OPEB - Public Sector

Other Postemployment Benefits (“OPEB”) refers to benefits, other than pension, offered to employees after they leave employment. The most common benefits are medical, dental, and life insurance.

OPEB Resources

OPEB FAQ

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If your organization is a municipality subject to GAAP accounting and offers benefits to retirees other than pension you will need to have an OPEB valuation performed for your annual financial statement. While the types of post-retirement benefits vary, the most material of these benefits is often retiree medical insurance which may be supplemented by dental insurance, life insurance, vision insurance and HSA contributions and other offerings from the municipality in retirement.

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This, of course, is one of the key questions that a Treasurer, Auditor, Accountant or School Business manager has when they begin researching the costs of GASB OPEB compliance. Here at Odyssey Advisors, I get this question hundreds of times each year from entities large & small.

There are many factors that go into developing the costs so I’ll try to outline those factors and how they impact costs so you can get a best estimate.

Read "How much does an OPEB or GASB 45/75 valuation cost?" to learn more.

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While you are not required to prefund your OPEB liability, the management of your OPEB liability (including the level of funding) is one element that rating agencies consider when determining a municipality’s bond rating. You should consider this, coupled with your other financial needs, when determining whether funding is right for you.

OPEB Resources

OPEB Funding - The Pros & Cons - Case Study

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• Plan Design Strategies
• Medicare "Buy-In"
• Changes in Cost Sharing
• Changes in Eligibility
• Changes in Medicare Supplement Plans & Medicare Advantage Plans
• Use of Private's Healthcare Exchanges, HSA's and other alternatives

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Even if the municipality charges retirees 100% of medical premiums an OPEB valuation is usually still required to reflect the fact that the premiums paid for active employees subsidize the premiums paid for retirees (this is known as an “implicit cost” or “implicit subsidy”). This is since older populations (retirees) are expected to incur higher per-capita insurance costs than younger populations (active employees).

For other forms of insurance such as dental and vision a valuation would generally not be required if retirees pay 100% of premiums.

Please note that the ultimate decision on whether a valuation is required is made by the auditor based on his/her determination of the materiality of the obligation.