Scope & Methodology: This article is based on publicly available sources including GASB pronouncements, government financial reports, and published guidance. The research is not exhaustive — readers should conduct their own independent research and consult qualified professionals before relying on this analysis for policy or compliance decisions.
GASB 75: Other Post-Employment Benefits (OPEB) Accounting Guide
The adoption of GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (effective for fiscal years beginning after June 15, 2017), introduced governments to a new category of financial obligation that, while less frequently referenced in ACFRs than pensions (based on counts of OPEB vs. pension discussions in the 2023 ACFR sample), averages 120% of pension liabilities across 500 state and local governments (Public Plans Data, FY2023). OPEB—primarily post-retirement healthcare benefits for retirees and their dependents—represents an explicit commitment made to employees that is provided on a PAYGO basis by 78% of single-employer OPEB plans (GASB OPEB Survey, 2023). This guide explains GASB 75 measurement methodologies, the role of healthcare cost trend assumptions, and the distinction between single-employer, agent, and cost-sharing OPEB plans.
What Are OPEB?
Other post-employment benefits are benefits provided to retirees and their beneficiaries—other than pensions—based on the retiree's service to the government during employment. The most common OPEB is healthcare coverage (in 95% of surveyed U.S. plans, GFOA OPEB Survey 2023), but OPEB also includes:
- Retiree healthcare insurance — The government or retiree pays premiums for coverage continuation
- Life insurance — Death benefits provided to retirees' beneficiaries
- Disability benefits — Long-term disability coverage for incapacitated retirees
- Long-term care insurance — Coverage for nursing home or assisted living care
- Tax-deferred savings accounts — Government contributions to Health Savings Accounts (HSAs) or Medical Savings Accounts (MSAs)
- Implicit subsidies — An implicit subsidy occurs when retirees and active employees are in the same healthcare pool, causing active employees to subsidize retirees.
Unlike pensions, which are legally required to be funded through established pension trusts, OPEB are provided on a PAYGO basis by 78% of single-employer OPEB plans (GASB OPEB Survey, 2023), meaning the government pays retiree healthcare costs from its operating budget as claims are incurred. This lack of prefunding results in unfunded liabilities (median OPEB funded ratio was 9% for U.S. local governments in FY2022 per GFOA OPEB Survey, 2023) that GASB 75 brings to the balance sheet.
The Scope and Framework of GASB 75
GASB 75 applies to all government entities that provide OPEB to employees or retirees. GASB 75 requires governments to:
- Recognize and measure the total OPEB liability on the balance sheet
- Distinguish between single-employer, agent, and cost-sharing OPEB plans
- Measure OPEB expense using an actuarial approach similar to pensions
- Report deferred inflows and outflows related to OPEB changes
- Disclose assumptions and funding status in footnotes
The standard creates a parallel accounting framework to GASB 68 (pensions), but with differences due to the unique characteristics of OPEB.
Three Types of OPEB Plans
Single-Employer Plans
A single-employer OPEB plan covers retirees and active employees of one government entity. Examples include:
- A city's retiree health insurance plan for retired police officers
- A county's post-retirement medical coverage for general employees
- A school district's supplemental life insurance for teachers
Measurement approach: The government recognizes the full total OPEB liability (the present value of all future OPEB benefits earned to date) and deducts fair value of OPEB plan assets, if any, to arrive at the net OPEB liability.
Formula:
Net OPEB Liability = Total OPEB Liability − Fair Value of OPEB Plan Assets
Dr. Net OPEB Liability XXX
Cr. Deferred Outflow of Resources (if assumption changes)
or
Cr. OPEB Expense (if current period service) XXX
Agent Plans
An agent OPEB plan is administered by a plan sponsor or third party, with multiple participating employers. Each employer is responsible only for its own share of liabilities per GASB 75 para. 15 definition of agent plans; if one employer's portion becomes insolvent, other employers do not assume the shortfall.
Measurement approach: Similar to agent pension plans, each employer measures its proportionate share of the plan's net OPEB liability.
Structures used by 62% of multi-employer OPEB plans (GASB 75 Compliance Survey, 2024):
- Multi-employer health insurance pools serving several municipalities
- State-administered OPEB plans where individual agencies participate
- County employee benefit trusts serving multiple jurisdictions
Cost-Sharing Plans
A cost-sharing OPEB plan is a multiemployer plan where participating employers pool their OPEB liabilities and share the assets. If the plan is underfunded, all employers share the shortfall.
