GASB Services Overview
Are you ready for GASB?
Employees of State and local governmental entities are compensated for their services in the form of salary but also may be compensated in the form of post retirement benefits. While the most common post retirement benefit is pension, other post employment benefits (OPEB) may include health, dental, vision or life insurance benefits.
Typically, these OPEB benefits are funded on a “pay as you go” basis, with the governmental entity paying only an amount each year equal to the benefits claimed in that year. Unfortunately this “pay as you go” methodology results in the governmental entity understating and not fully reporting the full cost of the OPEB benefits earned by their employees each year.
Understanding GASB 43/45
The Governmental Accounting Standards Board (GASB) establishes accounting standards for governmental agencies, but has no enforcement power. Entities that fail to follow GASB can be subject to audits and could suffer damage to their bond ratings.
In 2004 GASB issued two statements; GASB 43 and GASB 45, which outlined the accounting, reporting and disclosure requirements for post employment benefits other than pensions (OPEB’s). GASB 43 dealt with plans that provided OPEB’s through trusts and GASB 45 outlined the OPEB reporting and disclosure requirements for governmental employers. These GASB statements will substantially increase the expenses and liabilities reported on the financial statements of many governmental entities.
According to GASB, the “pay as you go” approach does not reflect the governmental entity's true OPEB liablilities since it does not reflect the cost of the OPEB’s earned by active employees during their working years. GASB's new statements seek to recognize OPEB expenses when the benefits are earned (accrual based accounting) rather than when they are paid out (cash basis).
Pre-Funding is Not Required
The GASB Statement deals exclusively with issues of disclosure and financial reporting and does not require that the liability be pre-funded. Governmental entities are free to continue funding
their OPEB's on a pay as you go basis. However, reporting a substantial unfunded liability on the income statement may have a substantial impact on credit and bond ratings. While it is impossible to predict the public’s perspective of a published, large unfunded OPEB liability, it can reasonably be assumed that the public may have a jaundiced opinion of the scope of the unfunded liability and the entire issue of broad based governmental retiree OPEB benefits. Therefore, it is recommended that most governmental entities should develop liability mitigation strategies.
While Plan Sponsors may have some time before GASB impacts them, the process is complex and will involve a considerable amount of lead-time. In our opinion, GASB will not go away and we strongly suggest that you begin the process sooner rather than later
. Our value proposition to our governmental customers is that we are able to provide an integrated solution.
Our GASB Services
Our goal is to provide a seamless process that integrates all of the following services into a single cost effective GASB solution. Due to our size, we have the ability to provide personalized service to meet your needs as well as the expertise to provide solutions for the most complex situations.
We will prepare an actuarial valuation in compliance with GASB Statement No. 45. The actuarial valuation will outline your "other postretirement benefit" (OPEB) obligation for eligible active employees and current retirees, along with related information like the Annual Required Contribution (ARC). The valuation will be based on employee and retiree census data you provide, and on the benefit descriptions you provide.
Alternative Method Actuarial Valuation
Governmental entities with fewer than 100 employees may be eligible for the alternative OPEB calculation. We have prepared a template to allow you to easily submit your plan provisions and data, which we will then use to calculate your OPEB obligations and Annual Required Contribution (ARC).
Plan Design, Funding and Liability Mitigation Consulting
Once the OPEB liability is determined, we will explore plan design options that best meet your long term goals. Exploring defined benefit plan modification alternatives, defined contribution alternatives, pay as you go and other financing alternatives, we will work with you to find the delicate balance between fiscal responsibility and protecting the integrity of the OPEB plan.
Pre-funding all or a portion of the OPEB liability can allow the governmental entity to allocate funds for future OPEB costs. This is often accomplished wih a trust vehicle, usually a Section 115 Integral Trust or a section 501(c)(9) VEBA Trust. If a trust is appropriate, we will provide the Trust Document and Adoption Agreement as a standard part of our package.
Integrated Enrollment, Eligibility, Billing and Claims Processing
Irrespective of whether the ultimate OPEB solution calls for the use of an Insurer, HMO
or an HRA, we will provide an administrative solution that is linked, real time, to the investment option chosen, including a comprehensive reporting package.