Accounting and Financial Reporting for OPEB
Effective: Fiscal years beginning after June 15, 2017 (FY2018)
GASB 75 mirrors GASB 68's framework for other post-employment benefits (OPEB), primarily retiree healthcare. It requires governments to recognize the net OPEB liability on the statement of net position, bringing trillions of dollars of previously unfunded obligations onto government balance sheets nationwide.
Key Provisions
- Net OPEB liability on statement of net position
- Total OPEB liability for unfunded plans
- Healthcare trend rate assumptions
- Implicit rate subsidy recognition
- OPEB expense based on actuarial components
- Deferred inflows/outflows parallel to GASB 68
- Discount rate: blended or municipal bond index rate (unfunded plans)
- Note disclosures with sensitivity analysis
What Is OPEB?
Other post-employment benefits (OPEB) are benefits other than pensions provided to retired employees. The most common and costly OPEB is healthcare coverage, but OPEB also includes dental, vision, life insurance, disability, and long-term care benefits. Many governments provide implicit rate subsidies by allowing retirees to participate in the active employee health plan at blended rates, which constitutes an OPEB obligation even if the government doesn't directly pay retiree premiums.
Total and Net OPEB Liability
The total OPEB liability is the actuarial present value of projected benefit payments attributed to past service. For funded plans, the net OPEB liability equals the total OPEB liability minus the OPEB plan's fiduciary net position. Many OPEB plans are unfunded or minimally funded, meaning the total and net OPEB liability are often the same or very similar — a key distinction from pensions, which are typically better funded.
Healthcare Trend Rates
Healthcare cost trend rates are a critical assumption unique to OPEB accounting. These rates project the rate at which per-capita healthcare costs will grow in the future. Actuaries typically use a select-and-ultimate approach, starting at current medical inflation rates and grading down to an ultimate long-term rate. Small changes in trend rate assumptions can have enormous impacts on the total OPEB liability.
Implicit Rate Subsidy
When retirees are included in the same insurance pool as active employees and are charged the same blended premium rate, the government provides an implicit rate subsidy. This is because retirees generally have higher healthcare utilization costs, so the blended rate effectively subsidizes retiree coverage. GASB 75 requires recognition of this implicit subsidy as an OPEB obligation, even if the government believes it is not providing a "benefit" to retirees.
Parallel to GASB 68
GASB 75 follows the same accounting framework as GASB 68 for pensions: net liability recognition, deferred inflows and outflows, expense calculation methodology, discount rate selection, plan type classifications, note disclosures, and RSI schedules. Governments that have implemented GASB 68 will find the OPEB framework conceptually identical, with the primary differences being in actuarial assumptions (healthcare trend rates, participation rates) and typically lower funding levels.