Question

Under current GASB standards, how are other postemployment retirement benefits (OPEB) reported?
      
By disclosing information about OPEB in the notes to the financial statements, but without display of OPEB expenses or liabilities on the face of the financial statements.
      
In a manner that is quite similar to the reporting requirements for pension plans.
      
Using two different methods, one for health care plans and a second for other types of OPEB.
      
By using a modified accrual basis, which requires only expenditures of the current period be reported.

Answer 1

Postemployment benefits (OPEB as well as pensions) are part of an exchange of salaries and benefits for employee services rendered. Of the total benefits offered by employers to attract and retain qualified employees, some benefits, including salaries and active-employee healthcare, are taken while the employees are in active service, whereas other benefits, including postemployment healthcare and other OPEB, are taken after the employees’ services have ended. Nevertheless, both types of benefits constitute compensation for employee services.

From an accrual accounting perspective, the cost of OPEB, like the cost of pension benefits, generally should be associated with the periods in which the exchange occurs, rather than with the periods (often many years later) when benefits are paid or provided. However, in current practice, most OPEB plans are financed on a pay-as-you-go basis, and financial statements generally do not report the financial effects of OPEB until the promised benefits are paid. As a result, current financial reporting generally fails to:

• Recognize the cost of benefits in periods when the related services are received by the employer
  
• Provide information about the actuarial accrued liabilities for promised benefits associated with past services and whether and to what extent those benefits have been funded
  
• Provide information useful in assessing potential demands on the employer’s future cash flows.

This Statement improves the relevance and usefulness of financial reporting by (a) requiring systematic, accrual-basis measurement and recognition of OPEB cost (expense) over a period that approximates employees’ years of service and (b) providing information about actuarial accrued liabilities associated with OPEB and whether and to what extent progress is being made in funding the plan.