GASB Standards 74 & 75

Accounting for Other Post-Employment Benefits, or OPEB

In June, 2015, the Governmental Accounting Standards Board (GASB) released two standards related to the accounting and reporting of OPEB.

Standard 74, “Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans” applies to OPEB plans administered through a trust. Standard 75, “Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions” applies to accounting and financial reporting by employers.

These standards require governments to account for and report the annual cost of OPEB. For many public sector employers, these amounts would be produced by actuarial valuations. GASB 74 was effective for fiscal years starting after June 15, 2016. GASB 75 was effective for fiscal years starting after June 15, 2017.

The purposes of the valuation are to measure an employer’s liability for the postemployment benefit plans and to provide reporting and disclosure information for financial statements, governmental agencies and other interested parties. A valuation report is prepared which contains information that is required for compliance with the GASB Standards. 

The Total OPEB Liability, Plan Fiduciary Net Position, Net OPEB Liability, and Actuarially Determined Contribution (ADC) are some of the items that are required under the GASB standards. The Total OPEB Liability is the present value of benefits attributed to the employee's service rendered prior to the current fiscal year. The Plan Fiduciary Net Position is the value of the OPEB assets that have been irrevocably dedicated to the payment of benefits under the plan.  The Net OPEB Liability is the difference between the Total OPEB Liability and the Plan Fiduciary Net Position. The ADC is the amount recognized in an employer's financial statements as the cost of a postemployment benefit plan for a period. 

These standards also require notes to financial statements to include the following:

  • A plan description and information on plan investments. 
  • Disclosure of significant assumptions. 
  • Sensitivity of the plan’s net OPEB liability to ±1% changes in the discount rate.
  • Sensitivity of the plan’s net OPEB liability to ±1% changes in the healthcare trend rate. 
  • 10-year schedule of: a Plan’s net OPEB liability reconciliation and related ratios,  any actuarially determined contributions, and investment returns. 

A typical actuarial valuation for retiree health benefits would begin by gathering information on plan design, eligibility requirements, and two or three years of recent claims experience. Existing health insurance rates may be used if claims experience is not available. Census information on current employees and retirees is also needed. Date of birth, hire date, gender, marital status, and eligibility category (for example, teachers, administrators, and support staff) are the elements needed. The actuary would review this information, and, after discussions with the employer, select health care trend and discount rates, as well as retirement, disability, and withdrawal rates for use in the valuation.