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Postemployment Benefit Reporting Under the Statutory Accounting Standard
Background
In 2004, the Governmental Accounting Standards Board (GASB) issued two statements that addressed the financial reporting requirements for other postemployment benefits (OPEB). GASB Statement No. 43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, and GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, created accounting standards for a governmental entity’s OPEB costs. These statements require that OPEB be measured and disclosed using an economic resources measurement focus, rather than the current financial resource outflows (i.e., pay-as-you-go) approach. GASB Statement No. 45 (GASB 45) is based on the concept that postemployment benefit transactions are an exchange of promised benefits for employee services. Under this concept, the benefits, which are deferred until retirement or another future event, are to be recognized in the years during which the employer receives services, rather than during the postemployment period when payments are made. This requires disclosure about actuarially accrued liabilities related to past services and the status and progress of funding the benefits. The two statements take effect over a three-year period, with the largest governments implementing first. The statements, plus a plain-language summary and an implementation guide, are available for purchase from the GASB website.
Funding for OPEB benefits and contributions is often determined by fiscal policy and may be adjusted or eliminated depending upon the government’s financial circumstances. If benefits are authorized on a pay-as-you-go basis and funding is limited by statutory, constitutional, or other legal requirements, a governmental entity may not consider future benefit payments as a legal obligation. The 80th Legislature addressed this issue by passing HB 2365 allowing the state and political subdivisions of the state the option of following a modified accrual standard of accounting for OPEB, rather than implementing GASB 45. Specific requirements for reporting under the modified accrual standard are outlined in the bill. View the text of HB 2365 from the Texas Legislature Online (PDF).
Does your entity have an OPEB?
OPEB exists if employees have any benefits after employment other than a pension (i.e., health insurance, life insurance, long-term disability or long-term care benefits) that were earned in exchange for employee services rendered.
Are governmental entities required to implement the provisions of HB 2365?
State and political subdivisions of the state are given the option of implementing GASB 45 or following the provisions of HB 2365 when reporting OPEB benefits.
What are some of the potential consequences of not following GASB 43/45 standards?
Entities choosing to implement the provisions of HB 2365 should be aware that non-compliance with GASB 45 may have a negative impact on an entity’s external audit opinion and bond rating. Not following the standards puts an entity in conflict with generally accepted accounting principles (GAAP). Under most scenarios, auditors will report qualified or adverse opinions on the financial statements of an entity that does not follow GAAP. Bond rating agencies have stated that not following GASB 43/45 could be viewed as a negative management factor.
What are the implementation timelines for individual governmental entities?
If entities choose to implement the provisions of HB 2365, implementation begins with fiscal 2007.
If GASB 45 is implemented, the implementation date is effective in three phases depending on when the entity implemented GASB 34:
| GASB 34 Phase | Governments with Total Annual Revenue of | GASB 45 reporting starts on the first fiscal year beginning after |
|---|---|---|
| Phase 1 | $100 million or more | 12/15/06 |
| Phase 2 | $10 million or more but less than $100 million | 12/15/07 |
| Phase 3 | less than $10 million | 12/15/08 |
What are the reporting requirements for OPEB if an entity decides to follow the provisions of HB 2365?
Government Code Section 2264.051, as adopted by HB 2365, requires that accounting and reporting systems for financial activities be consistent with state financial laws. It also prohibits entities from misrepresenting the nature, scope or duration of the financial activities. This section and Section 2264.053 give entities the option of following statutory standards in the bill when other accounting bases conflict with state law.
Entities that choose to report OPEB benefits under HB 2365 rather than GASB 45 must follow the statutory standards for OPEB reporting which are outlined in the following sections of the Government Code:
Section 2264.104 — Disclosure of Information on Financial Statements; Generally:
- This state or a political subdivision of this state shall disclose in its notes to the financial statement:
- Other postemployment benefits that it provides in its substantive plan, including:
- The covered employee groups;
- Eligibility requirements; and
- The amount, described in an appropriate manner, of obligations that it and the member contribute.
- The statutory, contractual or other authority under which other postemployment benefits are provided under Subdivision (1);
- The accounting, financing and funding policies that it follows;
- The amount of other postemployment benefits expenditures that it recognizes during the period, net of member contributions;
- The number of members currently eligible to receive other postemployment benefits;
- Any significant matters that affect the comparability of the disclosures required by this section with those for the previous period; and
- Any additional information that the entity believes will assist in explaining the nature and cost of its commitment to provide other postemployment benefits.
Section 2264.105 — Additional Optional Financial Disclosures:
- This state or a political subdivision of this state may disclose, for information and planning purposes only, the expense and liability that would exist if other postemployment benefits had been guaranteed to members.
- This state or a political subdivision may make this supplemental disclosure in its other supplemental statistical information to the financial statements by disclosing:
- Its actuarial methods and assumptions or other estimation methodology;
- Its net other post employment benefits obligation;
- Its funding status and funding progress;
- That the supplemental disclosure is for informational purposes only and is not an obligation or other promise to provide benefits beyond that approved by its governing body; and
- Any additional information that it believes will help explain the nature and cost of a potential commitment to provide other postemployment benefits.
What are the factors under GASB 45 that would affect the decision of whether or not to implement the statement?
Factors such as what type of other postemployment benefit plan exists could impact a decision on whether or not to implement GASB 45. Different plan types result in different accounting treatments. The following GASB43/45 Decision Tree was prepared to assist entities in this determination. It is summarized to include multiple plan types:
