GASB to Propose Improvements to OPEB Reporting

According to a recent GASB announcement, the proposals to be issued in June will introduce improvements to accounting and financial reporting for non-pension benefits U.S. state and local governments provide to their retired employees. These OPEBs can involve retiree health care benefits, as well as life insurance, disability, legal and other services.

The proposals are aimed at improving the information reported about OPEBs for decisionmaking and accountability purposes, comparability across governments and transparency. They also are designed to equip all users of governmental financial reports and state and local government policymakers with information that would allow them to obtain a more comprehensive understanding of a government’s financial portrait.

The scheduled GASB proposals include:

• The first Exposure Draft, “Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans,” which will address financial reporting by plans that administer OPEBs on behalf of governments; and
• The second Exposure Draft, “Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions,” which will address accounting and financial reporting by government employers.

Like pension standards released in 2012, these new proposals would lead to changes in how OPEBs are accounted for and reported. GASB said the proposed OPEB changes would provide a more comprehensive picture of what state and local governments have promised and the actual costs associated with those promises.

Issues addressed by the Exposure Drafts include:

• How the long-term obligation and the annual costs of OPEBs are measured;
• Recognizing, on the face of the financial statements, a net OPEB liability—the difference between the total OPEB liability and the value of assets set aside in a qualifying trust to make OPEB payments; and
• Presenting more extensive note disclosures and related schedules.

Some state and local governments have expressed concerns in the past regarding whether an OPEB is a liability, according to the GASB. For example, some argue they do not have an OPEB liability because they can choose to stop providing benefits whenever they wish. In some circumstances, OPEBs are not a legal or contractual obligation of that state or local government. So the benefits, or an employee’s eligibility to receive them, could potentially change in the future. However, if a promise to provide OPEBs was in place as of the date of the financial statements, the GASB believes that a state or local government has an obligation for OPEBs that constitutes a liability for financial reporting purposes.

By making the OPEB liability readily apparent, users of governmental financial statements would have access to information that provides a more comprehensive and easily understandable snapshot of a government’s financial health at a given moment in time, says the GASB. Without it, users are given an incomplete picture.

More information about the GASB’s Other Postemployment Benefits Project can be found here. Once released, the OPEB-related exposure drafts will be available at http://www.gasb.org.