J. Richard Hogue, FSA, MAAA, EA
Actuaries spend a considerable amount of time discussing how best to define the measurement and valuation dates. There are some important factors that employers and their auditors need to consider. This topic becomes particularly important when a government agency changes actuaries.
Three important dates under GASB 75
- Financial reporting date – normally the last day of the employer’s fiscal year
- Measurement date – The date as of which the net OPEB liability is measured. For GASB 75, it may be the employer’s fiscal year end or any date consistently applied which is not earlier than the employer’s prior fiscal year end. (For GASB 74, which sets the standards for OPEB plan reporting, the measurement date must be the plan’s fiscal year end. While not required to be the same, certain complexities are likely to arise if the employer’s measurement date under GASB 75 is not the same as the measurement date for the plan under GASB 74).
- Valuation date – The date as of which an actuarial valuation is performed and is restricted as follows for employer reporting:
- it must be as of a date that is no more than 30 months and 1 day prior to the employer’s fiscal year end, and
- it must not be more than 24 months after the prior valuation date
Significance of the Measurement Date
Of these three dates, it’s the measurement date that needs the most attention by the government agency since it will affect when the actuary can finalize the information required for GASB 75 reporting. The measurement date is considered an accounting principle and is restricted by the first sentence of paragraph 74 of GASB 62 which states “The presumption that a government should not change an accounting principle may be overcome only if the government justifies the use of an alternative acceptable accounting principle on the basis that it is preferable.”
If the measurement date for the FYE 6/30/20 financial statement was 6/30/19, it would be acceptable to use a 6/30/21 measurement date for the FYE 6/30/21 financial statement because it would result in reporting more current information. Had the measurement date for the FYE 6/30/20 financial statement been 6/30/20, it would not be acceptable to use a 6/30/20 measurement date for the FYE 6/30/21 financial statement as this would result in reporting less current information than the prior year. The following chart illustrates this:
Introduction into accounting standards for post retirement healthcare plans
What are the FASB ASC 715-60 and GASB 75 accounting standards and how do they relate to post retirement healthcare benefits?
As you know, most employees are covered by some form of employer-sponsored healthcare plan. In most cases, the coverage ceases when the employee terminates employment (to be more precise, when the COBRA extended coverage ceases). Some employers 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) issue 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
FASB ASC 715-60 and GASB 75: Accounting standards for post retirement healthcare plans
These are accounting standards that define the manner in which the expense and liability for post retirement healthcare and other non-pension benefits must be recorded for financial statement purposes. The Financial Accounting Standards Board issued FASB ASC 715-60 which applies to private sector employers. The Governmental Accounting Standards Board issued GASB 75 which applies to government agencies. They are referred to below as accounting standards.
Accounting standards generally require the cost of post retirement healthcare benefits to be 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. Prior to the accounting standards, such 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, such expense was recorded on the company books in the year the hospital or doctor bill was paid by the plan.