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GASB 74 & 75 Notice for 2017 & 2018
The Governmental Accounting Standards Board (GASB) released new accounting standards for public sector postretirement benefit programs and the employers that sponsor them. GASB Statement 74 and 75 reflect a fundamental overall in the standards for accounting and financial reporting for postemployment benefits other than pensions (OPEB) and replace GASB 43 and 45. GASB 74 applies to OPEB plans that have a trust agreement in place or equivalent arrangement and is effective for plan fiscal years beginning after June 15, 2016. GASB 75 applies to employers that participate in an OPEB plan, whether the OPEB plans is considered a qualified trust or not, and is effective for employer fiscal years beginning after June 15, 2017.
Many of the provisions of GASB Statements 74 and 75 for OPEB are parallel to the provisions of GASB 67 and 68 for pensions. The new GASB statements require a liability for OPEB obligations to be recognized on the balance sheet of the employers participating in the OPEB plan. In addition, an OPEB expense must be recognized in the income statement of the participating employers. This is very similar to what happened with GASB 67 and 68 for pensions.
Certain actuarial methods and assumptions required under GASB Statements 67 and 68 must also be used to develop the OPEB liability under GASB 74 and 75. For instance, the new standards require that the entry age normal actuarial cost method be utilized to determine the total OPEB liability. The new standards also require that future OPEB benefit payments be discounted using a discount rate that reflects a 20-year tax-exempt municipal bond yield or index rate if assets are not available to cover such future benefit payments.
The new standards do not enforce OPEB funding or impact the State’s current funding practice which is to fund postretirement medical benefits on a pay-as-you-go basis as benefits become due.
The following State-administered health benefits retired funds are impacted by the new GASB standards:
Of the three separate retired funds, only the Local Government Retired Fund meets the definition of a “qualifying trust” per the GASB standard and is subject to GASB 74 at the plan level. All three retired funds are subject to the requirement of GASB 75 at the employer level.
The GASB 74 and 75 actuarial valuations were prepared by the State’s health benefits actuarial consultant, Aon, and audited by the independent auditing firm, KPMG LLP. The audit reports, compiled by KPMG, contain information that each participating employer will need to disclose in their financial statements in order to comply with the new standard.
The Fiscal Year 2017 GASB 74 Actuarial Valuation Report for the Local Government Retired Fund can be viewed at the following link:
The Fiscal Year 2018 GASB 75 Actuarial Valuation Reports can be viewed at the following links:
The Fiscal Year 2018 GASB 75 Audit Reports can be viewed at the following links:
Any questions as to how the information contained in the GASB 75 reports should be reflected in each employer’s financial statements should be referred to the employer’s auditor.
Please note that GASB statements solely govern financial reporting and disclosure requirements. GASB 75 does not result in a change with respect to funding of postretirement medical benefits by the State and local participating employers.
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