Other Post Employment Benefits (OPEBs) FAQs

Other Post Employment Benefits (OPEBs)

• What benefits are considered OPEBs?

  While the most common OPEB is retiree healthcare coverage, there are many other benefits that may be considered OPEBs, including life insurance, long-term care insurance, disability benefits, and certain sick leave conversion programs.

  OPEBs can be paid in whole or in part by the employer, but could also be completely paid by the retiree. OPEBs do not include pension benefits or compensated absences, which are treated differently under the applicable accounting standards.

  Back to top

• Can an employer have an OPEB liability if no contributions are made directly to the cost of retirees’ coverage?

  Yes. Liabilities arise when continued medical coverage is offered to retirees at the same premium rate as for active employees, even if that coverage is on a self-pay basis. Since retirees are generally older than an active population, retirees can be expected to generate higher medical claims, and therefore higher premiums than for the active population. When the total premium does not represent the full cost of covering the retirees, the additional cost is called the “implicit rate subsidy.” The various accounting standards that apply to OPEBs all require that the implicit rate subsidy be valued and reflected in the financial statements.

  Virtually all public sector employers in Oregon have an implicit rate subsidy to value under the applicable GASB Statements due to Oregon Revised Statute (ORS) 243.303. This statute mandates that retirees of Oregon public employers be provided continued access to that employer’s health plan until Medicare eligibility, and can be charged a rate no higher than the COBRA rate for that coverage.

  Back to top

• What accounting standards govern OPEBs?

  In most situations, Plan Sponsors need to report the value the OPEBs that have been earned by active and retired participants directly on their financial statements.

  Governmental entities sponsoring retirement plans follow the accounting standards of the Governmental Accounting Standards Board (GASB). For OPEB plans, the most recent and applicable GASB Statements are 74 and/or 75.

  Private sector employers sponsoring retirement plans follow the accounting standards of the Financial Accounting Standards Board (FASB). Accounting Standards Codification Topic 715-20 governs the accounting for private sector OPEB plans.

  Back to top

• What are community-rated plans?

  In the past, relatively small employers participating in a large, pooled health plan were sometimes exempt from having to account for an implicit rate subsidy, due to a “community-rating” exception. In general, this exception applied when the claims experience of an individual employer would have virtually no impact on the premium being charged to that employer.

  The accounting standards that apply to OPEBs refer to the Actuarial Standards of Practice (ASOPs) in determining whether a community-rated situation applies. However, ASOP 6 was amended in 2015 to essentially eliminate the concept of the community-rating exception. As a result, agencies participating in pooled plans that had previously been exempt from reporting liabilities due to an implicit rate subsidy may now be required to do so.

  Back to top

• How often does a governmental agency need a new OPEB valuation report completed?

  Under GASB Statements 74 and 75, OPEB valuations are required to be performed every two years, but the Board encourages annual Actuarial Valuations.

  Back to top

• What are the advantages to pre-funding OPEB liabilities?

  OPEBs are considered pre-funded when the employer makes annual contributions to an irrevocable trust (an account whose funds can only be used for retiree benefits). The account balance of the trust offsets the actuarial accrued liability, reducing the agency’s unfunded liability.

  When an agency pre-funds its OPEB liabilities, the Actuary may potentially use a higher discount rate to value the liabilities of the plan, reflecting the higher expected earnings of the OPEB trust.

  Back to top

• How long does an Actuarial Valuation take to be completed?

  The first step in the process of having an OPEB valuation completed is to have a conversation with one of our consultants so that we can understand the benefit structure, demographics, and other aspects of the benefits to be valued. From that point, we request necessary employee data and any other information needed to do the valuation. Typically, from beginning to end, our process is completed within 3 months. However, we work with each individual client to meet their needs. Contact a consultant today to see if your OPEB needs to be valued, or to get a free quote on our valuation and reporting services.

  Back to top