In 2015, the Governmental Accounting Standards Board (GASB) released new accounting standards for public sector postretirement benefit programs and the employers that sponsor them. GASB 75 reflects an overhaul in the standards for accounting and financial reporting for postemployment benefits other than pensions (OPEB).
Milliman consultants can provide advice and guidance on GASB 75, which will replace GASB 45 and become effective for employer fiscal years beginning after June 15, 2017. GASB 75 requires the disclosure of more information in the financial statements than GASB 45. More frequent valuations are encouraged and biennial valuations are now required (GASB 45 only required triennial valuations for plans with fewer than 200 members).
The reporting requirements of GASB 75 are generally more extensive than those under GASB 45. The changes for GASB 75 are designed to standardize the way OPEB expense is calculated and displayed in order to have consistency and comparability between reporting entities. Milliman can help governments of all sizes better understand the new and more stringent requirements of GASB 75.
The most significant impact of the new standards is the change from reporting the unfunded actuarial accrued liability for the plan in the notes of the financial statements to recognizing the unfunded actuarial accrued liability on the balance sheet of individual employers.
Other key changes regarding GASB 75 include:
- Different approach for determining the discount rate based on the funding of the plan
- The potential lag of up to 12 months between measurement date and reporting date
- Required use of the entry-age actuarial cost method
- Separation of funding from financial reporting
- Age-specific claims costs must be used for each individual regardless of whether the individual’s age influences premiums paid by the employer
- Selected assumptions must be in conformity with Actuarial Standards of Practice issued by the Actuarial Standards Board
The table below shows some of the key differences between GASB 45 and GASB 75.
|Unfunded actuarial accrued liability for the plan reported in the notes to the financial statements
||Unfunded actuarial accrued liability for the plan recognized on the balance sheet as a liability of the employer
||Not phased in
|Valuation required every two or three years depending on number of participants
||Biennial valuations required for all plans
|Sponsors select from six actuarial cost methods; many plans use projected unit credit actuarial cost method
||Entry Age Normal as a level percentage of pay is required for all plans
|Different basis from GASB 75 to determine discount rate for funded plans
||Different basis from GASB 45 to determine discount rate for funded plans
|Limited exceptions to age adjustment to premiums in “implicit subsidy” situation
||No exception to age adjustment to premiums in “implicit subsidy” situation
|No sensitivity testing required
||Sensitivity testing of net OPEB liability required