GASB 45 Rules Finalized

The Government Accounting Standards Board (GASB) has released its final Statement 45 - Accounting for Financial Reporting by Employers for Postemployment Benefits Other Than Pensions.

GASB 45 addresses the accounting treatment of "OPEB" - Other Post Employment Benefits. These include medical, dental, vision, life, and long-term care benefits. It will impact all public employers who offer OPEB to retired employees. This includes all LEOFF 1 employers, since LEOFF 1 retirees are entitled to postemployment medical and long-term care benefits paid for by their employers.

Currently, most government entities do not pre-fund or recognize the future liability of OPEB. Most OPEB plans are financed on a pay-as-you-go basis, and financial statements generally do not report the financial effects of OPEB until the promised benefits are paid. As a result, according to GASB, current financial reporting generally fails to:

• Recognize the costs of benefits in periods when the related services are received by the employer;
• Provide information about the actuarial accrued liabilities for promised benefits associated with past services and whether and to what extent those benefits have been funded;
• Provide information useful in assessing potential demands on the employer’s future cash flows.

The Statement mandates that employers account for retiree health benefits in much the same way that they account for defined benefit pension plans. Rather than recognizing the expense associated with the retiree benefits when they are paid, employers will have to recognize the expense over the working lifetimes of their employees. For many employers, this will cause a significant increase in the expenses and liabilities that must be shown in their annual financial statements.

The effective dates for compliance with GASB 45 are phased in based on the jurisdiction’s annual revenue for fiscal year 1999:

• December 15, 2006, if revenue is greater than $100 million
• December 15, 2007, if revenue is greater than $10 million but less than $100 million
• December 15, 2008, if revenue is less than $10 million

The information an employer must report is determined under a complex actuarial valuation - most employers will need assistance from qualified actuaries to determine what they need to report. There is some relief for smaller employers - those with fewer than 100 members who are entitled to receive OPEB. For those employers, GASB permits a simplified alternative measurement method based on tables and procedures designed to estimate the liability and contributions without the assistance of actuaries. In addition, AWC is working with the State Actuary to determine if his office could assist jurisdictions with the identification of their specific liability.

As the deadlines approach, you can expect to see more information and guidance on meeting the requirements of GASB 45. We also expect the Washington Finance Officers Association and others to offer training. For a summary of the new Standard, go to: www.gasb.org/st/summary/gstsm45.html.