Statement No. 43
Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans
In addition to pensions, many state and local governmental employers provide other postemployment benefits (OPEB) as part of the total compensation offered to attract and retain the services of qualified employees. OPEB includes postemployment healthcare, as well as other forms of postemployment benefits (for example, life insurance) when provided separately from a pension plan.
What This Statement Does
This Statement establishes uniform financial reporting standards for OPEB plans and supersedes the interim guidance included in Statement No. 26, Financial Reporting for Postemployment Healthcare Plans Administered by Defined Benefit Pension Plans. The approach followed in this Statement generally is consistent with the approach adopted in Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, with modifications to reflect differences between pension plans and OPEB plans.
The standards in this Statement apply for OPEB trust funds included in the financial reports of plan sponsors or employers, as well as for the stand-alone financial reports of OPEB plans or the public employee retirement systems, or other third parties, that administer them. This Statement also provides requirements for reporting of OPEB funds by administrators of multiple-employer OPEB plans, when the fund used to accumulate assets and pay benefits or premiums when due is not a trust fund. A related Statement, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions (referred to as the related Statement), addresses standards for the measurement, recognition, and display of employers’ OPEB expense/expenditures and related liabilities (assets); note disclosures; and, if applicable, required supplementary information (RSI). The measurement and disclosure requirements of the two Statements are related, and disclosure requirements are coordinated to avoid duplication when an OPEB plan is included as a trust or agency fund in an employer’s financial report. In addition, reduced disclosures are acceptable for OPEB trust or agency funds when a stand-alone plan financial report is publicly available and contains all required information.
Summary of Standards
OPEB Plans That Are Administered as Trusts (or Equivalent Arrangements)
Financial Reporting Framework
The financial reporting framework for defined benefit OPEB plans that are administered as trusts or equivalent arrangements includes two financial statements and two multiyear schedules that are required to be presented as RSI immediately following the notes to the financial statements. The financial statements focus on reporting current financial information about plan net assets held in trust for OPEB and financial activities related to the administration of the trust. The statement of plan net assets provides information about the fair value and composition of plan assets, plan liabilities, and plan net assets held in trust for OPEB. The statement of changes in plan net assets provides information about the year-to-year changes in plan net assets, including additions from employer, member, and other contributions and net investment income and deductions for benefits and refunds paid, or due and payable, and plan administrative expenses.
Required notes to the financial statements include a brief plan description, a summary of significant accounting policies, and information about contributions and legally required reserves. In addition, OPEB plans are required to disclose information about the current funded status of the plan as of the most recent actuarial valuation date, and actuarial methods and assumptions used in the valuation.
The required schedules (RSI) provide actuarially determined historical trend information from a long-term perspective, for a minimum of three valuations, about (a) the funded status of the plan and the progress being made in accumulating sufficient assets to pay benefits when due and (b) employer contributions to the plan. The schedule of funding progress reports the actuarial value of assets, the actuarial accrued liability, and the relationship between the two over time. The schedule of employer contributions reports the annual required contributions of the employer(s) (ARC) and the percentage of ARC recognized by the plan as contributions. The required schedules are accompanied by notes regarding factors that significantly affect the identification of trends in the amounts reported.
Measurement (the Parameters)
Plans are required to measure all actuarially determined information included in their financial reports in accordance with certain parameters. The parameters include requirements for the frequency and timing of actuarial valuations as well as for the actuarial methods and assumptions that are acceptable for financial reporting. If the methods and assumptions used in determining a plan’s funding requirements meet the parameters, the same methods and assumptions are required for financial reporting by both a plan and its participating employer(s). However, if a plan’s method of financing does not meet the parameters (for example, the plan is financed on a pay-as-you-go basis), the parameters apply, nevertheless, for financial reporting purposes.
For financial reporting purposes, an actuarial valuation is required at least biennially for OPEB plans with a total membership (including employees in active service, terminated employees who have accumulated benefits but are not yet receiving them, and retired employees and beneficiaries currently receiving benefits) of 200 or more, and at least triennially for plans with a total membership of fewer than 200. The projection of benefits should include all benefits covered by the current substantive plan (the plan as understood by the employer and plan members) at the time of each valuation and should take into consideration the pattern of sharing of benefit costs between the employer and plan members to that point, as well as certain legal or contractual caps on benefits to be provided. The parameters require that the selection of actuarial assumptions, including the healthcare cost trend rate for postemployment healthcare plans, be guided by applicable actuarial standards.
Alternative Measurement Method
OPEB plans with a total membership of fewer than one hundred have the option to apply a simplified alternative measurement method instead of obtaining actuarial valuations. This alternative method includes the same broad measurement steps as an actuarial valuation (projecting future cash outlays for benefits, discounting projected benefits to present value, and allocating the present value of projected benefits to periods using an actuarial cost method). However, it permits simplification of certain assumptions to make the method potentially usable by nonspecialists.
OPEB Plans That Are Not Administered as Trusts or Equivalent Arrangements
Multiple-employer defined benefit OPEB plans that are not administered as trusts or equivalent arrangements should be reported as agency funds. Any assets accumulated in excess of liabilities to pay premiums or benefits, or for investment or administrative expenses, should be offset by liabilities to participating employers. Required notes to the financial statements include a brief plan description, a summary of significant accounting policies, and information about contributions.
Defined Contribution Plans
Defined contribution plans that provide OPEB are required to follow the requirements for financial reporting by fiduciary funds generally, and by component units that are fiduciary in nature, set forth in Statement 34 and the disclosure requirements set forth in paragraph 41 of Statement 25.
Effective Dates and Transition
The requirements of this Statement for OPEB plan reporting are effective one year prior to the effective date of the related Statement for the employer (single-employer plan) or for the largest participating employer in the plan (multiple-employer plan). The requirements of the related Statement are effective in three phases based on a government’s total annual revenues, as defined in that Statement, in the first fiscal year ending after June 15, 1999—the same criterion used to determine a government’s phase for implementation of Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments. Plans in which the sole or largest participating employer is a phase 1 government (those with total annual revenues of $100 million or more) are required to implement this Statement in financial statements for periods beginning after December 15, 2005. Plans in which the sole or largest participating employer is a phase 2 government (total annual revenues of $10 million or more but less than $100 million) are required to implement this Statement in financial statements for periods beginning after December 15, 2006. Plans in which the sole or largest participating employer is a phase 3 government (total annual revenues of less than $10 million) are required to implement this Statement in financial statements for periods beginning after December 15, 2007. If comparative financial statements are presented, restatement of the prior-year financial statements is required. Early implementation of this Statement is encouraged.
Unless otherwise specified, pronouncements of the GASB apply to financial reports of all state and local governmental entities, including general purpose governments; public benefit corporations and authorities; public employee retirement systems; and public utilities, hospitals and other healthcare providers, and colleges and universities. Paragraphs 4, 7, and 8 discuss the applicability of this Statement.