FOCUS
By Deborah Beams, CPA
Deborah Beams, CPA, LLP in Dallas, Texas. University of North Texas and spent three years as Standards Board. on Jeopardy!
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At the OSCPA’s there will be a Case Study. This session will work to look for in an and the journal entries to be made.
Board’s (GASB) first standard on other postemployment benefits (OPEB). GASB Statement No. 45, “Accounting and Financial Reporting by Employers for Postemployment Benefits Other Tan Pensions,” became effective for Dec. 31, 2007, fiscal year-ends for the largest governments. Just 10 years later, it has been superseded by GASB Statement No. 75, “Accounting and Financial Reporting for Postemployment Benefits Other Tan Pensions.” GASB 75 is effective starting June 30, 2018.
What is an OPEB? As the name might indicate, other
postemployment benefits are benefits other than pensions that are provided to an employee after their term of employment ends. OPEB does not include termination benefits (such as severance or early-retirement incentives). Terefore, most OPEBs are provided to retirees. Te most common benefit is health care. However, other benefits, such as life insurance and disability payments, may qualify as OPEBs if they are provided outside of a pension plan. Because these are not as common and often immaterial, this article focuses on retiree health care and on defined benefit OPEB because defined contribution OPEB plans1
are rare. Governments may provide OPEB benefits
in different forms. For example, retirees often are allowed to remain on the employee health insurance plans, which could be for life or until Medicare eligibility. Typically, retirees pay some or all of the premium but the premium amounts retirees pay are less than if the retirees were in their own plans, because of the younger (generally healthier) active employees in the plan. Tis is known as an implicit rate subsidy.
18 CPAFOCUS May/June 2018
t seems like only yesterday state and local governments were implementing the Governmental Accounting Standards
Governments may or may not cover part of the premium. If self-insured, the cost of retiree claims will be paid by the government. In some cases, governments give retirees cash payments that can only be used for health care costs. If not limited as to use, the cash payment would be considered pension benefit. It could be a set monthly payment amount or reimbursement for costs incurred. Pension plans almost always have written documents outlining the provisions of the plan and the benefits it will provide. In contrast, OPEB plans often do not have the same level of documentation. For example, OPEB plans may be described only in an employee handbook. Accounting for OPEB is based on the substantive plan, which is the provisions of the OPEB benefits as communicated to and understood by employees. Even an established pattern of providing OPEB benefits without any written documentation could be considered an OPEB plan.
Why is OPEB a liability? Recognizing a liability for OPEB has been a point of controversy. However, the GASB views OPEB as part of the overall employer-employee exchange. An employee provides services to his or her governmental employer during the period of employment. In return, the government provides salary and benefits while the employee is working. But during that time, the employee is also earning future retirement benefits— particularly pensions and OPEB. Te GASB’s position is that benefits paid after the employee retires were earned during his or her working years. Terefore, a portion of the benefits expected to be paid after an employee retires were earned in the current year, and thus should be recognized as a liability.
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