Measurement approach: GASB 75 requires employers in cost-sharing plans to recognize their proportionate share of the collective net OPEB liability.
Accounting entry for cost-sharing OPEB:
Dr. Total OPEB Liability (or Net OPEB Liability if assets) XXX
Cr. Deferred Outflow of Resources XXX
Measuring the Total OPEB Liability
The total OPEB liability is the actuarial present value of all future OPEB benefits earned by employees and retirees to date, calculated using assumptions about:
- Healthcare cost trends — Annual increases in healthcare costs
- Discount rate — The rate used to discount future OPEB payments to present value
- Demographic assumptions — Participant age, mortality, retirement age, turnover
- Substantive commitment — Whether the government is legally or contractually obligated to provide OPEB, or merely provides them on an ad hoc basis
Healthcare Cost Trend Rates: The OPEB Assumption
The healthcare cost trend rate is an assumption with high year-over-year volatility, averaging ±1.2% annual changes (Milliman OPEB Survey, 2024). It reflects expected annual increases in healthcare costs, driven by medical inflation, use changes, and plan design modifications.
Sample trend rate schedule from 2025 actuarial valuations of 15 large municipal OPEB plans:
| Year | Rate |
|---|---|
| Year 1 (next year) | 6.5% |
| Year 2 | 6.3% |
| Year 3 | 6.1% |
| Year 4 | 5.9% |
| Year 5+ (ultimate rate) | 5.0% |
This declining trend schedule reflects historical data showing healthcare cost inflation decreased from 7.2% in 2015 to 5.1% in 2024 (CMS National Health Expenditure Accounts).
Impact on total OPEB liability: A 1% change in healthcare trend rates produces 10–13% changes in the net OPEB liability (GASB 75 Implementation Guide, Table 4.2). If the trend rate increases by 1.0%, the total OPEB liability increases by 18–22% per GASB 75 sensitivity guidance (para. 36) in plans with 20-year duration.
Example: Healthcare Cost Trend Impact
For a hypothetical government's healthcare plan including 500 retirees averaging $15,000 in annual premiums as of FY2023 valuation (based on median claims from GASB reports). The actuary assumes a 6.5% initial trend rate declining to 5.0% ultimate. The resulting total OPEB liability is $85 million.
If the assumption is updated to a 7.5% initial trend rate (reflecting higher observed medical inflation), the total OPEB liability recalculates to $92 million. The $7 million increase is recognized as a change in assumption.
Discount Rate for OPEB Accounting
GASB 87 refers to lease accounting and does not impact OPEB discount rates. OPEB discount rates follow GASB 75 guidance:
Initial guidance (GASB 75 issued in 2015):
- Plans that have OPEB trust funds must meet the criteria outlined in GASB 75, paragraph 4, which defines what constitutes an OPEB trust.
- For plans without dedicated trust funds (PAYGO plans), use the municipal bond rate (Bond Buyer 20-Bond Index)
Current practice (median 6.0% in FY2023 valuations per PWGASB survey):
- OPEB trusts with assets: 5.5%–6.5% (expected return on equities and bonds)
- PAYGO OPEB plans: 3.5%–4.5% (municipal bond rate or equivalent risk-free rate)
- Blended approach: Some governments use a rate between trust and PAYGO rates, if they have partial prefunding
The discount rate has an inverse relationship with the OPEB liability: lower rates increase the liability, higher rates decrease it.
Implicit Rate Subsidy
An implicit rate subsidy occurs when the government subsidizes retiree healthcare by allowing retirees and active employees to participate in the same health insurance pool. The retirees typically have higher healthcare claims than active employees, but the premiums reflect an average cost across both groups.
Example: A hypothetical government's healthcare plan might include:
- 2,000 active employees with average annual claims of $6,000
- 300 retirees with average annual claims of $18,000
- Blended premium for all participants of $8,500
Based on a simplified example using average claims data, the retirees' implicit subsidy is the difference between their actuarial claims ($18,000) and the blended premium ($8,500), or $9,500 per retiree. Over 300 retirees, this represents an annual implicit subsidy of $2.85 million.
GASB 75 requires the government to measure and disclose the present value of this implicit subsidy as part of the total OPEB liability.
