WASHINGTON — State and local governments would have to disclose their net or total liabilities for other post-employment benefits on the face of their financial statements under new draft guidance approved this week by the Governmental Accounting Standards Board.
The guidance, which would not be binding if eventually adopted but would be necessary for a clean audit opinion, is included in one of three draft statements. Two of those propose reporting standards for OPEB and the third proposes accounting and reporting standards for certain kinds of pension plans.
The board approved the drafts on Wednesday. They are expected to be available on the GASB website in mid-June. GASB is asking stakeholders to provide comments on them by Aug. 29. The board will host public hearings on the drafts Sept. 10 through Sept. 12, it said in a release.
Of the two OPEB drafts, one contains guidance for governments that provide OPEB to their employees or employees of other governments. The other provides guidance for reporting by the OPEB plans that administer the benefits, GASB said.
The pension draft that was recently approved would establish requirements for pensions and plans that are outside the scope of the standards GASB released in 2012, the board said.
"OPEB - which consists mainly of health care benefits - represents a very significant liability for many state and local governments, one that is magnified because relatively few governments have set aside any assets to pay for those benefits," GASB chairman David Vaudt said in a release. "It is vital, therefore, that taxpayers, policymakers, bond analysts, and others receive more and better information about these benefits so ... they can better assess the financial obligations and annual costs related to the promise to provide OPEB."
The proposed OPEB standards are similar to the pension standards that GASB approved in 2012. Those pension standards require state and local governments that offer defined-benefit pension plans to report a net pension liability in their financial statements. The OPEB draft guidance would set a similar standard for OPEB liabilities.
The type of OPEB liability that governments would need to report would depend on whether their: OPEB plans are administered through trusts in which contributions and earnings on those contributions are irrevocable; plan assets are dedicated to providing benefits to plan members; and plan assets are protected from creditors.
Governments whose plans are administered through trusts meeting the criteria would report their net OPEB liability, or the difference between the total liability and the net position accumulated in the trust. Other governments would report the total liability, GASB said.
The draft statement for governments also proposes significant changes to how governments calculate their OPEB liability and annual expense.
For OPEB administered through certain trusts, projected OPEB payments would be discounted to their present value using a long-term expected rate of return, to the extent that plan assets are expected to be available to make projected payments and invested using a strategy aimed at achieving that return. If those conditions are not met, projected payments would be discounted using a 20-year, high-quality general obligation municipal bond yield or index rate. Projected payments for plans not administered through trusts also would be discounted using the 20-year, tax-exempt rate, GASB said.
The current standard allows actuaries to use one of six methods to calculate how much of the projected eventual payments can be attributed to any time period. But under the proposed standard, actuaries could use only one cost allocation method.
Also, governments would have to make more note disclosures and provide more supplementary information about their OPEB liabilities, GASB said.
In cases where OPEB plans have fewer than 100 members, governments can continue to use an alternative measurement method instead of an actuarial valuation for purposes of determining total OPEB liabilities, the board said.
The draft guidance for OPEB plans concerns the financial reports of defined benefit OPEB plans that are administered through trusts meeting certain criteria. That draft also describes proposed disclosure requirements for defined contribution OPEB plans, GASB said.
