Glossary

GASB Glossary Terms
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A

Accrual accounting

An accounting method in which revenues are recorded when earned and outlays are recorded when goods are received or services performed, even though the actual receipt of revenues and payment for goods or services may occur, in whole or in part, at a different time.

By using accrual accounting, the cost of OPEBs, like the cost of pension benefits, are generally associated with the periods in which the exchange occurs, rather than the periods (often many years later) when benefits are paid or provided.

Advance Funding

Advance Funding is a pension-funding method in which the employer places resources in trust as employees earn benefits, and these funds are then used to make benefit payments when they are due.

Annual Required Contribution (ARC)

The Annual Required Contribution is the required contribution to a defined benefit OPEB plan, consisting of the Normal Cost as well as an amortization payment to fund any unfunded actuarial liability.

Entities are not required to pay the ARC annually under GASB 45, however they are required to calculate and disclose the ARC in their annual financial statements.

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C

Community Rating

A community rating is a rating method that is usually associated with health insurance. It requires health insurance providers to offer insurance policies at the same cost to all subscribers within a given region, regardless of their health status.

Consumer Price Index (CPI)

Published by the Bureau of Labor Statistics, the CPI is an index that measures the average changes in prices of goods and services that are purchased by typical consumers. It may be used as a basis to measure inflation.

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D

Defined-Benefit Plan

An employer-sponsored retirement plan, where the employer promises to pay a certain level of benefits over a certain period of time. The employee benefits are sorted out based on a formula using various factors such as employment duration and salary history, as opposed to many pension funds where payouts are somewhat dependent on the return of invested funds.

Investment risk and portfolio management are under complete control of the company, and there are restrictions as to how and when you can withdraw these funds without facing a penalty.

Discount Rate

The interest rate used to determine the present value of future cash flows. The discount rate takes the time value of money into account, which is the idea that a set amount of money at present is worth more than the same amount at a future date because it could be earning interest in the meantime.

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G

Generally Accepted Accounting Principles (GAAP)

Includes standards, conventions, and rules accountants must follow when preparing financial statements. GAAP is the aggregate of a series of rules outlining how to account for various transactions, rather than a single accounting rule. This helps in providing consistency in the financial reporting of companies and businesses.

Governmental Accounting Standards Board (GASB)

The Governmental Accounting Standards Board (GASB) define the Generally Accepted Accounting Principles (GAAP) which are used by local and state governments across the country. GASB aims to establish and improve standards of local and state governmental accounting and financial reporting, resulting in useful information for users of financial reports. Its statements include GASB 43 and GASB 45.

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H

Health Savings Account (HSA)

Used by those who are covered under high-deductible health plans (HDHPs), health savings accounts are personal accounts used to save for medical expenses not covered by HDHPs. Contributions can be made either by the individual, the employer, a third party, or a combination of the three. These contributions are subject to a maximum annual limit.
There are several tax savings associated with an HSA. The money contributed into the account is tax deductible, it is allowed to grow tax free, and certain withdrawals can be free depending on if they are for qualified medical expenses.

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O

OPEB

OPEB stands for Other Post-Employment Benefits. Employees of state and local governments, including public school districts, public universities and other governmental entities, may be compensated in a variety of forms in exchange for their services. In addition to a salary, many employees earn benefits over their years of employment that will not be received until after their employment ends through retirement or other reason for separation. The most common type of postemployment benefit is a pension. As the name suggests, other postemployment benefits (OPEBs) are postemployment benefits other than pensions. OPEB generally takes the form of health insurance, dental, vision, prescription drug, or other health care benefits. It can also include life insurance and other benefits.