What is the Difference Between GASB 74 and GASB 75?

Bottom Line Up Front

• Governmental Accounting Standards Board Statement No. 74 (GASB 74), Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, establishes financial reporting standards for plans that administer OPEB (Other Postemployment Benefits) on behalf of governments.
• Governmental Accounting Standards Board Statement No. 75 (GASB 75), Accounting and Financial Reporting for Postemployment Benefits Other than Pensions, establishes accounting and financial reporting standards for government employers for OPEB (Other Postemployment Benefits).

If you work in municipal finance, accounting, or benefits administration, you’ve likely heard the terms GASB 74 and GASB 75 used together. While the standards are closely related, they apply to different aspects of OPEB reporting and understanding the distinction is important for accurate financial reporting.

What is an OPEB Plan?

OPEB or Other Than Postemployment Benefit plans are benefits other than pensions that are provided to former and retired employees. These benefits are primarily healthcare benefits, but will often include dental insurance, life insurance, and other supplemental benefits.

GASB 74 – Financial Reporting for Postemployment Benefit Plans other than Pension Plans

This statement relates to the financial reporting of the OPEB plan itself rather than the governmental entity, employer, or plan sponsor.

What are the key issues to consider under GASB 74?

1. The Statement relates to accounting & financial reporting for OPEB plans administered through trusts that have the following features:
   
   • Contributions to the Trust and earnings thereon must be irrevocable.
   • OPEB Trust assets may only be utilized to provide OPEB benefits in accordance with plan terms (e.g., may not revert to the plan sponsors until all obligations are satisfied).
   • OPEB Trust assets must be legally protected from the creditors of employers, contributing entities, and plan members.
     
2. The discount rate (interest rate used to determine liabilities) will be based on the interaction of the current level of OPEB Trust assets, the 20-year municipal bond index (e.g., Standard & Poor’s and Bond Buyer) expected future benefit payments, expected future contributions to the OPEB Trust and the OPEB Trust investment policy.
   
   • Higher discount rates yield lower disclosed liabilities & vice versa.
     
3. GASB 74 does NOT allow for asset smoothing – it requires the use of the market value or actual value of plan assets.
   
4. GASB 74 does NOT provide a Measurement Date unlike GASB 75.
   
   • The Measurement Date under GASB 74 is the Reporting Date or fiscal year-end so it is important that the plan sponsor, actuaries, and auditors work together to ensure that reporting deadlines can be met.
     
5. Disclosure is done via Required Supplementary Information (“RSI”) – likely six to eight pages.

GASB 75 – Accounting and Financial Reporting for Postemployment Benefits Other than Pensions

This statement relates to the financial reporting for OPEB that is provided to the employees of state and local governmental employers.

What are the key issues to consider under GASB 75?

1. The discount rate (interest rate used to determine liabilities) will be based on the interaction of the current level of OPEB Trust assets, the 20-year municipal bond index (e.g., Standard & Poor’s and Bond Buyer) expected future benefit payments, expected future contributions to the OPEB Trust and the OPEB Trust investment policy.
   
   • Higher discount rates yield lower disclosed liabilities & vice versa.
   • Absent an OPEB Trust, the discount rate will be the 20-year high-grade municipal bond index. This will create a wider range of volatility for discount rates from period to period. In turn, yielding potentially large swings in liability from period to period.
     
2. While asset smoothing is not explicitly allowed, the use of deferred inflows & outflows of resources allows any asset returns above or below the expected return for the period to be amortized over a period not to exceed five (5) years.
   
3. GASB 75 allows for a Measurement Date of up to 12 months prior to the Reporting Date (fiscal year-end).
   
   • The use of an earlier Measurement Date can alleviate year-end stress by allowing the GASB 75 disclosures to be done well in advance.
   • In the event of an earlier Measurement Date, this will require the disclosure of a deferred outflow of resources to reflect employer contributions paid after the Measurement Date and before the Reporting Date.

We’re here to help.

Understanding the interaction between GASB 74 and GASB 75 is critical for accurate OPEB reporting and long-term planning. If your organization has questions about OPEB valuations, assumptions, or reporting requirements, the Odyssey team is here to help.

Related Reading

• Understanding the Impact of Inflation on OPEB Liabilities
• Top 5 Factors That Determine Your OPEB Discount Rate
• Implicit Subsidy in OPEB Plans
• Selecting the Best Funding Strategy for Your OPEB Trust