GASB Statement No. 43: Financial Reporting for Postemployment Benefit Plans Other than Pension Plans

GASB Statement No. 45: Accounting and Financial Reporting by Employers for Postemployment Benefits Other than Pension Plans

GASB has issued two new pronouncements that address the accounting and reporting treatment of Other Post Employment Benefits (OPEB) for plans and employers. The statements will be effective for periods starting after December 15, 2006 for plans and 2007 for employers. For agencies that have a June 30 fiscal year-end, they will become effective starting in fiscal year 2007 for plans and 2008 for employers.

GASB had staggered the implementation of these statements in accordance with the phases used for implementation of GASB Statement No. 34. Phase one agencies will implement the plans in fiscal year 2007 and 2008, phase two agencies will be required to implement in fiscal years 2008 and 2009 and phase three agencies in fiscal years 2009 and 2010.

Although the implementation dates seem far into the future, we recommend that agencies start preparing for these statements two years prior to their implementation date. The requirements of the statements are extensive and since an actuarial study may be required and the number of actuaries is limited, it is best to be prepared for implementation before the required dates.

Currently most agencies are accounting for OPEB on a “pay-as-you-go basis.” These new statements will require OPEB to be accounted for much like retirement benefits. The intention of these statements is to “improve the relevance and usefulness of financial reporting.” Under these new requirements, OPEB will have to be reported under the accrual basis of accounting and will be accounted for during the employees’ active years of service.

Employers will be required to pay an Annual Required Contribution (ARC) which is the combination of:

1)  The normal cost of OPEB for the year, and

2) The employer’s unfunded actuarial accrued liabilities (assets) amortized over a period not to exceed 30 years.

Employers are not required to recognize a liability for any portion of OPEB costs that have not been recognized at transition. However, if an employer does not contributed the full amount of the ARC, a net OPEB obligation has to be recorded and reported in the financial statements.

In the government-wide financial statements, this amount will be shown as part of governmental activities and business-type activities as appropriate. In the fund financial statements, this amount would be a liability of all appropriate proprietary funds but not shown on the governmental funds which are accounted for on the modified accrual basis of accounting.

GASB Technical Bulletin No. 2004-2 issued in December of 2004, clarified the treatment of both pension and OPEB liabilities for cost sharing employers. This bulletin requires that “cost-sharing employers should recognize the contractually required contributions assessed for the employer’s financial reporting period as expenditures of that period, and should recognize any unpaid contributions assessed for that period as liabilities, in governmental fund financial statements prepared on the modified accrual basis of accounting.” The reasoning behind this interpretation is that the liability, because it is contractual, is a matured liability and should therefore be recognized as such under the modified accrual basis of accounting. As a result, there will be no reconciling item between the fund financial statements and the government-wide financial statements as it relates to such liabilities.

Certain disclosures are required both in the notes to the financial statements and Required Supplementary Information. These requirements are very similar to those required for retirement benefits in GASB Statement No. 27.

All funds associated with OPEB benefits have to be segregated from the agency’s pooled cash and held in trust for beneficiaries

If agencies can contract with an independent trustee who will administer OPEB activities and funds, reporting is similar to the current requirements for retirement benefits reporting administered by a third party such as CalPERS. If the agency makes the ARC payments the only requirement for reporting is in the notes to the financial statements and required supplementary information. If the Agency does not satisfy the ARC payments, the liability will appear in the appropriate statements as discussed above in addition to the note disclosure requirements.

If the agency is the administrator of the funds, a separate OPEB Trust Fund must be created as part of their fiduciary funds in which they will report the assets, liabilities, revenues and expenses of the fund. The same note disclosure and RSI requirements apply. If the agency does not make all the ARC payments to the OPEB trust fund, the liability will be realized in the appropriate the government-wide or fund financial statements and a receivable will be recorded in the OPEB trust fund.

Actuarial valuations are required biennially for all employers with 200 or more members and triennially for employers with less than 200 members. Members are defined as active employees, terminated employees who have accumulated benefits but are not yet receiving them, and retired employees and beneficiaries currently receiving benefits. Employers who have less than 100 members have the “option to apply a simplified alternative measurement method” instead of obtaining an actuarial valuation. This method is intended to relieve an undue burden of cost for smaller employers and is “potentially usable by non-specialists.”

GASB has issued an implementation guide for both these pronouncements addressing over 200 questions and many examples.