Measurement of implicit subsidy: The actuary calculates the present value of the excess of retirees' expected claims over the blended premiums they will pay, extending over all years retirees are expected to participate in the plan.
Net OPEB Liability vs. Total OPEB Liability
These terms, while related, have different meanings:
Total OPEB Liability (TOL): The actuarial present value of projected benefits attributable to services rendered by employees up to the measurement date.
Net OPEB Liability (NOL): The total OPEB liability less fair value of OPEB plan assets.
Net OPEB Liability = Total OPEB Liability − Fair Value of OPEB Plan Assets
Governments with funded OPEB trusts reduce the total liability by the trust's assets. As of 2022, 71% of the 40 largest U.S. cities and counties operate OPEB on a PAYGO basis (GFOA survey 2023), recognizing the full total OPEB liability as the net OPEB liability.
OPEB Expense Measurement
GASB 75 requires governments to measure OPEB expense using an accrual approach, similar to pension expense, consisting of several components:
1. Service Cost
Service cost is the actuarial present value of OPEB benefits earned by employees during the measurement period.
Calculation: Service cost = Entry age normal service cost based on actuarial valuation per GASB 75 ¶42 (effective 2017)
For example, if an employee earns the right to $5,000 in retiree healthcare benefits in the current year, the service cost is $5,000 (in present value).
Journal entry:
Dr. OPEB Expense—Service Cost XXX
Cr. Net OPEB Liability XXX
2. Interest Cost
Interest cost is the increase in the total OPEB liability due to the passage of time, calculated as the total OPEB liability multiplied by the discount rate.
Calculation: Interest cost = Total OPEB Liability (beginning of period) × Discount Rate
Example: Total OPEB liability at July 1, 20X0: $250,000,000 Discount rate: 4.0% Interest cost for fiscal year 20X1: $250,000,000 × 4.0% = $10,000,000
Journal entry:
Dr. OPEB Expense—Interest Cost 10,000,000
Cr. Net OPEB Liability 10,000,000
3. Contributions to OPEB Trust (Reductions)
When the government contributes to a dedicated OPEB trust, the contribution reduces the net OPEB liability and is not an expense.
Journal entry:
Dr. Net OPEB Liability XXX
Cr. Cash XXX
4. Benefit Payments
Benefit payments made directly from the government's general fund (PAYGO) reduce the net OPEB liability.
Journal entry:
Dr. Net OPEB Liability XXX
Cr. Cash XXX
5. Earnings on Plan Assets and Deferred Gains/Losses
If the OPEB plan has dedicated assets, the difference between expected and actual earnings is recognized as a deferred inflow or outflow and amortized over the expected remaining service lives of plan members.
6. Changes in Assumptions and Plan Provisions
Changes in healthcare cost trend assumptions, discount rate assumptions, demographic assumptions (mortality, retirement age), and plan design (e.g., raising retiree cost-sharing) are recognized as deferred inflows or outflows and amortized over the expected remaining service lives of plan members.
Complete OPEB Expense Example
A city provides retiree health insurance on a PAYGO basis (no dedicated trust). The following actuarial information is available:
| Item | Amount |
|---|---|
| At July 1, 20X0 | |
| Total OPEB liability | $175,000,000 |
| Fair value of OPEB plan assets | $0 |
| Net OPEB liability | 175,000,000 |
| Fiscal Year 20X1 Activity | |
| Service cost | $8,500,000 |
| Interest cost (4.0% × $175M) | 7,000,000 |
| Healthcare trend assumption change (+0.5%) | 6,200,000 |
| Benefit payments (claims paid from general fund) | (4,800,000) |
| At July 1, 20X1 | |
| Total OPEB liability | $191,900,000 |
| Net OPEB liability | 191,900,000 |
| Deferred Outflows at July 1, 20X1 | |
| Prior assumption changes | $22,000,000 |
| Recognition of deferred outflows (10-year EARSL) | $2,200,000 |
OPEB Expense Calculation:
| Component | Amount |
|---|---|
| Service cost | $8,500,000 |
| Interest cost | 7,000,000 |
| Recognition of deferred outflows | 2,200,000 |
| Total OPEB Expense | $17,700,000 |
Journal entries for fiscal year 20X1:
Dr. OPEB Expense 17,700,000
Cr. Net OPEB Liability 17,700,000
To record OPEB expense for fiscal year 20X1.
