3 Accounting
3.4 Liabilities
3.4.16 Other Postemployment Benefits (OPEB)
3.4.16.10 Introduction
OPEB refers to benefits, other than pensions, that are paid in the period after employment. OPEB includes:
- Post-employment healthcare benefits such as medical, dental, vision, hearing, etc., whether provided through a pension plan or separately; and
- Other benefits such as death benefits, life insurance, disability, long-term care, etc., when provided separately from a pension plan.
OPEB includes the direct payment of benefits (e.g., LEOFF 1 medical benefits) and also explicit and implicit rate subsidies (e.g., the state’s PEBB plan).
The explicit rate is the rate participating employers pay as part of the monthly premiums that subsidizes the retiree monthly premiums. This subsidy reduces the monthly premiums paid by the retiree. The explicit rate is applied to each active employee of the government; therefore, it doesn't matter how many retirees the government may have. The explicit rate is set for the pool as a whole and all participating employers share in the cost.
An implicit rate subsidy is also referred to as a “blended premium rate.” It 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 the rates for retirees. This implicit subsidy is OPEB – even if retirees pay 100 percent of their premiums.
OPEB does not include termination benefits or termination payments for compensated absences.
3.4.16.20 Examples of OPEB benefits
Some common examples of OPEB benefits include:
- Participating employers in the state’s Public Employees Benefits Board (PEBB) program.
- LEOFF 1 employers who pay the healthcare costs of LEOFF 1 retirees.
- Employers who pay all or part of their retirees’ healthcare premiums.
- Employers with employees who are members of OPEB plans that are not state or local government sponsored – example, a union sponsored defined contribution health plan.
If you are uncertain about whether or not an arrangement qualifies as OPEB, please contact the SAO HelpDesk.
3.4.16.30 Defined Benefit OPEB vs. defined contribution OPEB:
Defined benefit plans are those for which the benefits the employee will receive at or after separation from employment are defined by the benefit terms. OPEB may be stated as:
- A specific dollar amount
- An amount that is calculated based on one or more factors such as age, years of service, and compensation, or
- A type or level of coverage such as prescription drug coverage or a percentage of health insurance premiums.
- All plans that do not meet the criteria to be a defined contribution plan are treated as a defined benefit plan
See the sample OPEB note disclosure for cash-basis local governments at Note X – OPEB.
Defined contribution plans have terms that:
- Provide an individual account for each employee;
- Define the contributions that an employer is required to make to an active employee’s account for the periods in which the employee renders service; and
- Provide that the OPEB an employee will receive will depend only on the employee’s account balance.
Defined contribution OPEB plans do not result in a liability to be reported on the Schedule of Liabilities. If the government contributes to the OPEB Plan, it must be disclosed in the Notes to the Financial Statements. See requirements at Note X – OPEB.
If the government does not contribute to the plan (i.e. only employees contribute), no disclosures are required. The government may elect to disclose the plan in the notes but must clearly state that it does not contribute.
3.4.16.40 Defined benefit reporting requirements
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. The only way to determine an OPEB liability is through an individual employer actuarial valuation or by using the Alternative Measurement Method if you have less than 100 participants in your plan.
If you are a participating employer in the PEBB plan or provide OPEB benefits to LEOFF 1 retirees, you may use the on-line calculation tools provided by the Office of the State Actuary (OPEB Tools) to calculate your OPEB liability. These tools are designed only for PEBB or LEOFF 1 employers with less than 100 plan members, which includes all active employees and retirees participating in the plan (excludes spouses and dependents).
Note: If your entity provides PEBB benefits and has 100 or more plan members, OSA has created a specialized tool for you to estimate your liability. To obtain this tool, please contact the SAO HelpDesk.
Defined benefit plans result in liabilities that must be reported on the Schedule of Liabilities (Schedule 09).
If you provide OPEB through another plan (e.g. LEOFF 2) or contract with an actuary for your own valuation, the liability amount should be determined based on an actuarial valuation done by a qualified actuary using Actuarial Standards of Practice, including a roll-forward from an actuarial valuation done in the previous year.
Reminder – Even though accounting and reporting standards require you to get a valuation only every two years, you must still roll-forward the valuation to the updated measurement date in the off years.
3.4.16.50 Qualifying trust vs. non- qualifying-trust
Depending upon how individual local governments have established their OPEB plans, they may or may not meet the criteria of a trust described below. Local governments that have these plans should carefully review all legislation establishing and modifying the plans and consult with their legal counsel regarding the status of the plans.
- Contributions from employers to the OPEB plan and earnings on those contributions are irrevocable. Irrevocability is understood to mean that an employer no longer has ownership or control of the assets, except for any reversionary right once all benefits have been paid. Assets may flow from an employer to the plan, but not from the plan to an employer unless and until all obligations to pay benefits in accordance with the plan terms have been satisfied by payment or by defeasance with no remaining risk regarding the amounts to be paid or the value of plan assets. Refunds of the non-vested portion of employer contributions that are forfeited by plan members are consistent with this criterion.
- OPEB plan assets are dedicated to providing OPEB to plan members in accordance with benefit terms. The use of OPEB plan assets to pay plan administrative costs or to refund plan member contributions is consistent with this criterion. The commingling of pension and OPEB assets in the same trust is not consistent with this criterion.
- OPEB plan assets are legally protected from the creditors of employers, the plan administrator and plan members.
Pay-as-you-go funding is not a qualifying trust.
Plans that meet the trust criteria should report a net OPEB liability on the Schedule of Liabilities. If the plan has a net OPEB asset, that will not be reported on the Schedule of Liabilities and will only be disclosed in the Notes to the Financial Statements. If the plan is administered through a qualifying trust, then the government is holding monies on behalf of someone else. Therefore, the government should report a fiduciary OPEB trust fund (reported on the C5 Statement).
Plans that do not meet the trust criteria should report a total OPEB liability on the Schedule of Liabilities. These plans cannot be reported as a OPEB trust fiduciary fund. Instead, it should be reported as a managerial fund that is rolled into the general fund for financial statement reporting.
Both trusted and non-trusted defined benefit plans should be disclosed in the notes, see Note X – OPEB.
3.4.16.51 Accounting for tax revenues for OPEB and fiduciary trust funds
Some governments receive taxes to help fund OPEB costs. These taxes are levied by the government, not the OPEB plans. Since these are revenues of the government, they must be reported as a revenue in the governmental funds. To move these monies to the fiduciary trust fund, they would then report an expenditure in the governmental fund and then report an addition in the fiduciary trust fund.
For example, a government receipts $50,000 in an ad valorem property tax that will ultimately be used in their fiduciary trust fund to pay OPEB benefits. They would make the following journal entries:
Initial receipt of tax money:
General Fund – Cash $50,000
General Fund – Property Tax (BARS 311.10.00) $50,000
Move tax money out of General Fund:
General Fund – Expenditure (BARS 517.20.20) $50,000
General Fund – Cash $50,000
Move tax money into Fiduciary Trust Fund:
Fiduciary Trust Fund – Cash $50,000
Fiduciary Trust Fund – Additions (BARS 389.40) $50,000