Other Post Employment Benefits (OPEB) FAQ

Other Postemployment Benefits (often shortened to OPEB) are benefits provided to retired employees other than pensions. The most common type is retiree healthcare, but OPEB can include dental, vision, life insurance, or other forms of coverage offered after an employee leaves active service. 

Unlike pensions, which promise income payments, OPEB obligations are tied to healthcare and related costs. Because medical costs change over time, OPEB creates significant long-term liabilities for municipalities and employers. For those subject to Governmental Accounting Standards, GASB 75 requires these liabilities must be measured and disclosed so decision-makers and taxpayers understand the full cost of benefits promised.

For most public employers, an actuarial OPEB valuation is required at least every two years to stay compliant with GASB 75 reporting standards. For those plans with an OPEB Trust, they will be required to measure liabilities for the “roll-forward” or “interim” year for their annual audit. Some plans choose to do annual valuations, but that is normally for those with plan changes or aggressive funding schedules to ensure accurate measurements of their target liability. 

Even if your plan isn’t legally required to update every year, there are good reasons to do so. Valuations capture changes in key factors such as healthcare costs, employee demographics, and discount rates. Regular updates give you a clearer picture of your liability and help you avoid surprises in your financial statements or during an audit. 

In practice, many municipalities choose to perform annual valuations because it simplifies reporting, keeps data current, and strengthens transparency with stakeholders.

Governmental Accounting Standards Board Statement 75 (“GASB 75”) is the accounting standard that governs how state and local governments report OPEB liabilities. It requires employers to recognize the full OPEB liability on the balance sheet as opposed to a footnote disclosure.

For you, this means OPEB promises are more visible to stakeholders, auditors, and rating agencies. While GASB 75 doesn’t change the liability itself, it does change how it’s presented—making transparency, accurate data, and regular valuations more important than ever.

Not all OPEB plans are governed by GASB. Private companies and certain nonprofits instead follow the Financial Accounting Standards Board (FASB) or Accounting Standards Codification (ASC 715) requirements. While the accounting rules differ in detail, the goal is the same: to measure and disclose the true cost of retiree benefits. 

For FASB/ASC plans, OPEB liabilities are also recognized on the balance sheet, and assumptions like discount rates, healthcare trend, and participation rates play a major role in determining reported costs. Although we don’t see as many FASB cases as GASB, Odyssey has extensive experience helping clients navigate both sets of standards.

OPEB liabilities show up as a long-term obligation on your balance sheet, which may influence how outside parties view your financial position. Rating agencies such as Moody’s and S&P consider OPEB liabilities when assigning credit ratings, alongside pensions and other debt. For most employers that offer OPEB benefits, they are likely among the largest liabilities on their balance sheet.

If liabilities are substantial and unmanaged, they may put downward pressure on your credit rating which will increase the costs of borrowing. On the other hand, proactive funding, transparent reporting, and clear management strategies can improve your financial standing and instill confidence with auditors, bondholders, and taxpayers.

As GASB 75 has been in place since 2018, OPEB liabilities now appear directly on your balance sheet rather than being tucked away in the footnotes. This doesn’t change the size of the liability itself, but it does make it more visible to auditors, rating agencies, and taxpayers.

In addition, if you’ve set aside assets in an OPEB trust, you may be able to apply a higher discount rate in your valuation—reducing the liability reported on your financial statements. In short: the way you manage OPEB has a direct impact on how healthy your books look.

There are several ways to fund OPEB liabilities:

• Pay-as-you-go → Cover retiree costs each year directly from the budget.
• Pre-funding in an IRS Section 115 Trust → Contribute assets into an irrevocable trust, where investment earnings help offset future liabilities.
• Hybrid approaches → Use a combination of pay-as-you-go and pre-funding to balance near-term budget needs with long-term stability.

The right strategy depends on your budget, workforce demographics, and financial goals. Our role is to help you evaluate the options and build a plan that fits your organization. For a deeper dive into the pros and cons of each approach, see our article on selecting the best OPEB Funding Strategy.

With pay-as-you-go, your budget covers retiree benefits as bills come due. This approach is simple but doesn’t address the long-term liability. Costs will grow as your retiree population grows. If you have a very mature group such that the annual pay-as-you-go costs exceed the annual Service Costs, you’re already paying down the liability.

Pre-funding through an IRS Section 115 Trust allows you to set aside assets now, invest them, and use the earnings to reduce future costs. This can significantly lower your reported liability, improve your bond rating outlook, and create more predictable budgeting for the years ahead.For a closer look at why so many municipalities are moving toward pre-funding, check out our article on the top 6 reasons to pre-fund your OPEB liability.

Many municipalities have large unfunded pension and OPEB liabilities. Each state is different but many have statutory and constitutional language that protects pension benefits and/or requires a certain level of funding appropriation. As such, while it may be desirable to pre-fund OPEB, it may be forced to take a back-seat to funding the pension system. 

We encourage employers to view this issue as one large overall liability with two (2) distinct “buckets” or funding requirements. So, you would set an annual funding target or goal which allows the employer to fund the required pension appropriation and any remaining funds can be allocated to the OPEB Trust. If and when the pension system reaches full funding such that required appropriations decrease, this allows a material increase in OPEB funding but the overall annual funding is stable and predictable over time.

