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The Governmental Accounting Standards Board's (GASB) new standards for Other Post Employment Benefits (OPEB) apply to every state, city and county government, as well as specialized public organizations such as school districts, hospitals, colleges and universities. Typically, government employers have reported the cost of heath care and other non-pension benefits on a "pay as you go" basis. It has been simple. The annual cash paid for benefits has been the annual expense with no other liabilities or funding requirements. Under the new GASB 45 standards, state and local government employers must account for, and report, the annual cost of OPEB in the same way they report pensions. As a result, the annual OPEB costs for most employers will be based on actuarially determined amounts rather than in the "pay-as-you-go" method. Governments must use actuarial -life expectancy- evaluations to determine the final accounting and reporting amounts expected in the future. OPEB costs must also be reported over the working lifetime of employees, and the information provided in financial statements must include the funding, costs and provisions in an OPEB plan. GASB states that the current "pay-as-you-go" method doesn’t accurately reflect the true costs that governments are accumulating for future benefits of current employees; the promise of future benefit is an expense that must be recorded rather than deferred as a liability to a future generation. The relative size of the problem varies materially by state. From Maryland north to New England the extra cost is often two to six times the current cost. From Virginia south, the benefits offered tend to be less and the problem is much smaller. In the northwest part of the country these benefits are often not provided and there may be no cost issue. At this stage preliminary valuations have been done by many of the larger jurisdictions. Based on our first two dozen valuations in Maryland, for example, we estimate liabilities of about $40 billion statewide. After the initial "shock and awe" valuation, employers are starting to meet with employee groups to discuss ways to deal with these issues and decide on benefit cuts and/or funding increases. We offer actuarial, health and welfare, and investment solutions to address our clients' GASB 45 needs. If you are already a client, you can get access to GASB 45 updates and developing solutions by logging in at our client login Home page. For GASB 45 planning assistance, contact GASB@BoltonPartners.com. |
