GASB
~PRONOUNCED~
GASP 45 TIMES!
WELL ITS THE SEASON, NO NOT XMAS RATHER FINANCIAL HOLLOWEEN!
THE TOWN OF NEW FAIRFIELD PRESENTLY HAS A $9,000,000 PLUS LIABILITY THAT IS UNFUNDED. SURPRISED?
WHAT WILL BE THE OFFICIAL RESPONSE?
What has been the growth rate of these post-employment benefits (OPEB) ($9 plus million) over the last 10 years?
What growth rate in the tax base is necessary to handle this liability?
What growth in the residential building of the Town is necessary to off-set the impact the mill rate?
What impact on the mill rate is necessary to address this liability?
Why isn't this liability on the Town's Financial Statements?
What is the impact of this liability on each taxable residential property?
FEELING BETTER YET?
IF THESE QUESTIONS REMAIN UNANSWERED THEN YOU HAVE YOUR HEAD IN THE SAND!
PROMISES, PROMISES OF GASB 45 ...
or GASB Statement 45, is an accounting and financial reporting provision requiring government employers to measure and report theliabilities associated with other (than pension) postemployment benefits (or OPEB). Reported OPEBs may include post-retirement medical, pharmacy, dental, vision, life, long-term disability and long-term care benefits that are not associated with a pension plan. Government employers required to comply with GASB 45 include all states, towns, education boards, water districts, mosquito districts, public schools and all other government entities that offer OPEB and report under GASB.
GASB 45 was instigated by the Governmental Accounting Standards Board (GASB) in July 2004 because of the growing concern over the potential magnitude of government employer obligations for post-employment benefits. GASB 45 will:
- Recognize the cost of OPEB benefits in the period when services are received.
- Provide information about the actuarial liabilities for the promised benefits.
- Provide information useful in assessing potential demands on future cash flows.
GASB 45 applies to the financial statements issued by government employers that offer OPEB and that are subject to GASB accounting standards. GASB 45 does not apply to private employers or trusts that are established in order to pre-fund OPEB benefits and for trusts that are used as conduits to pay OPEB benefits.
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 WE 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.
While, there is no statutory obligation (YET) to pre-fund these benefits (liabilities) like an organization would with their pension promises. However, there are significant advantages not to mention the moral obligation to recognize the liabilities on the balance sheet of the town and in doing so in terms of being able to utilize higher discount rates and therefore, report lower liabilities, unless 'we' continue to keep our heads in the sand!
UNFUNDED LIABILITY
There are three basic ways of treating unfunded liabilities:
- establish and fund an irrevocable trust
- pay-as-you-go
- setting aside a dedicated reserve
WATCH THESE TWO VIDEO'S THEN CONSIDER YOUR RESPONSE!
