J.G. Gaston & Associates, Inc. Actuarial Consulting Services for Business, Government, and the Individual

GASB 74 & 75 Actuarial Valuation Services

I. What is GASB 74 and 75?
The Government Accounting Standard Board (“GASB”) issued Statements 43 and 45 in 2004. These requirements are being replaced with GASB Statements 74 and 75. GASB 74/75 require local and state governments and public agencies to recognize the value of other post-employment benefits (“OPEB”) other than pensions. OPEB obligations pertain to health insurance, dental, vision, prescription or other heath care benefits provided to retirees and their beneficiaries. OPEB reporting is similar to the reporting of retirement pension plan obligations. Under GASB 74/75, OPEB costs are considered part of compensation an employee earns each year, even though the benefits are not received until an employee retires. GASB 74/75 require governmental entities to recognize the nature and the size of the OPEB long-term obligation and commitment.

II. How are OPEBs recognized?
The outstanding obligations and commitments of OPEBs are determined by an actuarial valuation performed in accordance with GASB requirements. An actuarial valuation is required at least every two years. (Unlike GASB 43/45, which required plans covering fewer than 200 participants to have an actuarial valuation prepared at least every third year.) Except for very small governmental entities, which may use an Alternative Measurement Method, an actuary must perform an actuarial valuation to determine the OPEB cost and the Unfunded Actuarial Accrued Liability (“UAAL”).

The actuarial valuation uses various key actuarial assumptions. Some of these key assumptions include a medical trend rate concerning annual healthcare cost increases, the discount rate, how many employees elect coverage, termination rates, disability rates, mortality rates, and marriage (to determine beneficiary liability).

III. When is compliance with GASB 74 and 75 required?
Compliance with GASB 74 is required for fiscal years beginning after June 15, 2016. Compliance with GASB 75 is required for the first fiscal year ending after June 15, 2017. Earlier compliance is encouraged.

GASB 74 requires far more disclosure with respect to plan investments for funded OPEB trusts. This disclosure is intended to provide users of financial information for OPEBs to better understand the plan's funded status.

GASB 75 requires plans to use the Entry Age Normal Actuarial Cost Method to determine OPEB plan costs. Prior to GASB 75, multiple cost methods were allowed. We support this change, as another popular method, the Projected Unit Credit Actuarial Cost Method, is far more suitable to defined benefit pension plans which accrue benefits evenly over an employee's carreer.

Another requirement of GASB 75 is to require OPEB plans to amortize past service liabilities over a fixed period and with level payments. GASB 45 allowed salary related amortization which results in slower recognition of OPEB plan costs and allowed the amortization period to be restarted as of each OPEB actuarial valuation.