First Pensions, Now OPEB: What School Districts Need to Know About GASB 74 & 75

The Governmental Accounting Standards Board (GASB) issued two new statements that are very similar to the pension standards GASB 67 and 68. The two new statements are GASB 74 and 75.

GASB 74 – Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans

• Establishes new accounting and financial reporting requirements for school districts whose employees are provided with other postemployment benefits (OPEB).
• Includes defined benefit and defined contribution plans administered through trusts.
• Effective for financial statements for fiscal years beginning after June 15, 2016.

What does this mean for school districts? Just like GASB 67, this new standard requires enhanced footnote disclosures and additional schedules for the required supplementary information section of the financial statements. GASB 74 requires the net OPEB liability to be measured as follows: total OPEB liability less the amount of the OPEB plan’s fiduciary net position. This is usually determined through an actuarial valuation. If the OPEB plan has fewer than 100 plan members, both active and inactive, the school district can use a specified alternative measurement method. A new change in this standard requires these valuations or alternative measurements to be performed at least every two years. In the past, this was required every three years. However, the most significant changes will not occur until the implementation of GASB 75.

GASB 75 – Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions

• Establishes standards for recognizing and measuring liabilities, deferred outflows and inflows of resources and expenses and expenditures. 
• For defined benefit OPEB, this pronouncement applies to post-retirement healthcare provided to employees, which is generally provided through the Michigan Public Schools Employee Retirement System (MPSERS). This statement identifies the methods and assumptions that are required to be used to project benefit payments, discount projected benefit payments to their actuarial present value, and attribute that present value to periods of employee service. 
• Effective for financial statements for fiscal years beginning after June 15, 2017.

Similar to the calculation of the “net pension liability” for GASB 68, GASB 75 will require school districts to record their “net OPEB liability” in their financial statements, specifically on the district-wide statements for the difference between the total OPEB liability and the OPEB plan net position. There are no significant changes to the accounting for OPEB in the modified accrual statements (governmental/fund level statements). The significant increase in the information required in the footnote disclosures will likely add an additional six to seven pages. GASB 75 also requires changes to the required supplementary information.

The changes in the net OPEB liability are recorded in a similar fashion as the changes in the net pension liability. The changes in interest on the total OPEB liability, terms of the OPEB benefits, and service costs are included in OPEB expense in the period of the change. The actual changes in the economic and demographic assumptions and changes in actual and expected experience differences are amortized over the expected remaining service lives of all employees who are provided with benefits through the Plan (both active and inactive), beginning in the current period. The difference between the projected earnings on the OPEB plan investments and the actual experience with regard to those earnings is amortized over five years, beginning in the year of implementation. Just like GASB 68, this statement also requires that employer contributions made to the OPEB plan subsequent to the measurement date be reported as deferred outflows of resources.

The impact of the changes of these two new OPEB accounting standards will be very similar to the changes seen with the pension standards. It is likely that the net OPEB liability could be larger than the net pension liability as the OPEB plans were never required to be funded like the pension plans were. A good thing to remember is that these plans are not new; most school districts have had these plans for many years and they have been disclosed in the footnotes. What is new, is that they are now required to report them on the full-accrual (district-wide) statements in the financial statements. This statement enhances the transparency and accountability by way of changes and updates to the footnotes and required supplementary information (RSI) schedules.

If you have questions about these new financial reporting requirements, please contact your local Yeo & Yeo office. As implementation gets closer, Yeo & Yeo Michigan accountants will communicate on this standard with clients. We will also provide further updates and key information that you need to know as it becomes available.