Funding practices vary widely across the country. While many municipalities are still using a pay-as-you-go approach, more towns are pre-funding via OPEB trusts, especially since the implementation of GASB 74/75.

In our experience, the majority of municipalities are contributing something, but very few are close to fully funded. Even modest contributions can help reduce long-term liabilities, lower reported obligations, and demonstrate fiscal responsibility to rating agencies and taxpayers. For a detailed look at current practices nationwide, explore our 2025 OPEB Trend Report.

Medicare Advantage plans can help significantly lower OPEB costs as they are often much cheaper than traditional Medicare Supplement plans. The reason for those lower premiums vary but they include more restrictive carrier networks, drug formularies and certain Federal subsidies. By offering or requiring Medicare Advantage for eligible retirees, municipalities can reduce the cost of retiree healthcare while still maintaining strong coverage options.

For many employers, this approach lowers both cash costs and the actuarial liability reported under GASB 75. It’s one of several strategies available to manage liabilities without eliminating benefits.

TOL stands for Total OPEB Liability. It represents the present value of all future benefits your organization has promised to employees and retirees, based on the current plan design. In simple terms, it’s the actuarial estimate of the full cost of your OPEB obligations as of the measurement date.

Under GASB 75, the TOL is one of the main figures disclosed in your financial statements. If you have assets set aside in an OPEB trust, those are subtracted from the TOL to calculate your Net OPEB Liability (NOL) – the number most often cited by auditors, rating agencies, and taxpayers.

Your Total OPEB Liability is driven by both plan design choices and actuarial assumptions. The most significant factors include:

• Discount rate → The interest rate used to value future payments in today’s dollars.
• Healthcare cost trend → How quickly medical and prescription drug costs are expected to rise each year.
• Retirement patterns → When employees are expected to retire and start benefits.
• Participation rates → What percentage of eligible employees and spouses will elect coverage in retirement.
• Mortality/longevity → How long retirees are expected to live and use benefits.
• Plan design rules → Eligibility requirements, coverage duration (lifetime vs. to age 65), and employer cost-sharing.

Because these factors can change over time—especially interest rates and healthcare trends—your TOL will fluctuate from one valuation to the next. That’s why regular updates are essential for accurate reporting and long-term planning.

Eligibility rules are one of the most powerful levers in determining OPEB costs. The more employees who qualify for retiree benefits and the sooner they qualify, the larger the liability becomes. For example: 

• Service requirements – If benefits vest after 10 years of service instead of 20, more employees will qualify, increasing costs. 
• Age requirements – Lower retirement ages extend the period of coverage, raising liabilities. 
• Minimum service + age combinations – Rules that allow early retirement with coverage can sharply increase costs compared to stricter thresholds. 

By adjusting eligibility requirements—such as raising the minimum years of service or aligning coverage with Medicare—you can significantly reduce the number of participants and the length of time benefits are provided. These changes often have a greater impact on liabilities than plan design tweaks like deductibles or copays.

Actuarial valuations aren’t just about benefits—they’re also about who is covered. Demographics like workforce age, retirement patterns, and life expectancy all shape the liability. For example: 

• A younger workforce may mean lower current costs but higher long-term obligations. 
• Earlier retirements increase the years of coverage provided. 
• Longer life expectancies increase the overall liability, especially for lifetime benefit plans.

Because demographics change over time, regular valuations are essential. They ensure assumptions stay accurate and help employers adjust strategies before liabilities grow unexpectedly.

The good news is that the required data is straightforward. To prepare a valuation, actuaries typically need:

• Employee census data (date of birth, hire date, gender, employment status, etc.).
• Retiree and beneficiary information.
• Current plan provisions (eligibility rules, benefits offered, cost-sharing arrangements).
• Financial data (employer/employee contributions, premium rates, claims experience if available).

At Odyssey, we streamline this process. We only ask for what’s necessary, tailor requests to your systems, and guide you through gathering the information step by step.

The timeline depends on the size and complexity of your plan, as well as the quality of the data provided. Most valuations take 4–6 weeks from the time we receive complete data.

If you’re working on a tight deadline—for example, preparing for an audit or financial statement—we can usually accelerate the process. The key is having accurate data upfront, which allows us to deliver faster without sacrificing quality.

Costs vary based on the size of your organization, the number of employees/retirees, and whether you need a full actuarial valuation or an interim “foll-forward” update. Smaller towns and housing authorities may pay just a couple of thousand dollars, while larger municipalities and systems with more complex benefits may require a larger investment.

At Odyssey, we pride ourselves on providing transparent, competitive pricing up front – so there are no surprises. We’ll work with you to scope the project and give you a clear estimate before we begin.

Absolutely. Auditors are increasingly focused on OPEB reporting, and we regularly assist clients in preparing for those discussions. We’ll provide clear reports, detailed reconciliations, and explanations of the key assumptions used in your valuation.

If your auditor has specific questions, we’re happy to speak with them directly. Our goal is to make your audit process smoother, save you time, and ensure your OPEB reporting stands up to scrutiny.