Effective for fiscal years ending June 30, 2018, GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other than Pensions, provides guidance on how Illinois community colleges and other state and local governments must account for other postemployment benefits (OPEB).
What is OPEB?
Benefits provided to state and local government employees other than pensions during retirement.
OPEB benefits come in many shapes and sizes. They’re usually part of an overall benefit package used to attract employees. GASB believes that OPEB involves an exchange of benefits for services performed, therefore the related expense should be recognized over the employee’s service period.
It’s important to note that OPEB does not include special termination benefits (early retirement incentives). GASB Statement No. 47, Accounting for Termination Benefits defines a special termination benefit as an offer made by employer for a specific period of time, inducing a class of employees to leave employment. Special termination benefits may be administered as either voluntary or involuntary programs.
GASB 75 provides specific guidance based on the type of benefit provided:
- Explicit benefit: Employer pays some or all the benefit premiums or claims costs after employees retire.
- Implicit benefit/subsidy: Retirees continuing in the employer’s health plan but not paying an age adjusted premium.
- Special funding component: A non-employer is required to contribute to the plan.
Illinois community colleges may be impacted by two types of OPEB plans:
- Single employer plans that some community colleges have created with explicit benefits.
- Cost-sharing plans that most, if not all, community colleges participate in, like the Community College Health Insurance Plan which has a special funding component with the State of Illinois.
Single Employer Plans
For single employer plans, colleges continue to hire their own actuary to calculate the total OPEB liability in accordance with the guidelines of GASB 75.
Implementation of GASB 75 will require adjustments to opening net position (change in accounting principle) to:
- Remove any existing liability recorded under GASB Statement 45
- Record the opening balance of the liability under GASB Statement 75
In addition to the opening net position adjustments, GASB 75 will increase the length of the college’s note disclosures and required supplementary information.
Cost-Sharing Plans: Community College Health Insurance Security Fund (CCHISF)
The CCHISF (also known as the College Insurance Program, “CIP”) was established under the State Employees Group Insurance Act of 1971, which became effective July 1, 1999. The purpose of the CCHISF is to receive and record all revenues from the administration of health benefit programs under Article 15 of the Illinois Pension Code.
The CCHISF has a special funding situation—the State is required by statute to contribute a defined percentage of participant payroll directly to the OPEB plan, which is administered through a trust.
Employers participating in a cost-sharing OPEB plan and any non-employer contributing entities that meet the definition of a special funding situation are required to recognize their proportionate share of the collective OPEB amounts for OPEB benefits provided to members through the CCHISF plan.
GASB Statement 75 states that in determining the employer’s proportion of the collective net OPEB liability, “the basis for the employer’s proportion should be consistent with the manner in which contributions to the OPEB plan, excluding those associated with separately financed specific liabilities of an individual employer to the OPEB plan, are determined.”
The State Employees Group Insurance Act of 1971 requires every active contributor of the State Universities Retirement System (SURS), who is a full-time employee of a community college district or an association of community college boards, to make contributions to the plan at the rate of 0.5 percent of their salary. The same section of statute requires every community college district or association of community college boards that is an employer under the SURS to contribute to the plan an amount equal to 0.5 percent of the salary paid to its full-time employees. The State is also required to contribute 0.5 percent of the covered salaries.
- Note: If you subsidize the premium that retirees are to pay, this subsidy becomes a single employer plan in addition to the cost sharing plan.
Recording your OPEB Liability
On May 30, 2018, the State issued the Report on the Allocation of Other Post Employment Benefit Amounts, which provided the beginning and ending total OPEB liabilities applicable to each participating institution. Ending liability amounts ranged from approximately $400,000 to $84,000,000.
This liability also requires a restatement of opening net position to record the opening balance of the liability. Additionally, this restatement may cause many institutions to report a deficit net position.
Where to record:
- Education sub-fund
- Retiree health insurance sub-fund
- Somewhere else
Recording Proportionate Share of OPEB Expense
Record the cost of OPEB earned during the period regardless of how it was funded. Costs include:
- Full proportionate share of OPEB expense and deferred inflows/outflows related to change in net OPEB liability
- Includes employer’s proportionate share
- Same calculation applied to Net OPEB Liability
- Include non-employer expense (State) related to your employees
- Revenue recognized equal to non-employer expense
- Income statement recognizes full expense (total cost) of OPEB
Now that you have recorded the liability, what next? Our Sikich experts have been working with Illinois community colleges over the last three years educating their staff and Boards on the impact of recording the OPEB liability and how to mitigate the impact of the liability on the College’s financial position and bond rating.
Navigate Current and Future GASB Updates with Sikich
Our Sikich experts are well-versed in GASB, community college financials, and much more. Contact Anthony Cervini, at firstname.lastname@example.org with questions or visit our Sikich Government Services page for more information.