OPEB unveiled: GASB 45 requires governmental entities to disclose future liabilities.

• Author: Teaman, Richard
• Position: Cover story

Governmental entities will start accruing post-employment benefits other than pensions (OPEB) over the next several years--a major change that, for some, will result in massive financial liabilities. However, the change gives governmental entities the opportunity to plan for these future costs and develop methods for financing these benefits that now will be accounted for similar to the accounting for pension liabilities.

Every CPA should be interested in this change because it affects those who are governmental auditors, on the boards of governmental entities or have clients who sit on these boards. Additionally, as protectors of the public, the impending changes will have a significant impact on counties, cities, school districts, and special districts such as fire and water.

OTHER POST-EMPLOYMENT BENEFITS

The variety of post-employment benefit plans that entities have adopted is mind-boggling. While pensions are fairly well-defined as a percentage of salary based on years of service, other post-employment benefits are those that are provided separately from a pension plan. The most common such benefit is health care insurance, and some governments also provide life insurance, long-term care and dental insurance for retirees.

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There is also variety in how much of the benefits' costs are passed on to retirees. Some governmental entities, for example, will pay part or all of the medical insurance cost until the age when Medicare becomes available, currently 65. Others have the Cadillac of plans, offering retirees and other beneficiaries medical insurance for life--at the same level of benefits that current employees receive--with the entire cost paid by the governmental entity.

Most are defined benefit plans, although some are defined contribution plans. For example, employees can convert sick time to a defined contribution account upon retirement and use this to pay their share of medical insurance until they are eligible for Medicare.

Another factor that can vary widely is how long it takes for these benefits to vest. A five to 10-year period is common, but some government entities require less than a year of service. Adding to the complexity is variation in how vesting is treated when an employee switches from one governmental entity to another.

Whether or not the period of time of service of the former employer will count toward the vesting of the other post-employment benefits of the current employer usually depends on whether or not there is a written agreement on this issue between the entities.

For example, there could be an agreement between a county and city about employees transferring that may include post-employment benefits other than pensions. This contrasts with the most common pension plan for governmental employees, the California Public Employees' Retirement System, which is accounted for on a statewide basis with years of service with one employer accumulated with years of service from another employer if both use CalPERS for their defined benefit plan. Also, most of these plans require the employee to retire from the governmental entity, not...