Change is certainly happening in the post-retirement benefits field. We are approaching the effective dates for the new other post-retirement benefits (OPEB) accounting standards approved by the Governmental Accounting Standards Board (GASB) in June 2015. To refresh your memory, Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, replaces Statement No. 43 and is effective for fiscal years beginning after June 15, 2016. Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, replaces Statement No. 45 and is effective for fiscal years beginning after June 15, 2017. We previously provided a summary of the key changes to the liability calculations and presentation in the SilverLink articles, “GASB Expectations & Change” (found in the Spring / Summer 2015 edition) and “How New OPEB Changes Will Affect Public Employers” (found in Issue Two of the 2016 edition). Now we’d like to focus on the practical aspects of when and what to expect during your next OPEB valuation based on these changes.
Transition and Adoption Timing
When considering timing, an important change to keep in mind is the frequency of valuations for smaller employers. GASB 43 and GASB 45 required biennial valuations for plans with 200 or more participants and triennial valuations for plans with fewer than 200 participants. Going forward, GASB 74 and GASB 75 will require biennial OPEB actuarial valuations for all employers, regardless of size.
GASB 74 and GASB 75 do not have a phasing process based on timing of prior valuations under GASB 43 and GASB 45. Early adoption is allowed for the statements, which is expected to be beneficial for public employers whose current valuation cycles call for an OPEB actuarial valuation with a fiscal year ending up to a year before the effective dates. For example, if the next scheduled OPEB actuarial valuation under GASB 45 is to be performed for the fiscal year ending June 30, 2017 (or December 31, 2017), then the next fiscal year ending June 30, 2018 (or December 31, 2018) would need to implement GASB 75. Early adoption of GASB 75 for the fiscal year ending June 30, 2017 (or December 31, 2017) would avoid the need for valuations to occur in adjacent years. Upon early adoption during fiscal year 2017, the next valuation would be needed for the fiscal year ending in 2019.
For public employers whose current valuation cycles call for an OPEB actuarial valuation in their first fiscal year after the effective dates, the adoption of the new statements will happen at that time. Employers with fewer than 200 participants will need to transition to biennial OPEB actuarial valuations.
Because of the change in valuation frequency, some employers will need to adopt the new statements during their first fiscal year after the effective dates, even though GASB 43 and GASB 45 would have allowed an additional year between valuations. For example, if the last actuarial valuation under GASB 45 was performed for the fiscal year ending June 30, 2016 (or December 31, 2016), then an employer with fewer than 200 participants would be allowed under GASB 45 to perform the next OPEB actuarial valuation for the fiscal year ending June 30, 2019 (or December 31, 2019). However, GASB 75 would be effective for the fiscal year ending June 30, 2018 (or December 31, 2018) and will require an OPEB actuarial valuation. Early adoption during fiscal year 2016 would also require a valuation during fiscal year 2018, as GASB 75 requires biennial valuations.
While the new GASB 74 and GASB 75 statements will implement significant changes to the liability presentation, the overall process for gathering the updated data and information necessary for an actuarial valuation will mainly remain unchanged. In most cases this will include:
■ Updated member data
■ Detailed summaries of plan benefit changes (if any)
■ Updated plan experience
■ Financial statement information since the previous actuarial valuation
■ Retiree contribution amounts
Renewal valuations should also include a discussion about actuarial assumptions to determine what changes need to be made. Due to the new accounting statements, the discount rate will now be based on expected availability of OPEB plan assets, if any. For plans that are unfunded, the discount rate should be a yield or index rate for 20-year, tax-exempt general obligation municipal bonds with an average rating of AA or higher. For funded plans, the long-term expected rate of return on OPEB plan assets will be used to the extent that plan assets are expected to be available to make projected benefit payments and are administered through a trust meeting certain criteria. The yield or index rate for municipal bonds will be used to the extent that plan assets are not expected to be available.
The need for implementation guidance regarding the new Statement No. 74 and Statement No. 75 has been recognized by GASB. There are plans to have an implementation guide for each statement. An exposure draft of the proposed implementation guide for Statement No. 74 was released in October 2016, with a final guide expected in April 2017. An exposure draft with a proposed implementation guide for Statement No. 75 is expected by June 2017, with a final guide expected in November 2017.
Taking Change in Stride
They say change is never easy, but when it comes to your post-retirement benefit plans, it’s our goal to make it as stress-free as possible. Knowing what to expect for your next OPEB actuarial valuation in terms of timing and the data needed under GASB 74 and GASB 75 can help facilitate a smooth transition. For more information and guidance on these new accounting standards, contact the Post-Retirement Benefits Team at SilverStone Group. For guidance on introducing peanut butter to a baby, I’m afraid we’re just as confused as the rest of the world.
This article originally appeared in the 2017 | ISSUE ONE of the SilverLink magazine under the title “Change – New OPEB Valuation Guidelines.” To receive a complimentary subscription to the SilverLink magazine, sign up here.