GASB’s OPEB proposals may have big impact

BY KEN TYSIAC
June 16, 2014

Proposed new accounting standards for other post-employment benefits (OPEB) published Monday by GASB are expected to have a significant impact on state and local government financial statements.

GASB’s work on OPEB is intended to complement its development of new standards issued in 2012 on pensions. The goal is to present users of government financial statements an accurate depiction of the liabilities governments face in their promises to retired employees.

GASB voted in late May to issue the OPEB exposure drafts, which were published Monday on the board’s website. GASB Chairman David Vaudt highlighted key aspects of the OPEB proposal and pension standards Monday during a conference call with media members:

  • Both standards represent huge obligations. A recent Pew Charitable Trusts report found that in fiscal year 2010, states had more than $750 billion in unfunded pension obligations and more than $625 billion in unfunded retiree health care obligations, which make up the substantial majority of OPEB promises.

    “They’re significant statements when it comes to taking a look at what governments have out there for benefits for their retirees,” Vaudt said, “and it will have a significant impact, I think, as policy decision-makers take a look at the data and decide on their funding mechanisms in order to, quote, make sure those promises are met as those payments are due.”

    In some states, unfunded OPEB obligations are higher than unfunded pension obligations, Vaudt said.

  • New actuarial method. Where current OPEB standards give state and local governments six actuarial methods to choose from, the proposed standard would require use of a single actuarial cost allocation method known as “entry age actuarial cost method.”

    This is the same actuarial method required by the new pension standards, and it would provide for better comparability between government financial statements, Vaudt said.

    “This tends to provide the best look at how those benefits are accumulating and allows us to say what are past costs for past service, and what are future costs for future service,” Vaudt said. “It’s just a more consistent method and a better measurement, and working with the actuaries, we felt this was the best method to go with.”

  • More discount rate guidance. Like the pension standard, the proposal provides more guidance for setting the discount rate for projecting future liabilities, Vaudt said.

    “We’ll have more consistent application there,” he said.

  • No guidance on funding. While the standards are designed to present an accurate picture of pension and OPEB liabilities, GASB will not try to influence state and local government officials as they decide how to fund those liabilities, Vaudt said.

    “Funding is a policy decision, and it’s one that elected officials will make,” Vaudt said. “But I do think these standards will help highlight whether that liability is growing or shrinking, which will give you a good indication of how well the elected officials are dedicated to making those particular payments to fund those future benefits.”

The three proposals published Monday can be downloaded from the GASB website.

  • Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions proposes guidance for governments.
  • Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans addresses reporting by the plans that administer OPEB benefits.
  • Accounting and Financial Reporting for Pensions and Financial Reporting for Pension Plans That Are Not Administered Through Trusts That Meet Specified Criteria, and Amendments to Certain Provisions of GASB Statements 67 and 68 proposes requirements that would complete the pension standards.

Comments on the proposals are sought by Aug. 29.

Ken Tysiac ( ktysiac@aicpa.org ) is a JofA senior editor.

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