Government Insights - GASB Statements No. 74 & 75

Government Insights GASB Statements

No. 74 & 75

GASB Statements No. 74 and 75 new standards for OPEB financial reporting SIMILAR TO THE RECENT PENSION STANDARDS issued in Statements No. 67 and 68, the Governmental Accounting Standards Board (GASB) addressed OPEB related financial reporting changes with the release of Statements No. 74 and 75 – Financial Reporting for Postemployment Benefit Plans Other than Pension Plans (OPEB) and Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (OPEB) – in June 2015. OPEB items include retiree health care benefits as well as life insurance, disability insurance and other benefits promised to retirees.

GASB Statements No. 74 New Standards for OPEB Plan Financial Reporting STATEMENT NO. 74 REPLACES Statement No. 43 – Financial Reporting for Post-Employment Plans Other Than Pension Plans, and Statement No. 57 – OPEB Measurements by Agent Employers and Agent Multiple-Employer PlanS. Statement No. 74 also replaces requirements defined in Statement No. 25 – Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contributions; Statement No. 43 – Financial Reporting for Postemployment Benefit Plans Other than Pension Plans; and Statement No. 50 – Pension Disclosures.

Effective Date STATEMENT NO. 74 REQUIREMENTS take effect for fiscal years beginning after June 15, 2016. The GASB encourages earlier application.

Anticipated Financial Reporting Improvements IN RELEASING STATEMENT NO. 74, the GASB establishes enhanced note disclosures and schedules of requirement supplementary information for OPEB plans administered through trusts that meet the following criteria: • Trust contributions are irrevocable • OPEB plan assets are used only to pay for OPEB benefits • OPEB plan assets are legally protected from creditors Through the enhanced note disclosures and schedules, Statement No. 74 seeks to generate greater transparency and enhance the usefulness of financial statements.

Items of particular note are net OPEB liabilities and how those liabilities change from year to year, comparability of reported information to similar types of OPEB plans, enhanced information about the rates of return on OPEB plan investments and the effects of market conditions on OPEB assets over time, enhanced information for assessing the relative success of the OPEB plan’s investment strategy and the effect that investment earnings have on the plan’s ability to pay benefits.

Government Insights: GASB Statements No. 74 & 75 Specific Statement No. 74 Requirements STATEMENT NO. 74 ESTABLISHES a variety of requirements to support its emphasis on making financial statements more transparent and useful. Those requirements include: • Two financial statements – a statement of fiduciary net position and a statement of changes in fiduciary net position • Descriptive information regarding the types of OPEB benefits provided, classes of plan members covered, composition of the OPEB plan’s board, investment policies, concentrations of investments equaling or exceeding 5 percent of the plan’s fiduciary net position and annual money-weighted rates of return on OPEB plan investments • Supplementary information regarding sources of change in net OPEB liability and components of net OPEB liability • Measurement of net OPEB liability based on an OPEB plan’s size; Plans with 100 or more members will generally determine net liability through an actuarial valuation, but plans with less than 100 members may use a specified alternative measurement method. In either case, valuations or calculations must be performed at least once every two years.

GASB Statement No. 75 Provides Guidance for Postemployment Benefits Other than Pensions (OPEB) THE GOVERNMENTAL ACCOUNTING STANDARDS BOARD’S (GASB) June 2015 release of Statement No. 75 – Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions (OPEB) – requires recognition of the entire OPEB liability, as well as a more comprehensive measure of OPEB expense. Statement No. 75 replaces previous GASB requirements pertaining to OPEB accounting and financial reporting for state and local governments

Effective Date STATEMENT NO. 75 TAKES effect for fiscal years beginning after June 15, 2017, with the GASB encouraging early application.

Anticipated Accounting and Financial Reporting Improvements THE GASB SEEKS to enhance the value of OPEB financial reports by incorporating greater consistency, comparability and transparency for information reported by state and local government employers and governmental non-employer contributing entities.

Summary

What Statement No. 75 Replaces

STATEMENT NO. 74 INTRODUCES substantial change for calculating and reporting the annual costs and long-term obligations of OPEB benefits, which represent substantial liabilities to many state and local governments. Affected entities need to familiarize themselves with requirements prior to the June 15, 2016 compliance date.

STATEMENT NO. 75 REPLACES requirements of Statement No. 45 – Accounting and Financial Reporting

by Employers for Postemployment Benefits Other Than Pensions – as well as requirements specified in Statement No. 57 – OPEB Measurements by Agent Employers and Agent Multiple-Employer Plans.

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The GASB seeks to enhance the value of OPEB financial reports by incorporating greater consistency,

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comparability and transparency for information reported.

Recently-issued GASB Statement No. 74 – Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans – establishes new accounting and financial reporting requirements for OPEB plans.

What Statement No. 75 Requires STATEMENT NO. 75 ESTABLISHES standards for measuring and recognizing: • Liabilities • Deferred inflows and outflows of resources • Expense/expenditures For defined benefit OPEBs, Statement No. 75 identifies methods and assumptions for: • Projecting benefit payments • Discounting projected benefit payments to their actuarial present value • Attributing present value to periods of employee service

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CONTACT US Sara Dempsey, Partner Assurance Services sara.dempsey@weaver.com

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Government Insights: GASB Statements No. 74 & 75 Three Categories of Defined Benefit OPEB Plans DEFINED BENEFIT OPEB PLANS administered through trusts that meet GASB criteria are classified in the following three categories: • Single employers whose employees are provided with defined benefit OPEB through single-employer OPEB plans • Agent employers whose employees are provided with defined benefit OPEB through agent-multiple employer OPEB plans • Cost-sharing employers whose employees are provided with defined benefit OPEB through cost-sharing multiple employers OPEB plans

Measurement of Defined Benefit OPEB Liability STATEMENT NO. 75 REQUIRES that defined benefit OPEB net liability be measured as the portion of present value of projected benefit payments to be provided to current active and inactive employees based on past periods of service (total OPEB liability), minus the plan’s fiduciary net position.

Total OPEB liability is generally determined through actuarial valuation, but a specified alternative measurement method may be used if an OPEB plan provides for fewer than 100 active and inactive employees. Projections of benefit payments need to incorporate: • • • • •

Projected salary changes Service credits Automatic benefit changes, including cost-of-living adjustments (COLAs) Effects of ad-hoc benefit changes Certain taxes or other expected assessments

Summary STATEMENT NO. 75 REFLECTS the emphasis the GASB is placing on giving state and local governments, employees and others a more accurate and complete assessment regarding current and future costs for pensions and OPEB benefits. Affected entities need to familiarize themselves with Statement No. 75 requirements and be prepared for compliance for fiscal years that begin after June 15, 2017.

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