OPEB: To Fund or Not to Fund?
Important considerations for employers
Mark Schulte email@example.com
Laura Pistotnik firstname.lastname@example.org
GASB 74/75 upends many OPEB accounting calculations, and it
also has a big effect on OPEB funding decisions. This document
summarizes some important OPEB funding considerations.
Under GASB 74/75, employer OPEB funding may be affected in
one of two ways:
1. Employers who have not yet pre-funded their OPEB plans
should consider whether OPEB funding is now a priority.
2. Employers who previously pre-funded their OPEB using the
GASB 45 Annual Required Contribution (ARC) as their de-facto
funding policy will need to develop a new Actuarially Determined
Contribution (ADC) independent of the GASB 75 accounting
It’s often taken for granted that pre-funding OPEB is a good idea – if the employer can afford it. However,
things aren’t always so simple. Although pre-funding OPEB may seem like a prudent decision, there are several
important considerations we discuss below.
Employers should begin reviewing your OPEB pre-funding alternatives now. If you make the decision to
establish an OPEB trust, then you should (1) develop a funding policy; (2) decide on investments; and (3)
choose a trust provider. This is also a good time to review your OPEB plan benefits to see if they are meeting
their objectives or need to be redesigned.
• Does pre-funding OPEB create a perception of “guaranteed” benefits?
• Is it worthwhile to voluntarily pre-fund OPEB if it takes resources away from
required pension contributions or other immediate budget priorities?
• Is it appropriate to fully-fund volatile OPEB liabilities; including the implicit subsidy
• Does the annual budget determine the Actuarially Determined Contribution
(ADC), or vice versa?
• Instead of targeting 100% pre-funding before paying benefits from a trust, it may
be better to coordinate paygo costs and trust contributions to smooth out total
• There are practical realities to level % of payroll vs. level $ contribution policies.
• OPEB pre-funding is considered a GFOA best practice.
• Investment policy and level of pre-funding may allow a higher GASB discount rate
(and lower liability), and dedicated assets also directly lower the unfunded liability.
• Pre-funding helps secure the benefit promise to plan members.
The Governmental Accounting Standards
Board (GASB) issued new statements
GASB 74 and 75 regarding Other Post-
Employment Benefits (OPEB; usually
retiree medical). These accounting
changes will affect most employers’
FY2018 financial statements.
GASB 74/75 officially separate OPEB
funding and accounting. Employers who
pre-fund OPEB will need to develop their
own funding policies and Actuarially
Determined Contribution (ADC)