The train has left the station and is on its way—the Governmental Accounting Standards Board (GASB) will shortly finalize standards 74 and 75, which will require for the first time that the net liability for publicly sponsored retiree healthcare plans (and other postemployment benefits) be stated on balance sheets.
GASB expects that final rules will be issued close to the end of June 2015.
It is expected that the new accounting treatments will mirror those of GASB 67/68, which require public sector plan sponsors, as well of those of cost-sharing employers, to book an accounting expense for sponsoring the plan and to show net pension liabilities on financial balance sheets.
GASB 67/68 also mandated the use of fair market value of assets and a standard actuarial cost method to be used to value net the net pension liability.
GASB 74, which relates to reporting by benefit plans, is expected to be effective for plans for fiscal years ending June 30, 2017, and later. This will replace the old GASB 43 standard.
GASB 75, which relates to reporting by state and local governments, is expected to be effective for fiscal years ending June 30, 2018, and later. This will replace the old GASB 45 standard.
In this regard, plan sponsors, especially those that have cost-sharing arrangements with contributing employers, should be ready to book a liability for fiscal years ending on or after June 30, 2017. In addition, liabilities and accounting expenses for contributing entities will need to be booked for fiscal years ending on or after June 30, 2018.
For unfunded plans, liabilities will be calculated using a discount rate equal to the yield for 20-year, tax-exempt municipal bonds with an average rating of AA or higher. For well-funded plans, an expected rate of return on assets may be used as long as the plan’s funding policy is expected to make or keep the plan fully funded. For plans in between, a blended discount rate will be used.
Many other changes are expected in the new standards. We recommend you contact your Milliman consultant for more details.