What You Need to Know about OPEB and GASB 45
Submitted by: Dan Hedden, Principal

Employees of local government are often compensated well beyond their days of service.  Frequently, this compensation is in the form of pensions, defined benefit health insurance programs, dental, vision, prescription drugs, life insurance and perhaps legal services.  Can you compute how much these benefits will cost the employer and for how long the employer will be liable?

Historically, local governments have not been required to compute this liability.  In recent years though, Governmental Accounting Standards Board ("GASB") pronouncements have increasingly emphasized a more encompassing reporting model.  This model compels the replacement of the historical “pay as you go” method with a new “compute what you owe” method.

In a broader sense, it is beneficial to local governments to understand the ongoing liabilities associated with decisions made today.  Post retirement benefits are a key ingredient in several compensation plans, but often the long term costs can have significant effects on local governments.  We have seen examples of this recently with school pensions, fire pensions and police pensions.  Local governments have had to borrow in order to pay current year pension benefits.

The intent of GASB 45 is to help address these issues and allow local governments to compute the actuarial value of its post-retirement promises.  Clearly this is a difficult computation that incorporates multiple factors.  For this reason, GASB is suggesting updating the actuarial information every two to three years (depending on employer size).  GASB 45 intends that improved accountability of Other Post-Employment Benefits ("OPEB") liabilities will lead to more informed policy decisions and allow time to implement financing methods. 

GASB 45 will be implemented in three phases based on a governmental unit’s annual revenues.  Below is a table reflecting the GASB 45 implementation schedule.

If annual revenues are:	Financial Statement Reporting Begins:
Over $100 million per year	First fiscal year beginning after December 15, 2006
Over $10 million but under $100 million per year	First fiscal year beginning after December 15, 2007
Under $10 million per year	First fiscal year beginning after December 15, 2008

If your community has post-retirement benefits as described above, it will likely be affected by GASB 45.  If you are unsure or have additional questions about GASB 45, please contact us at footnotes@umbaugh.com.