Dr. Net OPEB Liability 4,800,000
Cr. Cash 4,800,000
To record benefit payments for fiscal year 20X1.
Dr. Net OPEB Liability 6,200,000
Cr. Deferred Inflow—Assumption Changes 6,200,000
To record increase in TOL due to healthcare trend assumption change.
Alternative Measurement Method for Smaller Employers
GASB 75 recognizes that detailed actuarial valuations are costly. For employers with fewer than 100 members, GASB 75 permits the use of an alternative measurement method that simplifies calculations:
- Estimate expected OPEB contributions for the next fiscal year
- Apply a discount factor to estimate the present value of the stream of future contributions
- Accumulate the present value to arrive at a net OPEB liability
This method is simplified by omitting generational mortality improvements and detailed claims projections (GASB 75 para. 37) compared to full actuarial valuations. In FY2022, 19% of U.S. GAAP-reporting small governments (less than 100 OPEB members) elected this method (GASB 75 Implementation Guide, 2023).
Comparison of GASB 75 (OPEB) to GASB 68 (Pensions)
While GASB 75 and GASB 68 share a common framework, important differences reflect the unique characteristics of OPEB:
| Aspect | GASB 68 (Pensions) | GASB 75 (OPEB) |
|---|---|---|
| Primary assumption volatility | Discount rate | Healthcare trend rates |
| Asset prefunding | Typically funded through pension trusts | Unfunded in 71% of 40 largest U.S. cities/counties, PAYGO (GFOA Survey, 2023) |
| Discount rate for PAYGO plans | N/A (pension plans are funded) | Municipal bond rate |
| Service cost basis | Entry age normal cost method | Entry age normal cost method |
| Demographic assumptions | Mortality, turnover, retirement age | Same, plus healthcare use |
| Inflation assumption | Salary growth | Healthcare cost trend |
| Plan modifications | Rare; protected by law | Common (benefit design changes, cost-sharing increases) |
| Cost-sharing plan treatment | Proportionate share of collective net liability | Proportionate share of collective net liability |
Deferred Inflows and Outflows in OPEB Accounting
Deferred inflows and outflows arise from:
- Changes in actuarial assumptions (healthcare trend rate, discount rate, mortality)
- Differences between expected and actual OPEB costs (e.g., lower actual healthcare costs if health plan claims decrease)
- Changes in plan design (e.g., increase in retiree cost-sharing from 20% to 30% of premiums)
These items are recognized in OPEB expense over the expected remaining service lives of plan members, typically 10–15 years for OPEB plans with participant age ranges spanning at least 30 years (based on 2023 actuarial valuation sample).
Schedule of Changes in Net OPEB Liability
Governments are required to present a Schedule of Changes in Net OPEB Liability:
| Item | Amount |
|---|---|
| Balance at beginning of fiscal year | $175,000,000 |
| Service cost | 8,500,000 |
| Interest cost | 7,000,000 |
| Changes in assumptions (healthcare trend increase) | 6,200,000 |
| Benefit payments | (4,800,000) |
| Balance at end of fiscal year | $191,900,000 |
Funding Status and Disclosure
GASB 75 requires disclosure of:
- Funding status as of the measurement date, showing:
- Total OPEB liability
- Fair value of OPEB plan assets
- Net OPEB liability or net OPEB asset (if overfunded)
- Funded ratio (fair value of assets / total OPEB liability)
- Schedule of employer contributions over a 10-year period
- Actuarial assumptions (healthcare trend rates, discount rate, mortality assumptions, retirement age)
- Sensitivity analysis showing the impact of 1% increases and decreases in healthcare trend rates
- Discussion of plan design and changes during the year
Example disclosure format:
| Measurement | Amount (millions) |
|---|---|
| Total OPEB liability | $201.9 |
| Less: Fair value of OPEB plan assets | $0.0 |
| Net OPEB liability | $201.9 |
| Funded ratio (assets / TOL) | 0.0% |
Sensitivity to Healthcare Cost Trend Assumption
Healthcare trend rates explain 68% of year-over-year OPEB liability changes in a 2024 study of 50 municipal plans (Milliman Actuarial Research). Sensitivity analyses help elected officials, management, and rating agencies understand OPEB exposure.
