What You Need to Know About OPEB

What You Need to Know about: GASB Proposals on OPEB

The GASB is expected to issue two proposals in June that will introduce important improvements in accounting and financial reporting for the benefits (other than pensions) that U.S. state and local governments provide to their retired employees.

These other postemployment benefits, known as OPEB, principally involve retiree health care benefits, but also may include life insurance, disability, legal and other services.

The OPEB proposals are designed to improve the information reported on OPEB for decision-making and accountability purposes, comparability across governments, and transparency for those who avail themselves to it.

the new proposals would lead to fundamental changes in how OPEB is accounted for and reported
They also are designed to equip all users of governmental financial reports and state and local government policy makers with information that would allow them to obtain a more comprehensive understanding of a government’s financial portrait:
  • The first Exposure Draft, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, will address financial reporting by plans that administer OPEB benefits on behalf of governments.
  • The second Exposure Draft, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, will address accounting and financial reporting by government employers.
Like the 2012 pension standards, the new proposals would lead to fundamental changes in how OPEB is accounted for and reported. Similar to the changes made to the pension standards, these proposed OPEB changes would provide a more comprehensive picture of what state and local governments have promised and the actual costs associated with those promises.

The Exposure Drafts address a number of important issues. They include:
  • Proposed changes that would affect how the long-term obligation and the annual costs of OPEB are measured
  • A proposed requirement to recognize on the face of the financial statements a net OPEB liability—the difference between the total OPEB liability and the value of assets set aside in a qualifying trust to make OPEB payments
  • A proposed requirement to present more extensive note disclosures and related schedules.
Some governments have expressed concerns in the past regarding whether OPEB is a liability. For example, some argue they do not have an OPEB liability because they can choose to stop providing benefits whenever they wish. In some circumstances, OPEB is not a legal or contractual obligation of the government. Consequently, the benefits, or an employee’s eligibility to receive them, could change in the future. However, if a promise to provide OPEB was in place as of the date of the financial statements, the GASB believes that a government has an obligation for OPEB that constitutes a liability for financial reporting purposes.

By making the OPEB liability readily apparent, users of governmental financial statements would have access to information that provides a more comprehensive, easily understandable snapshot of a government’s financial health
By making the OPEB liability readily apparent, users of governmental financial statements would have access to information that provides a more comprehensive, easily understandable snapshot of a government’s financial health at a given moment in time. Without it, users are given an incomplete picture.

As always, the GASB considers all of the various stakeholder viewpoints on an issue before establishing standards. By taking this approach, the Board is able to achieve a 360-degree understanding of the issues at hand. Therefore, the GASB encourages stakeholders to read and provide comments on its proposals—which will be available soon on the GASB website.

More information on the Other Postemployment Benefits project