The Governmental Accounting Standards Board (GASB) has recently published new standards that will become effective over the next few years, resulting in fundamental changes to how post-retirement benefits are accounted for on public employers’ financial statements. Full text and summaries of these statements can be found on the GASB’s website.
These new statements generally provide the provisions of Statements 67 and 68 to the accounting for all postretirement benefits. Public employers should be familiar with the impact of Statement 68 at this point, as it first applied to their accounting for regular pension benefits for fiscal years ending after June 15, 2014.
Upon transition to the new statements for post-retirement benefits, the entire unfunded benefit liability (called the Net Pension/OPEB Liability, or NPL/NOL) will be moved to the Statement of Net Position. Under previous GASB Statements, the unfunded liability was a footnote disclosure item, with only an amortized portion appearing on the Statement of Net Position. Going forward, certain unexpected changes in the NPL/NOL (actuarial gains/losses, investment gains/losses, assumptions changes) will be amortized over the average expected future working lifetime of the entire covered population. Unamortized amounts will be treated as deferred outflows/inflows.
The statements also prescribe the use of a single actuarial cost method (the Entry Age Normal method), and require that projected benefit payments expected to be paid from general assets be discounted at a current municipal bond rate.
Statement 73: Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68 – This clumsily-titled statement applies to the accounting for pension benefits that are not pre-funded through a qualified trust. For example, many public employers provide monthly stipend payments to certain retirees, often to supplement income until Medicare eligibility, and these benefits are rarely pre-funded.
The amendments referred to in the title of this statement are really clarifications of relatively minor provisions of Statements 67 and 68, and shouldn’t impact most public employers.
Statement 73 is first effective for fiscal years beginning after June 15, 2016.
Statement 74: Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans – This statement applies to non-pension benefit plans, often called Other Postemployment Benefit (OPEB) plans, that are pre-funded through a qualified trust. Note that the statement provides reporting guidance for the OPEB plan itself, not for the plan sponsor (i.e. – only in the instance where a pre-funded OPEB plan issues financial reports that are separate from the employer’s financial reports will Statement 74 apply).
Statement 74 is first effective for fiscal years beginning after June 15, 2016.
Statement 75: Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions – This statement applies to OPEBs, and prescribes accounting standards for the sponsoring employer. Note that OPEBs in this case include subsidized retiree health benefits, in which retirees are allowed to remain on the employer’s group health plans until Medicare eligibility, even in cases in which the retiree pays the entire premium. Virtually all public employers in Oregon are required by statute to provide these subsidized retiree health benefits.
Statement 75 is first effective for fiscal years beginning after June 15, 2017.
Contact a consultant today to learn how these new Statements may impact your financial reporting, or to get a free quote on Independent Actuaries, Inc.’s valuation and reporting services.