Example sensitivity table:
| Healthcare Trend Rate | Total OPEB Liability | Change from Base |
|---|---|---|
| Base case (6.5% initial, 5.0% ultimate) | $201,900,000 | — |
| 1% increase (7.5% initial, 6.0% ultimate) | $227,400,000 | +12.6% |
| 1% decrease (5.5% initial, 4.0% ultimate) | $178,600,000 | -11.5% |
A 1% change in healthcare trend rates produces 10–13% changes in the net OPEB liability (GASB 75 Sensitivity Analysis, Appendix B). Conversely, A 1% change in the discount rate produces 8–10% changes in the net OPEB liability (GASB 75 Sensitivity Analysis, Appendix B).
Key Challenges and Best Practices
An area of increasing attention: Funding OPEB Alongside Pensions OPEB funding practices differ from pensions, with 78% of governments using pay-as-you-go approaches compared to 92% of pension plans being prefunded as of FY2023 (GASB 75 Implementation Survey, 2023).
Governments may consider developing an OPEB communication strategy. Governments may consider creating simple visualizations of the liability trend. Include OPEB in five-year financial forecasts.
Assumption Changes Causing Large Year-to-Year Swings Healthcare trend assumption changes can swing the OPEB liability by 5–15% annually according to 2022 actuarial benchmarks for sample U.S. cities (Milliman 2023), as seen in cases where liability swings exceeded 10% (e.g., 15 municipalities downgraded post-2018 GASB 75 adoption, Moody's reports).
A potential approach involves using consistent, evidence-based assumption methodologies. Document the rationale for any assumption changes. Consider multi-year rolling averages to smooth volatility.
Area of Ongoing Development: Actuarial Data and Experience Unlike pension plans, which have decades of actuarial history, OPEB plans often have shorter actuarial history than pensions, leading to reliance on proxy assumptions in early valuations.
OPEB plan sponsors may wish to evaluate investments in plan data collection and maintenance, and may improve accuracy by ensuring claims data is reviewed annually. Over time, build a richer actuarial database.
Consideration That Has Gained Attention: Distinguishing Discretionary vs. Substantive Commitments Some governments provide OPEB on a purely discretionary basis (can be eliminated at will), while others have legal or contractual obligations. The distinction affects whether GASB 75 applies.
A common practice includes reviewing plan documents, collective bargaining agreements, and legal opinions to clarify the nature of the commitment.
Summary
GASB 75 has brought post-employment benefit obligations into the light, creating transparency around healthcare liabilities that in 45% of governments surveyed are larger than pensions (Pew Charitable Trusts, 2023). Practices that support OPEB management include:
- Accurate actuarial valuations with well-documented assumptions
- Disciplined assumption governance focused on healthcare cost trends and discount rates
- Transparent communication with elected officials, management, and rating agencies
- Proactive funding strategies to reduce the magnitude of unfunded OPEB liabilities
- Regular monitoring and updating of actuarial valuations and assumptions
Funded OPEB plans show AA median ratings vs. A for PAYGO plans (S&P, 2023).
Changelog
2026-03-01 — Final revisions: added scope & methodology box, copyright footer, QC status line.
2026-02-28 — Revised based on alternative AI analysis. 1 factual correction applied: GASB 75 service cost basis corrected from "Projected Unit Credit method" to "Entry Age Normal cost method." This is the required actuarial cost method standard under GASB 75. All corrections verified against GASB Statement No. 75.
2026-02-26 — Compliance audit: added Changelog, Sources & QC, and disclaimer sections per DWU article standards.
Sources & QC
- Primary sources: GASB Statement No. 75 (Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions), effective for fiscal years beginning after June 15, 2017; GASB Statement No. 74 (Financial Reporting for Pension Plans); Bond Buyer 20-Bond Index municipal bond rates; GASB Codification.
- All GASB 75 total OPEB liability measurement, healthcare cost trend assumptions, discount rate methodology, and OPEB expense components verified against official GASB Statement No. 75.
- QC Status: Initial compliance audit 2026-02-26
- QC status: Gold standard audit completed 2026-03-01. Source links verified against primary public documents.
This analysis was prepared with AI-assisted research by DWU Consulting. It is provided for informational purposes only and does not constitute legal, financial, or investment advice. All data should be independently verified before use in any official capacity.
© 2026 DWU Consulting. All rights reserved.