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As you may be aware, Governmental entities will soon be forced to disclosure the financial obligations regarding their offering of post-retirement benefits including medical, dental and life insurance. The required adoption dates are based on the fiscal year 2000 revenues of the governmental entity.
The new GASB Statement Nos. 43 & 45 are very similar in concept to FASB Statement 106 that impacted Corporate America during the early-to-mid 1990’s. Why is GASB doing this? GASB along with the various bond-rating agencies has become concerned that governmental entities are not accounting for the future benefits that they have promised. Given the very rich benefits offered by various entities, it may impact their ability to meet their bond obligations in the future or will saddle future taxpayers with significant costs for today’s promises. What should I do now? Recognizing that unlike Corporate America, these plans are unlikely to face wholesale elimination, you may wish to determine your liabilities prior to the effective date and make design changes to mitigate the impact. At the least, it will allow you to see the value of the promises to ensure that you are aware of the obligations during negotiations. Do I need to pre-fund these benefits? There is no obligation to pre-fund these benefits like an organization would with their pension promises. However, there are significant advantages in doing so in terms of being able to utilize higher discount rates and therefore, report lower liabilities. How would I fund? Funding of these benefits would be similar to pension benefits under GASB 25 & 27 in that you would fund the annual required contribution (ARC). The funds would be placed in a voluntary employee benefit account (VEBA) and would be invested in accordance with your investment policy. |
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“Standard & Poor’s will analyze any OPEB obligations in the same way we currently evaluate pension obligations, and will weigh the effect these obligations may have on an employer’s ability and willingness to pay debt service on its bonds” |
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To contact us: |
GASB 43 & 45 |
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Revenues in FY 2000 Effective Date > $100 MM FY > December 15, 2006 $10 - $100 MM FY > December 15, 2007 < $10 MM FY > December 15, 2008 |
