New Actuarial Standards Will Increase OPEB Liabilities for PEMHCA Benefits

05-20-2014 |

GASB 45 Liabilities for retiree medical benefits from large community-rated plans like CalPERS to increase 3/31/2015 per new actuarial standards.

Traditionally, most agencies providing retiree medical benefits through large community-rated or pooled medical plans such as CalPERS’ PEMHCA have not been required to include any implied subsidy in the OPEB retiree medical liabilities reported under GASB 45.  (Implied subsidy refers to the benefit retirees derive by paying a premium based on blended active employee and retiree experience.  See Implied Subsidy article for more detail.)  The Actuarial Standards Board has issued a revised Actuarial Standards of Practice (ASOP) #6 which specifies that in almost all circumstances, the actuary must include the value of this implied subsidy in the GASB 45 liabilities, beginning with valuations as of March 31, 2015. 

For agencies not using large community-rated, pooled benefit plans, any applicable implied subsidy should already have been included in the OPEB liabilities.  However, agencies using CalPERS PEMHCA benefits or other similar community rated plans will likely see a large or very large increase in their liabilities and ARC reported under GASB 45.  In fact, agencies providing smaller benefits, such as the PEMHCA Minimum amount, will generally see the largest percentage increases in liabilities. 

The change will have significant financial statement impacts for affected agencies, as GASB 45 defers to actuarial standards.  We recommend working with your actuary to plan for its implementation.
Actuarial Standards - ASOP No. 6
Implied Subsidy article


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