GASB

The Governmental Accounting Standards Board (GASB) implements rules with respect to the proper financial reporting of governmental entities. GASB 45 affects how governmental entities will need to report certain employee benefits liabilities. The liabilities in question are referred to as OPEBs (other post-employment benefits). The most common OPEBs are retirement medical programs. Many governmental employers pay all or part of their retirees’ medical insurance until age 65, or for their lifetime, and sometimes even pay for spouse and dependent coverage. In addition, many employers also subsidize retiree medical premium rates by permitting retirees to purchase insurance at the same rates as active employees. Each of these types of benefit arrangements is an OPEB and needs to be evaluated by an actuary at least every two or three years, depending upon an employer’s revenues (there is a small plan calculation option which does not require an actuarial evaluation).

Employers with such GASB liabilities are required to begin reporting these liabilities on their financial statements with a phase-in period beginning in 2006. Such phase-in period is based on employer revenues.

Many governmental employers with OPEBs will do two things:

1. Begin to change promises made to employees regarding these retiree medical benefits; and
   
   
2. Set aside assets in an irrevocable trust so such assets can improve the status of their financial statement.

HRAs will be the primary benefit program used by governmental employers when forced to provide employees with a defined contribution arrangement in place of their current defined benefit retirement medical promises. Second, the trusts that hold HRAs, such as VEBA and Section 115 trusts, may also be used as a vehicle to hold assets for current retirement medical obligations so that the assets may be counted on their balance sheets.

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