OPEB refers to “other post-employment benefits,” or benefits other than pension benefits. OPEB typically consists of health-care benefits, but might include other benefits such as life insurance, long-term care and similar benefits. Historically, these benefits have been administered on a pay-as-you-go basis and have not been reported as a liability on municipal financial statements. In Florida, state statutes require that the employer make health coverage available to retirees at the employer’s group rate. This creates an implicit cost that must be accounted for, potentially making this a financial issue for every city in Florida.
GASB 45 requires municipalities to start accounting for OPEB liabilities much like they already account for pension liabilities. The process will be similar to accounting for pensions, generally adopting similar actuarial methodologies while making adjustments for the diff erent characteristics of OPEB. A key difference is that most municipalities have not set aside funds against this liability. GASB 45 does not require municipalities to report a net OPEB obligation at the beginning, which differs from GASB 27 concerning pensions.
Under GASB 45, an annual required contribution (ARC) is determined for each municipality by taking the sum of the current year normal cost of OPEB benefits plus the amortization of benefits earned by current and former employees but not yet provided for (unfunded actuarial accrued liability or UAAL), using an amortization period of not more than 30 years. A net OPEB obligation (NOO) will result if a municipality contributes an amount less than the ARC, which is required to be recorded as a liability on financial statements. The UAAL is not required to be treated as a liability on financial statements, but will likely appear in any related footnotes and disclosures.
Current pay-as-you-go expenses might be significantly lower than the ARC. After a period of time, however, it is estimated that pay-as-you-go costs are expected to far exceed the ARC. This is largely because of factors such as increasing number of retirees and inflation in health-care costs.
An actuarial valuation is required every two years for OPEB plans with more than 200 members, or every three years if there are less than 200 members. GASB 45 does not specify the actuarial assumptions to be used in calculating an OPEB liability.
Although GASB 45 encourages earlier adoption, implementation is required in three phases based on a government’s total annual revenues in the first fiscal year ending after June 15, 1999. These phases use the same guidelines from GASB 34 as follows:
|Implementation||Annual Revenue||Effective for Fiscal Year beginning after:|
|Phase 1||>$100M||December 15, 2006|
|Phase 2||>$10M <$100M||December 15, 2007|
|Phase 3||<$10M||December 15, 2008|