The Governmental Accounting Standards Board's new statements on "other post-employment benefits" won't go into effect until the end of the year, but the questions are already coming in. Some queries are simply asking for a definition of "benefit," while others ask, "Do we really have to do this?"
Having foreseen a degree of confusion, the board has issued a guide, Guide to Implementation of GASB Statements 43 and 45 on Other Postemployment Benefits. The document clarifies the scope of the standards, explains actuarial issues and describes the treatment of implicit rate subsidies.
GASB assistant project manager Michelle Czerkawski said that there is a "really big demand" for the guidance in this document. "Governments are already starting to work with their accountants and actuaries," she said. "It's going to take them a while to ramp up because of the complexity of the measurement standard, so there is a concerted effort by governments and actuaries, as well as by GASB, to get information out and to make folks aware."
"Other post-employment benefits," or OPEB, are nonpension benefits, most involving post-retirement health coverage. OPEB is a huge financial liability for state and local governments. Statement 43 sets rules for benefits plans that administer OPEB, while Statement 45 sets rules for governmental employers. The standards replace pay-as-you-go accounting - the most common practice among governments today - with accrual accounting for retiree health care and other nonpension benefits. The new accounting will more faithfully reflect the underlying transaction between employers and employees, reporting the cost of providing the benefits over a period approximating employees' years of service.
The new rules require sophisticated actuarial studies, including the timing and frequency of actuarial valuations associated with OPEB, selection of methods and assumptions, and application of criteria related to the projection of benefits for employers who participate in community-rated plans.
Nothing in the statement requires governments to fund their OPEB plans. However, financial reports prepared under the statement would allow taxpayers, investors and governments themselves to better understand and deal with OPEB liabilities.
Implementation of Statement 43 for plans will proceed in three phases, based on the revenues of the plan's largest participating employer, starting with fiscal years beginning after Dec. 15, 2005. Employer implementation of Statement 45 also will proceed in three phases, starting one year later.
So many questions ...
Most of the questions coming into GASB involve sorting out what types of benefits fall into the requirements of the standards and different forms of benefits, such as termination benefits, compensated absences, vacation time and what constitutes OPEB.
The guide includes questions and answers and expanded illustrations related to the option provided for certain employers and plans with small plan memberships, allowing them to apply an alternative measurement method to estimate liabilities and expenses associated with their OPEB obligations.
In all, the guidance answers some 250 questions, from why GASB issued the standards to how governments should determine the cost of OPEB and what information should be included in financial reports.
Czerkawski said that implementation of the standards will involve professionals from outside the government, especially actuaries, who need to make estimates of the obligations that governments have committed themselves to. That measurement process involves the gathering of a great deal of data inside governmental entities.
That process, Czerkawski said, can be lengthy and involved. "Most of the time, governments have not been measuring the extent of their obligations," she said. "So they are finding that their internal data systems are not up to date or producing information in the forms that are needed to make the required measurements. Governments are just beginning to get their hands around the magnitude of the obligations, and are looking to give themselves a cushion to make decisions about what to do, if anything, before the reporting requirements kick into effect."
Among the decisions that governments may want to make involve changing benefits and making advance funding. Governments will not be required to accrue past expenses, but they will need to gather data from former employees in order to draw actuarial conclusions.
GASB project manager Dean Mead said that the new guidance document would be useful not only to government accountants, but also to actuaries and to government boards that need to understand the imminent changes in financial reporting.
Jim Rizzo, a senior consultant and actuary with the Ft. Lauderdale, Fla., office of Gabriel Roder & Smith & Co., who helped author the GASB guidance, agreed that it's already time for governments to start preparing for the new rules.
"Getting this done soon enough is a real challenge," Rizzo said. "I think a lot of people are still sitting back, waiting. As soon as the numbers are calculated, a lot of employers and trustees will want to do some planning. They will need to start well in advance of their implementation year. Waiting will be a disaster."
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