WASHINGTON — Rating agencies and others said that draft standards, which among other things urge states and local governments to disclose their net or total other post-employment benefit liabilities on the face of their financial statements, would be helpful and provide more transparency.
The Governmental Accounting Standards Board on Monday published the draft statements, which detail how post-employment benefit and pensions should be reported in annual financial statements.
OPEB primarily consists of retiree health care benefits. According to a report from Moody's Investors Service "health care cost inflation has consistently outpaced core inflation for many years, resulting in larger drains on governmental revenues."
In fiscal 2012, states reported a total of more than $530 billion in unfunded total OPEB liabilities, Moody's said in its report issued earlier this month, after GASB released a description of its proposals.
The draft statements on OPEB are similar to GASB statements 67 and 68, on pension reporting.
"OPEB and pension accounting standards in the governmental sector contribute to a lack of transparency and comparability for these items," Moody's said. "GASB attacked this lack of transparency and comparability in pension accounting by issuing GASB 67 and 68 in 2012. The proposed standards attempt to address the same issue for OPEB."
In addition to providing more consistency to information, the proposed changes to OPEB reporting "could also prompt additional focus on OPEB and OPEB reform," Fitch Ratings said in a report last week.
GASB chairman David Vaudt said in a media call Monday that as stakeholders are able to look at net OPEB and pension liabilities over the years, they will be able to see whether liabilities are growing or shrinking. The increase or decrease will "give you an indication of how well the elected officials are making policy decisions about funding and reducing that liability."
Kinney Poynter, director of the National Association of State Auditors, Comptrollers and Treasurers, said that members of his group will be reviewing and analyzing the proposals and providing GASB with comments. "I think everyone acknowledges there is benefit to providing more transparency in financial reporting," Poynter said, but added that NASACT members may not agree with all aspects of the proposals.
Richard Ellis, Utah treasurer and president of the National Association of State Treasurers, said that from an accounting perspective, it makes sense to report liabilities. But he also said that governments' priority is to determine how to deal with liabilities on an annual basis and make sure that the way they're funding OPEB is sustainable.
"We can't lose focus on our annual obligations to fund the benefits," he said.
The three proposed statements, which were approved last month, would not be binding if eventually adopted but would be necessary for a clean audit opinion. Two of the draft statements propose reporting standards for OPEB, and the third proposes accounting and reporting standards for certain kinds of pension plans.
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. The newly released pension draft would establish requirements for pensions and plans that are not administered by trusts meeting certain criteria.
The pension standards released in 2012 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. Governments whose OPEB plans are administered through trusts meeting certain 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.
GASB has developed an OPEB web page with "plain English" resources in order to help users, preparers and auditors of financial statements familiarize themselves with the drafts. These include the summary and full text of the draft statements, a fact sheet that answers frequently asked questions, and an article about the key ways the OPEB proposals will change how governments calculate and report their OPEB costs and obligations. They also include an article geared to financial statement users about how the proposed changes would affect the information users receive, as well as a video of Vaudt discussing the key principles of the OPEB proposals.
GASB is encouraging stakeholders to provide comments about the drafts by Aug. 29. The board will be holding two webinars and public hearings about the proposals. GASB is proposing that the requirements in the draft for OPEB plans be effective for periods beginning after Dec. 15, 2015, and that the requirements in the draft for governments be effective for periods beginning after Dec. 15, 2016.
