GASB moves toward major changes in accounting for OPEB.

• Author: Gauthier, Stephen J.
• Position: The Accounting Angle - Governmental Accounting Standards Board - Other postemployment benefits

In late May 2014, the Governmental Accounting Standards Board (GASB) issued an exposure draft (ED) on Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions that proposed fundamentally changing how employers account for the cost of other postemployment benefits (OPEB) in their financial statements. If the GASB ultimately moves forward with the proposed changes, governments that offer defined benefit OPEB to their employees would henceforth be required to report a liability for the amount by which the present value of benefits earned to date by employees exceeded the value of accumulated assets held in trust to pay benefits. Likewise, the calculation of OPEB expense would no longer be linked to the actuarially determined contribution used by the employer for funding purposes.

BACKGROUND

A pension is the classic form of a postemployment benefit; that is, a benefit that employees earn during their active service live, but received afterward. The close relationship between pensions and similar benefits, such as postemployment health care, is clearly reflected in the designation of the latter as other postemployment benefits.

In economic substance, there is no essential difference between offering retirement income to an employee (a pension benefit) or offering to pay all or a portion of an employee's health care once the employee has retired (OPEB). Both are forms of compensation for service provided during an employee's active service life. Consequently, the current authoritative guidance on OPEB for employers (GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions) was closely patterned on the GASB's then-current authoritative guidance for pensions (GASB Statement No. 27, Accounting for Pensions by State and Local Governmental Employers).

June 2012 saw the release of GASB Statement No. 68, Accounting and Financial Reporting for Pensions, which replaced GASB Statement No. 27 as the source of authoritative guidance on employer accounting for pensions. The approach taken in GASB Statement No. 68 fundamentally differed from the approach taken in GASB Statement No. 27. As noted earlier, there is no essential difference in economic substance between pension benefits and OPEB; therefore, it was only logical that the GASB would revisit the current authoritative guidance on employer accounting for OPEB in GASB Statement No. 45 to bring it into line with the new...