GASB No. 45 outlines current guidance for the accounting and financial reporting of other postemployment benefits (OPEB) by governmental employers. The most common OPEB is retiree healthcare. This standard applies to both explicit benefits—those where the employer pays for all or a portion of the premiums—as well as implicit benefits. An implicit OPEB occurs when retirees are allowed to remain on the employer’s healthcare plan at their own cost, but pay the same blended premium as current employees. While the employer is not paying a portion of the retiree premium, they are likely paying a higher premium for their active employees than they would if age-adjusted premiums were calculated for each group. This results in an implicit subsidy within the rates. An actuary can utilize either age-adjusted premiums provided by the insurance provider or standard actuarial tables to calculate the implicit subsidy and the implicit OPEB liability.
When GASB 45 was drafted, it allowed community rated plans to use unadjusted premiums to the extent allowed by actuarial standards. As such, to date employers participating in community rated plans and not providing explicit retiree benefits have not been required to calculate or record an implicit OPEB liability. Recently approved revisions to Actuarial Standard of Practice (ASOP) No. 6 describe limited circumstances in which the use of unadjusted premiums by actuaries are appropriate. As a result, it is likely that many plans will no longer fall under the community rated exception. These revisions to ASOP No. 6 are effective for actuarial studies with a measurement date on or after March 31, 2015.
Employers that participate in a community rated plan and have not calculated or recorded an OPEB liability in the past will need to coordinate with their auditor, and potentially consult with an actuary, to determine if the implicit rate subsidy under GASB 45 is material to the 2015 financial statements.
For more information on this topic, or to learn how Baker Tilly state and local government specialists can help, contact our team.