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3 Reasons Not To Fear GASB 75

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3 Reasons Not To Fear GASB 75

Parker Elmore, ASA, MAAA, EA, FCA | Sarah F. Rothenberg

The introduction of GASB 75 brings new accounting standards that will likely increase OPEB liability and will require entities to report the entire liability on their financial statement rather than easing in the liability over time. But do not fear – GASB 75 may not have as significant an impact as it may appear. Here’s why:

1. GASB 75 does not increase the true cost of your OPEB Plan

Changes in accounting and actuarial assumptions have no impact on the true cost of the plan which is the actual cash out the door. Premiums, eligibility, and cost sharing structures are the drivers of plan cost. (Read our EGWP whitepaper for one possible strategy to reduce plan costs.)

2. Bond agencies do not expect significant revisions to bond ratings

While the three major bond rating agencies (Moody’s, Fitch, and Standard & Poor’s) reflect pension & OPEB liabilities as part of their review, they are not the primary driver of a rating. Here are some considerations:

  1. Is OPEB liability exceptionally large?
  2. Has the entity taken any steps to address these costs?
  3. Moody’s states that adding the unfunded liability to the balance sheet has no impact on their analysis—too reliant on discretionary decisions
  4. Fitch notes large changes in actuarial assumptions
  5. Fitch considers OPEB liability a softer obligation—more like a service obligation
  6. OPEB contributions and government expenditures are factored into Fitch’s assessment of the flexibility of main expenditure items—real costs, not impacted by GASB 75
  7. Standard & Poor’s has stated that it does not “expect significant revisions to ratings solely on changes to GASB reporting”

3. Proper preparation may lessen the impact of GASB75

So how can you prepare?

  1. Develop a formal Funding and Investment policy – both the discount rate and your expected rate of return on assets are now tied to such policies
  2. With GASB 75 comes more complicated accounting methods and increased disclosures –consider having an actuary handle this on your behalf [link to “making your auditor’s life easier” white paper and “what AMM doesn’t work” white paper]
  3. Speak with your auditor and/or actuary to determine the proper measurement and valuation date
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