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Project No. 22-2E

April 30, 2003

Mr. David Bean
Director of Research
Governmental Accounting Standards Board
401 Merritt 7
P. O. Box 5116
Norwalk, Connecticut 06856-5116

Re: Project No. 22-2E

Dear Mr. Bean:

The National Association of College and University Business Officers (NACUBO) continues to appreciate the Governmental Accounting Standards Board’s openness to public comment. Thank you for the opportunity to provide input to the Exposure Draft (ED) on Accounting and Financial Reporting by Employers for Post Employment Benefits Other Than Pensions. We recognize that the Board has also asked for public comment on a related ED on Financial Reporting for Postemployment Benefit Plans Other Than Pensions. Because the Employer ED will have a more significant financial and operational impact on public colleges and universities, NACUBO has elected to comment only on the Accounting and Financial Reporting by Employers proposal.

NACUBO’s comments on the proposal were developed with input from our Accounting Principles Council. The council consists of higher education volunteers from member institutions who are knowledgeable in a variety of matters including external financial reporting, governmental accounting and reporting, not-for-profit accounting and reporting, managerial accounting and reporting, and financial analysis. Our comments are organized according to the three issues raised by the Board in the ED.

Issue 1: Overall approach. The Board proposes to apply the same overall approach to employer’s accounting and financial reporting for costs and obligations related to Other Post Employment Benefits (OPEB) that it adopted in Statement No. 27, Accounting for Pensions by State and Local Governmental Employers, with modifications as necessary to reflect differences between pension benefits and OPEB.

The Board determined that OPEB and pension benefits are essentially analogous transactions and should be accounted for similarly. NACUBO agrees with the foundational premise that both pension benefits and OPEB are deferred compensation in exchange for current service. Although both are deferred compensation, they are different in nature and experience, and actuarial assumptions used to measure the accrued expense and corresponding liability for OPEB may be more complex. However, in principle, we agree with the Board’s desire for as much consistency as possible with Statement No. 27, Accounting for Pensions by State and Local Governmental Employers.

We also agree with the concept that recognition and measurement of the accrued OPEB will provide users of financial statements with greater information regarding the financial consequences of such compensation plans. Though not identical, the Board’s approach moves higher education toward greater comparability between public colleges and universities and independent colleges and universities that follow Financial Accounting Standards Board (FASB) standards.

NACUBO applauds the Board’s acknowledgement of numerous actuarial methodologies. We support the belief that reporting the same measures for both financial reporting and funding decisions is important and agree with the flexibility to choose a method that is consistent with accrual-basis accounting.

NACUBO appreciates the Board’s direction with regard to the amortization of the actuarially determined accrued liability. Incrementally increasing current period OPEB costs by a 30-year amortization of the OPEB liability is preferable to a potentially very large expense recognition.

We think this is a huge benefit for public institutions of higher education. NACUBO does not know how many of our public institution members will need to comply with the proposed OPEB standard. Although we find the Board’s approach to Issue No.1 reasonable, compliance with the standard may well be burdensome for institutions that must fund their own liability. It is conceivable that such a burden could affect some institutions’ ability to offer OPEB.

Finally, we want to acknowledge the current Board project that addresses concepts and definitions for financial statement elements, such as liabilities. It is especially important in light of the proposed recognition of OPEB as a new type of long-term liability.

Issue 2: Alternative measurement method. The Board proposes to permit sole employers inOPEB plans with fewer than 100 members to apply the alternative measurement method set forth in paragraphs 31 and 32. That method modifies the parameters by allowing the use of certain simplifying assumptions designed to make the method potentially feasible for use by non-specialists.

NACUBO agrees with the Board’s proposal to permit the use of an alternative measurement method as an option for sole employers in small OPEB plans. We think that allowing a simplified method for smaller institutions with OPEB plans is reasonable and proper. Without  pension benefits and OPEB are deferred compensation in exchange for current service.

Although both are deferred compensation, they are different in nature and experience, and actuarial assumptions used to measure the accrued expense and corresponding liability for OPEB may be more complex. However, in principle, we agree with the Board’s desire for as much consistency as possible with Statement No. 27, Accounting for Pensions by State and Local Governmental Employers.

We also agree with the concept that recognition and measurement of the accrued OPEB will provide users of financial statements with greater information regarding the financial consequences of such compensation plans. Though not identical, the Board’s approach moves higher education toward greater comparability between public colleges and universities and independent colleges and universities that follow Financial Accounting Standards Board (FASB) standards.

NACUBO applauds the Board’s acknowledgement of numerous actuarial methodologies. We support the belief that reporting the same measures for both financial reporting and funding decisions is important and agree with the flexibility to choose a method that is consistent with accrual-basis accounting.

NACUBO appreciates the Board’s direction with regard to the amortization of the actuarially determined accrued liability. Incrementally increasing current period OPEB costs by a 30-year amortization of the OPEB liability is preferable to a potentially very large expense recognition. We think this is a huge benefit for public institutions of higher education. NACUBO does not know how many of our public institution members will need to comply with the proposed OPEB standard. Although we find the Board’s approach to Issue No.1 reasonable, compliance with the standard may well be burdensome for institutions that must fund their own liability. It is conceivable that such a burden could affect some institutions’ ability to offer OPEB.

Finally, we want to acknowledge the current Board project that addresses concepts and definitions for financial statement elements, such as liabilities. It is especially important in light of the proposed recognition of OPEB as a new type of long-term liability.

Issue 2: Alternative measurement method. The Board proposes to permit sole employers in OPEB plans with fewer than 100 members to apply the alternative measurement method set forth in paragraphs 31 and 32. That method modifies the parameters by allowing the use of certain simplifying assumptions designed to make the method potentially feasible for use by non-specialists.

NACUBO agrees with the Board’s proposal to permit the use of an alternative measurement method as an option for sole employers in small OPEB plans. We think that allowing a simplified method for smaller institutions with OPEB plans is reasonable and proper. Without this proposed approach, compliance with the proposed standard could prove costly for employers that may have more limited resources.

Issue 3: Implicit Rate Subsidies. The Board proposes to exempt employers from reporting as OPEB any implicit rate subsidy to retirees that may occur when a healthcare plan includes both benefits to be taken during active service and benefits to be taken after retirement, if the employer does not otherwise contribute to the cost of the retiree benefits. NACUBO concurs with the Board’s proposed exemption from OPEB reporting of implicit rate subsidies to retirees. Allowing retirees to be in the same pool with current employees provides a level of subsidization by employers that spreads risk. This risk alleviation should help keep plan rates somewhat constant and make it more attractive for employers to offer the post retirement benefit. The implicit rate subsidy is a very practical application of the accrual basis intent of the standard.

As a final point, we appreciated the plain language supplement but would prefer to see less technical language used in the body of the standard. This matter applies to all issues discussed in this letter. In closing, we wish to express our appreciation for the opportunity to comment on this ED. We look forward to answering any questions the Board or staff may have about our response. Please address questions or feedback to Sue Menditto, Manager, NACUBO Accounting and Finance Programs at 202-861-2542 or Susan.Menditto@NACUBO.org.

Sincerely,

Mark A. Olson
Senior Vice President

Susan M. Menditto
Manager, Accounting and Finance Programs