Other postemployment benefits under GASB 75

In this lesson you will

Identify which OPEB arrangements fall under trust and non-trust requirements
Explain when the alternative measurement method is permitted
Estimate the effect of an implicit rate subsidy on projected benefit payments
Plan audit procedures over OPEB census data and actuarial assumptions

What OPEB covers

Other postemployment benefits are benefits other than pensions provided to employees after employment ends, including retiree health insurance, life insurance and similar benefits. GASB Statement No. 75 (June 2015, effective for fiscal years beginning after June 15, 2017) sets the employer accounting. It replaced Statements 45 and 57. Statement 74 covers OPEB plans.

Trust or no trust

Statement 75 uses the same three trust criteria as GASB 68: contributions and earnings are irrevocable, plan assets are dedicated to providing OPEB under the benefit terms, and assets are legally protected from creditors of employers, nonemployer contributing entities and the plan administrator (and, for defined benefit OPEB plans, from creditors of plan members).

Many governments fund retiree health on a pay-as-you-go basis with no qualifying trust. For defined benefit OPEB, other than insured benefits, provided through plans without a qualifying trust, the Statement requires measurement parallel to the trust model, with modifications for the absence of plan assets for financial reporting. With no plan assets, there is no fiduciary net position to offset, so the employer reports a total OPEB liability, and the discount rate reflects the municipal bond rate because there are no assets to earn the long-term expected return.

Insured benefits, where the employer pays premiums to an insurer during active service and the insurer unconditionally takes on the obligation, are expensed at the premiums required, with a short description of the benefits.

Measurement

The total OPEB liability is the portion of the actuarial present value of projected benefit payments attributed to past service. Rules that mirror GASB 68:

entry age actuarial cost method, level percentage of pay;
valuations at least every two years, with roll-forward from a valuation no more than 30 months and 1 day before the most recent fiscal year end;
deferral of experience differences and assumption changes over average remaining service lives, and of investment differences over five years.

Rules specific to OPEB:

Projections are based on claims costs, or age-adjusted premiums approximating claims costs, and the benefit terms. The written plan, communications to employees and an established pattern of cost sharing all count.
Legal or contractual caps on benefits are considered.
Certain taxes or assessments expected on benefit payments are included.
Alternative measurement method: when fewer than 100 employees (active and inactive) receive OPEB through the plan, the employer may use the specified alternative measurement method instead of an actuarial valuation. It follows the same broad steps (project, discount, attribute) with simplified assumptions.

The implicit rate subsidy

When retirees under 65 buy into the active employees' health plan at a blended premium, their actual claims cost exceeds what they pay. The difference is a benefit the employer provides even if it pays nothing directly for retirees. Because projections are based on claims costs or age-adjusted premiums, the implicit subsidy is part of the OPEB liability. A government that writes no check for retiree health can miss it entirely.

Governmental funds and notes

As with pensions, governmental funds recognize the OPEB liability and expenditure only to the extent normally expected to be liquidated with expendable available financial resources. Notes cover plan descriptions, assumptions including the healthcare cost trend rate, and the sensitivity of the liability to the discount rate and the trend rate. RSI presents 10-year schedules.

Audit procedures

Read union contracts, personnel policies and board minutes for benefit terms and any past practice of paying retiree premiums.
Test the census data given to the actuary or used in the alternative measurement method.
Compare the age-adjusted premium assumptions with the plan's rate tables.
Recompute the total OPEB liability rollforward and agree it to the notes and RSI.

The pension lesson covers the shared deferral mechanics.

Worked example

Implicit subsidy at a small water district

Clear Springs Water District has 72 active employees and 15 retirees under age 65 in its health plan, 87 people in total. It has no OPEB trust.

Step 1: Method. Fewer than 100 employees (active and inactive) are provided with OPEB, so the district may use the alternative measurement method instead of a full actuarial valuation.

Step 2: Benefit. Retirees pay the blended premium of $700 per month. The age-adjusted claims cost for a pre-65 retiree is $1,000 per month. Implicit subsidy = 1,000 minus 700 = $300 per month, or $3,600 per retiree per year. For 15 current retirees: 15 x 3,600 = $54,000 a year in projected benefit payments, plus amounts for active employees expected to retire before 65.

Step 3: Discount rate. With no qualifying trust there are no plan assets, so the district discounts at the municipal bond rate.

Step 4: Result. The calculation produces a total OPEB liability of $2,400,000. Management's draft reported zero because the district never writes a check for retiree health.

Conclusion: the auditor proposes recording the $2,400,000 liability in the statement of net position, with the related deferrals and the notes and RSI schedules. Leaving it out would be a material misstatement for a district whose total liabilities were $6,000,000.

Self-check

Answer each question before you open the answer.

When may an employer use the alternative measurement method?
Show answer
When fewer than 100 employees (active and inactive) are provided with OPEB through the plan. At 100 or more, the employer needs an actuarial valuation.
Why does a government with no cash payments for retiree health still have an OPEB liability?
Show answer
Retirees paying a blended premium receive an implicit subsidy because their age-adjusted claims costs exceed the premium. Projections are based on claims costs, so the subsidy is a benefit.
How are insured OPEB benefits reported?
Show answer
Expense or expenditure equals the premiums or other payments required under the insurance agreement, with a brief description of the benefits. The insurer has unconditionally taken on the obligation, so the employer has no OPEB liability to measure.
Which statements did GASB 75 replace?
Show answer
Statements No. 45 and No. 57, for OPEB.

Sources

GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (June 2015)

Back to the syllabus

Standards are paraphrased from the primary sources listed above; read the source before relying on a requirement. This lesson is training material, not professional advice. Report an error