GASB proposals would address post-employment health care liabilities

New accounting rules proposals approved Wednesday by GASB would require more transparency in financial reporting about state and local government obligations for post-employment benefits (OPEB).

GASB approved two exposure drafts related to OPEB and an additional exposure draft that would establish requirements for state and local government pensions and pension plans that are not subject to the pension standards GASB released in 2012.

The proposals are part of a continuing effort by GASB to ensure that state and local government financial reporting accurately depicts the liabilities related to responsibilities for pensions and post-employment benefits. The new pension standards released two years ago represented the first part of that process.

“OPEB—which consists mainly of health care benefits—represents a very significant liability for many state and local governments, one that is magnified because relatively few governments have set aside any assets to pay for those benefits,” GASB Chairman David Vaudt said in a news release. “It is vital, therefore, that taxpayers, policymakers, bond analysts, and others receive more and better information about these benefits.”

The exposure drafts are expected to be available in mid-June on GASB’s website and will be titled:

• Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions.
• Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans.
• 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.

GASB will request comments by Aug. 29.

Proposed rules for employers

The proposed OPEB rules for employers would require governments to report a liability for OPEB on the face of the financial statement. Governments with a defined-benefit OPEB plan administered through a trust meeting certain criteria would report a net OPEB liability, which is the difference between the total OPEB liability and the net position accumulated in the trust.

Governments that do not provide OPEB through such a trust would report the total OPEB liability. In addition, a government would change the way it calculates its OPEB liability and annual expense. Proposed changes would include:

• Discounting projected OPEB payments using the long-term expected rate of return on OPEB plan assets administered through a trust meeting specified criteria to the extent that plan assets are expected to be available to make projected benefit payments and be invested using a strategy to achieve that return. If those conditions are not met, the OPEB payments would be discounted using a 20-year, tax-exempt, high-quality general obligation municipal bond yield.
• Use of a single actuarial cost allocation method—the “entry age actuarial cost method.”
• Immediate recognition of additional components of OPEB expense.
• Requiring more extensive note disclosures and supplementary information about OPEB liabilities.

In addition, the proposal for employers would continue giving state and local governments an option to use a specified alternative measurement method in place of an actuarial valuation to determine the total OPEB liability for benefits when there are fewer than 100 plan members. This option would be provided to reduce costs for smaller governments.

The proposal for OPEB plans would address financial reports of defined-benefit OPEB plans that are administered through trusts that meet certain criteria.

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