net Position – replaces Plan Assets
- Net OPEB Liability – replaces Unfunded ActuarialAccrued Liability (UAAL)
- Deferred Inflow & Outflows – amortization of variationsfrom expected (changes in assumptions, demographics and investment returns)
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What Type Of Plan Do You Have?
The three most common are Single Employers, Agent Employer and Cost Sharing Employers. There are additional scenarios such as a “special funding situation” which would require additional calculations beyond what is detailed here.
• A Single Employer Plan
This is an OPEB Plan where the benefits are provided to the employees of only one employer.
• An Agent Employer Plan
This is an OPEB Plan where assets are pooled for investment purposes but segregated so each employer’s share is legally only available to pay the benefits of their own employees.
• A Cost Sharing Plan
This is an OPEB Plan whereby the OPEB Obligations of multiple employers are pooled and any plan assets are available to pay the benefits of any employer participating in the OPEB Plan.
What About Small Employers?
While a plan with under 200 covered participants was required to have a valuation performed triennially under GASB 45, GASB 75 requires all plans to have a valuation done at least biennially regardless of size. The Alternative Measurement Method (“AMM”) will still be permitted for plans with fewer than 100 covered participants.
What Is My Actuarially Determined Contribution?
GASB has recognized that the Annual Required Contribution (ARC) is not necessarily the best approach to accounting for OPEB benefits. Therefore, the ARC is no longer be the funding standard for a plan and a new Actuarially Determined Contribution (ADC) will be used as the funding standard for the plan. The ADC will be calculated by the actuary and must be a reasonable and actuarially based method for recognizing benefits earned during the present fiscal year and benefits previously earned but not yet reflected in the Net OPEB Obligation.
Are There New Disclosures?
New disclosures will be required under GASB 75 similar to those added for GASB 68. They include ten year schedule of changes to the Net OPEB as well
as various components of OPEB liability, expenses, and related ratios. There will also be new disclosures detailing deferred outflows/inflows of resources from the plan. These will be included to help show what factors are influencing plan liabilities over time and will also draw attention to the funded status of the plan. Examples of these schedules will be published in a future white paper.
If you have any questions about what the GASB 75 rollout will mean for you or would like more information, please contact your Odyssey Advisors representative.
Odyssey was founded in 1998 by Parker Elmore to bring the skills and tools used by larger employers to the small and middle market. Our consultants have extensive experience in public & private pension systems and work with hundreds of cities, towns, schools, housing authorities and more of varying sizes. Odyssey’s GASB 75 team comprises health and pension actuaries and consultants who have a thorough understanding of the complex issues relating to GASB 75 and how they impact you and your organization.