FASB ASC 715-60 and GASB 75 accounting standards
What are the FASB ASC 715-60 and GASB 75 accounting standards, and how do they relate to retiree healthcare benefits?
As you know, most employees are covered by an employer-sponsored healthcare plan. In most cases, the coverage ceases when the employee terminates employment (more precisely, when the COBRA extended coverage ceases). Employers offering post retirement health care benefits continue to cover those retirees who have satisfied certain predetermined requirements, such as age 55 with 15 years of service with the organization. The Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB) issued accounting standards related to post retirement benefits that generally require the cost of post-retirement healthcare benefits, also referred to as OPEB benefits, to be accrued over the working lifetime of the employee.
What benefits are considered Other Post-Retirement (OPEB) Benefits?
Benefits other than pension distributions.
- Retiree health insurance
- Life insurance
- Deferred compensation
- Other types of “other” benefits, such as vision or dental coverage
Accounting standards for post retirement healthcare plans
FASB ASC 715-60 and GASB 75 are accounting standards that define how the expense and liability for post retirement healthcare and other non-pension benefits must be recorded for financial statement purposes. FASB ASC 715-60, issued by the Financial Accounting Standards Board, applies to private sector employers and not-for-profit organizations GASB 75, issued by the Governmental Accounting Standards Board, applies to government agencies.
The cost of post retirement healthcare benefits are accrued over the employee’s working lifetime.
The accounting standards generally require the cost of post-retirement healthcare benefits to be accrued over the working lifetime of the employee. Before the accounting standards, this cost was usually recorded on a pay-as-you-go basis. As an example, if an employer sponsored a self-funded plan and a retiree incurred a $1,000 covered healthcare expense, the expense was recorded on the company books in the year the plan paid the hospital or doctor bill.