Posted by George Fournaris, CPA, CGFM
There has-been increased attention given to Other Post-Employment Benefits (OPEB) reporting by standard-setters, elected officials, and government accountants over the past few years. In addition to pensions, most state and local governments provide other retiree benefits such as healthcare plans. These have become the subject of concern for many. A study conducted by the Center for Retirement Research of Boston College estimated aggregate unfunded OPEB liabilities to be $862 billion nearly two-thirds of which is at the local level. The future cost of maintaining these benefits can have a significant impact on states, local governments, and government agencies.
To help ensure the liabilities associated with these benefits are properly reported, the Government Accounting Standards Board (GASB) has issued two new accounting standards that require additional new financial statement disclosures to be made. Effective for fiscal years beginning after June 15, 2017, government agencies that offer such benefits will be required to disclose the unfunded liability on their balance sheets. These new requirements are designed to drive additional transparency in the financial reporting process. To help clients, prospects, and others understand the impact and management steps they can take, Belfint, Lyons & Shuman has provided an overview below.
What are the New Reporting Standards?
The new standards that impact OPEB include GASB 74 and GASB 75. Statement 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, addresses financial reporting guidelines for those plans that administer OPEB benefits. Statement 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, is meant to improve the financial reporting by government agencies that provide OPEB to employees and enhance information about financial support provided by other entities. These standards are important because they require agencies to report specific unfunded liabilities that previously were not required to appear on the face of the financial statements.
Key Reporting Changes
Below is a summary of the key reporting changes for governments ushered in through the new standards:
- Non-Cost-Sharing OPEB -Agencies that provide OPEB through a defined benefit plan for their own employees administered through a trust will be required to report a net OPEB liability. This is the difference between the total liability and assets accumulated in the trusts restricted to benefit funding.
- Cost-Sharing OPEB – Agencies that are involved in a cost-sharing OPEB plan managed through a trust will be required to report a liability equal to their share of the plan’s overall liability.
- Non-Trust OPEB -Agencies that provide OPEB to employees without the use of a trust will be required to report the total OPEB liability for all employees in the financial
The new standards also require government agencies that offer OPEB plans to provide more disclosures and supplementary information about OPEB liabilities. Additional disclosures include more robust disclosures of assumptions to allow for better assessments of reasonableness of OPEB measurements. Governments will also be required to document and explain the reasons why OPEB liabilities increase or decrease year to year.
Impact of Reporting Changes
It’s clear that the reporting changes will have a significant impact on a government’s financial statements and overall position. Taxpayers, employees, and municipal leaders may in fact be surprised when the unfunded OPEB liabilities are defined because they will be reported as a direct reduction in financial position. It’s critical that agencies prepare their stakeholders for the upcoming changes and take proactive steps to address OPEB reporting requirements before they come into effect.
It’s important to become familiar with the new standards and take appropriate planning steps as needed. If you have questions about the new standards or would like assistance preparing for the changes, Belfint, Lyons & Shuman can help. For additional information please call us at 302-225-0500, or click here to contact us. We look forward to speaking with you soon.