GASB 74 (plan-perspective accounting) is effective for plan years beginning after June 15, 2016. For most plans, this is the fiscal year ending in 2017. Note that GASB 74 only applies to pre-funded plans with irrevocable trusts. If the OPEB trust/plan issues standalone financial statements, then there’s nothing for employers to do. IF the OPEB trust/plan does NOT issue standalone financial statements then the employer must include the GASB 74 disclosures in the employer’s financial statements.
GASB 75 (employer accounting) is effective for plan years beginning after June 15, 2017. For most employers, this is the fiscal year ending in 2018.
WHAT LIABILITY SHOWS ON OUR FINANCIAL STATEMENTS?
Under GASB 75, the entire unfunded liability (the Net OPEB Liability) goes on the face of the financial statements. This is a big departure from GASB 45 where the Net OPEB Obligation was often significantly lower than the true unfunded liability.
HOW OFTEN DO WE NEED AN OPEB VALUATION?
GASB 74/75 require a full actuarial valuation at least every two years.
WHAT HAPPENS IN THE “OFF” YEARS BETWEEN VALUATIONS?
You’ll likely need a simplified GASB 74/75 accounting report in the “off” years between actuarial valuations. These off-year reports are generally necessary to comply with the new GASB 74/75 liability measurement rules, but are significantly easier (and less expensive) to prepare.
CAN WE STILL USE THE ARC AS A DE-FACTO FUNDING POLICY?
Sort of. GASB 75 officially separates funding from financial reporting, and the Annual Required Contribution (ARC) no longer exists. However, a separate ARC-like calculation could still produce a useful funding target.
WE REQUIRE OUR RETIREES TO PAY THE FULL COST OF THEIR COVERAGE. DO WE HAVE AN OPEB?
It depends. If they really pay the full cost of their own coverage, there’s no liability. In most cases, however, retirees pay the same premiums as active employees. Surprisingly, this generates an OPEB liability.
The reason is known as an “implicit rate subsidy”. Suppose the average monthly cost for health coverage is $400, and that’s the amount Jane will pay when she retires. So there’s no employer liability – because Jane will pay the entire cost, right?
Wrong. The true cost for an early retiree’s health coverage is almost always higher than the average. If the true cost is $700 per month and Jane pays $400, there’s an “implicit subsidy” of $300 per month. That’s an OPEB the employer must account for. The expense is recognized over Jane’s career, because it’s part of her overall compensation.
ARE THERE ANY EXCEPTIONS FOR GASB 75 REPORTING?
Yes. Some common exceptions are:
- Your accounting is on a cash basis, rather than the accrual basis,
- Retirees are not allowed in your health plan,
- Everyone in your plan pays age-related premiums for health insurance, or your early retirees pay on a different basis than active employees.
DO WE HAVE TO HIRE AN ACTUARY?
Maybe not. GASB has an “Alternative Measurement Method” (AMM) for employers with 100 or fewer plan members. There are even some do-it-yourself (DIY) tools out there. We’d encourage you to check them out. Some vendors charge more to let you use a DIY tool than we do to prepare a signed, certified AMM report.
WHAT’S THE ADVANTAGE OF AN AMM REPORT SIGNED BY A CREDENTIALED ACTUARY?
It’s your best assurance that the valuation is done correctly. You can leverage our experience with hundreds of OPEB valuations. And it’s your lowest-cost alternative, especially when you factor in your own time. It will minimize your audit fees: your auditors can rely on our certified report. They can’t rely on a DIY tool, no matter how thoroughly it’s been checked – because there are many assumptions (investment return, turnover, participation, health cost aging, etc.) that factor into an AMM valuation. An online tool’s built-in assumptions may or may not be appropriate for your health plans.
MAY WE SEE A SAMPLE REPORT?
Yes, of course. Just call us toll free at 888.596.5960 or email us at email@example.com, and we’ll be happy to send you a sample – either AMM or a full actuarial valuation report.
HOW MUCH SHOULD IT COST FOR A GASB 75 ACTUARIAL VALUATION?
It varies based on whether you need the AMM or a full actuarial valuation, number of people in your plans, the complexity of your retiree benefit arrangements, cost breakdowns you need, and the quality of the data you provide.
Send us a description of your retiree health benefits, tell us how many people are in your health plans, and we’ll send you a quote. Call toll free at 888.596.5960, email us at firstname.lastname@example.org or fax your info to 612.596.5999.
For Current Developments, see the GASB 75 section of our retirement plan blog.