Pensions and other postemployment benefits (OPEB) update

The GAAP and cash basis BARS manuals have been updated, and the 2017 pension worksheet, notes and RSI templates are now available on our website at www.sao.wa.gov. The 2017 DRS Participating Employer Financial Information (PEFI) report is available at www.drs.wa.gov. Now that you have the information and tools you need to begin calculating your 2017 pension numbers, this is a great time to get started. As in the past, our Office will provide one-on-one assistance to local governments with their calculations. Please contact Debra.Burleson@sao.wa.gov or our online HelpDesk for assistance.

The BARS Manual also includes our new Other Postemployment Benefits (OPEB) web page. This includes a list of frequently asked questions we've received about Other Postemployment Benefits and implementing the new standard, GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, effective for fiscal years ending in 2018. These questions and answers are shown below.

Q: What is OPEB? (GASB 75, Accounting and Reporting for OPEB)

A: Other Postemployment Benefits (OPEB) = postemployment benefits other than pensions. These include:

• Postemployment healthcare benefits (medical, dental, vision, hearing, etc.) whether provided through a pension plan or separately
• Other benefits (death benefits, disability, life insurance, long-term care, etc.) when provided separately from a pension plan

Q: Does GASB 74 (Financial Reporting for OPEB plans) apply to my local government?

A: Probably not. Statement 74 covers the financial reporting requirements for OPEB plans administered through a qualifying trust or equivalent arrangement. A qualifying trust is one that meets all of the following criteria:

• Contributions to the plan and earnings on those contributions are irrevocable.
• Plan assets are dedicated to providing benefits to plan members in accordance with the benefit terms.
• Plan assets are legally protected from creditors.

We are not aware of any local governments whose plans meet all three criteria.

Q: Does GASB 75 apply to my local government?

A: If you provide OPEB to retirees, then GASB 75 requirements apply for fiscal years ending in 2018 and later.

Just like pensions, the new OPEB standards require local governments to report their OPEB liabilities and related deferred outflows and deferred inflows on the face of the financial statements.

Q: Where do I get my numbers?

A: From an actuarial valuation. Unlike pension plans, most OPEB plans in the state are not centrally administered, and there is no single actuarial valuation like the DRS PEFI for the state's pension plans. Many employers who provide OPEB will need to arrange for their own actuarial valuations.

For employers participating in the Public Employees Benefits Board (PEBB) program and LEOFF 1 employers, the Office of the State Actuary is developing online valuation tools. These tools should be used only by employers with fewer than 100 participating plan members (including active employees and retirees).

Employers participating in the Association of Washington Cities (AWC) or Washington Counties Insurance Fund (WCIF) programs should contact those programs directly. Employers who need individual valuations should contact their own actuaries to arrange for a valuation under the new standards as soon as possible.

Q: What is the Alternative Valuation Method?

A: This is an alternative to a professional actuarial valuation and is specified by paragraphs 225 and 226 of GASB 75. This method uses simplified assumptions and calculations and can be used to measure total OPEB liability if you have fewer than 100 plan members (including active employees and retirees) as of the beginning of the year.

Q: What is “census data?” Will there be census data testing?

A: Census data is information about plan members, such as birthdate, gender, years of service and compensation. Actuaries use census data to perform the valuation that determines the total OPEB liability.

Auditors will test the completeness and accuracy of census data employers give to the actuary.

Q: What is an “implicit rate subsidy?”

A: Also known as a “blended premium rate,” this is caused by the inclusion of retirees in the same cost pool as active employees. As a result, retirees have the same premium rates as active employees, and the rates for active employees implicitly subsidize retirees' rates. This implicit subsidy is OPEB and must be included in your OPEB liability – even if retirees pay 100 percent of their premiums.

Q: Do cash basis governments who prepare financial statements have to report OPEB in their annual reports?

A: Yes, cash basis governments will be required to include note disclosure information regarding their OPEB plan (type of plan, nature of benefits, etc.). Our Office will provide sample note disclosures and instructions in the BARS Manual.

If you have additional questions, please contact Debra.Burleson@sao.wa.gov or our online HelpDesk.