GASB News Release 05/28/14
GASB PROPOSES MAJOR IMPROVEMENTS FOR REPORTING
HEALTH INSURANCE AND OTHER RETIREE BENEFITS
Norwalk, CT,
May 28, 2014—The Governmental Accounting Standards Board (GASB) today
voted unanimously to approve two Exposure Drafts proposing significant
improvements to financial reporting by state and local governments of other
postemployment benefits (OPEB), such as retiree health insurance. The GASB also
approved a third Exposure Draft that would establish requirements for pensions
and pension plans that are outside the scope of the pension standards the GASB
released in 2012.
The most significant effect of the OPEB Exposure Drafts
would be to require governments to recognize their net OPEB liabilities on the
face of their financial statements – providing all financial statement users
with a more comprehensive understanding of these significant OPEB promises than
is currently available.
The first Exposure Draft related to OPEB,
Accounting and Financial Reporting for Postemployment Benefits Other Than
Pensions (OPEB Employer Exposure Draft), proposes guidance for reporting by
governments that provide OPEB to their employees and for governments that
finance OPEB for employees of other governments. The second Exposure Draft
related to OPEB, Financial Reporting for Postemployment Benefit Plans Other
Than Pension Plans (OPEB Plan Exposure Draft), addresses the reporting by
the OPEB plans that administer those benefits.
gOPEB – which consists
mainly of health care benefits – represents a very significant liability for
many state and local governments, one that is magnified because relatively few
governments have set aside any assets to pay for those benefits,h said GASB
Chair David A. Vaudt. gIt is vital, therefore, that taxpayers, policy makers,
bond analysts, and others receive more and better information about these
benefits so that that they can better assess the financial obligations and
annual costs related to the promise to provide OPEB.h
Mr. Vaudt added,
gThese proposed standards will usher in for OPEB the same fundamental
improvements in accounting and financial reporting approved by the Board in 2012
for pensions.h
The OPEB Employer Exposure Draft proposes that
governments be required to report a liability for the OPEB that it will provide
on the face of the financial statement. For governments that provide OPEB
through a defined benefit OPEB plan administered through a trust meeting
specified criteria, this liability would be the net OPEB liability, which is the
difference between the total OPEB liability and net position accumulated in the
trust. For governments that do not provide OPEB through such a trust, the total
OPEB liability would be the liability reported by the government.
The
OPEB Employer Exposure Draft also proposes significant changes to how a
government would calculate its OPEB liability and annual expense. These proposed
changes include:
- Discounting projected OPEB payments using:
- The long-term expected rate of return on OPEB plan assets administered
through a trust meeting specified criteria to the extent that plan assets
are expected to be available to make projected benefit payments and be
invested using a strategy to achieve that return
- A 20-year tax-exempt, high-quality general obligation municipal bond
yield or index rate to the extent that the conditions above are not
met
- Use of a single actuarial cost allocation method (gentry age actuarial
cost methodh)
- Immediate recognition of additional components of OPEB expense
- Requiring governments in all types of OPEB plans to present more extensive
note disclosures and required supplementary information about their OPEB
liabilities.
The Exposure Draft also proposes to continue an option to
use a specified alternative measurement method in place of an actuarial
valuation for purposes of determining the total OPEB liability for benefits
provided through OPEB plans in which there are fewer than 100 plan members
(active and inactive) in order to reduce costs for smaller governments.
The OPEB Plan Exposure Draft addresses the financial reports of defined
benefit OPEB plans that are administered through trusts that meet certain
criteria. It also details proposed note disclosure requirements for defined
contribution OPEB plans.
The third Exposure Draft, Accounting
and Financial Reporting for Pensions and Financial Reporting for Pension Plans
That Are Not Administered through Trusts That Meet Specified Criteria, and
Amendments to Certain Provisions of GASB Statements 67 and 68, would
complete the suite of pension standards by establishing requirements for those
pensions and pension plans that are not administered through a trust meeting
specified criteria.
The Exposure Drafts, including instructions on how to
submit written comments, are each expected to be available in mid-June on the
GASB website, www.gasb.org. Stakeholders are encouraged to review the proposals
and provide comments by August 29, 2014.
The GASB will host public
hearings on the Exposure Drafts on September 10, 11, and 12, 2014. Locations and
other details, including instructions for registering to participate, are
highlighted in the Exposure Drafts.
About the Governmental
Accounting Standards Board
The GASB is the independent,
not-for-profit organization formed in 1984 that establishes and improves
financial accounting and reporting standards for state and local governments.
Its seven members are drawn from the Boardfs diverse constituency, including
preparers and auditors of government financial statements, users of those
statements, and members of the academic community. More information about the
GASB can be found at its website, www.gasb.org.