Calculating an OPEB liability
requires the use of many assumptions and projections. Actuaries are specialists in making these calculations. At a high level, their process is to project the future benefits to be paid, discount them to present value and attribute those benefits to periods already worked and periods expected to be worked in the future. Te benefits attributed to periods already worked become the total OPEB liability as of the date of the actuarial valuation. If the government has assets set aside in a qualifying trust, it can record the net OPEB liability (the total liability less the fiduciary net position of the trust).
GASB 45 vs. GASB 75 GASB 45 required government
employers to calculate an annual required contribution (ARC) and recognize a cumulative liability for the difference between actual contributions and the ARC for each year. Te unfunded actuarial accrued liability (UAAL) was disclosed in the notes. Tat UAAL represented the benefits attributed to time already worked. GASB 75 essentially requires that UAAL (now called the total OPEB liability or net OPEB liability) to be recognized as
a liability. However, the parameters used to calculate that amount will be different based on GASB 75’s requirements for determining some of the actuarial assumptions and methods. For example, GASB 45 allowed governments to choose from several actuarial cost methods. GASB 75 specifies a certain method (entry age) that must be used by all governments. GASB 75 requires actuarial valuations at least biennially, where GASB 45 allowed certain smaller governments to obtain them triennially. GASB 75 does retain an alternative measurement method for very small plans.
GASB 68 vs. GASB 75 Many of the provisions of GASB 75
were based on those in GASB Statement No. 68, “Accounting and Financial Reporting for Pensions,” which was effective three years ago. Te concept of a measurement date, determination of the discount rate, recognition of deferred inflows of resources and deferred outflows of resources and implications of special funding situations are provisions of GASB 75 that will be familiar to governments that have implemented GASB 68 for a defined benefit pension plan.
However, there are differences between GASB 68 and GASB 75. Because OPEB deals with health care, there are additional actuarial considerations such as claims history and the health care cost trend rate. Because many pension plans are handled by statewide retirement systems and many OPEB plans are handled by individual employers, governments will have to engage their own actuaries and compile their own disclosure information.
How do governments prepare? Government employers can download
and read GASB 75 and its companion Implementation Guide 2017-3 from the GASB website. Tey should also be working to engage a qualified actuary to perform their valuations. Additionally, a government’s auditor can be a good resource if there are questions about specific circumstances.
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Defined contribution OPEB plans provide an individual account for each employee with the contributions to that account being specified. Te amount of OPEB benefit the employee gets depends on the value of the assets within his or her own account.
PROJECTED BENEFITS
STARTED WORKING FOR THE CITY
25 6/30/18 40
6/30/18 LIABILITY ATTRIBUTION
May/June 2018 CPAFOCUS 19 RETIRES 60 DIES 80
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