Local officials work toward GASB 45 compliance

Nearly one in five local governments that provide healthcare benefits to retirees are not aware of new accounting guidelines going into effect this year that impact how local governments must report these liabilities.

According to a survey released in late September by Cobalt Community Research, 20 percent of local governments nationwide are not aware of the new requirements contained in "Governmental Accounting Standards Board (GASB) Statement No. 45," which was released in August 2004.

GASB 45, "Accounting and Financial Reporting by Employers for Postemployment Benefits Other than Pensions," sets standards on how state and local governments should account for and report their costs and obligations related to post employment healthcare and other non-pension benefits. Collectively, these benefits are commonly referred to as other post employment benefits, or OPEB for short.

The statement generally requires that state and local governmental employers account for and report the annual cost of OPEB and the outstanding obligations and commitments related to OPEB in essentially the same manner as they currently do for pensions. Annual OPEB cost for most employers will be based on actuarially determined amounts that, if paid on an ongoing basis, generally would provide sufficient resources to pay benefits as they come due.

The provisions of Statement 45 may be applied prospectively and do not require governments to fund their OPEB plans. An employer may establish its OPEB liability at zero as of the beginning of the initial year of implementation; however, the unfunded actuarial liability is required to be amortized over future periods.

Statement 45 also establishes disclosure requirements for information about the plans in which an employer participates, for the funding policy followed, for the actuarial valuation process and assumptions, and, for certain employers, the extent to which the plan has been funded over time.

Statement 45 is effective in three phases based on a government's total annual revenues. The largest employers were required to implement the requirements of Statement 45 for periods beginning after Dec. 15, 2006. Medium-sized employers have one additional year to implement the standards, and the smallest employers have two additional years. Earlier implementation is encouraged.

"The Health and OPEB Funding Strategies: 2009 National Survey of Local Governments" report is based on responses from more than 1,500 city, county, township and special district governments across the county randomly polled this year.

According to the Cobalt study, approximately 78 percent of the survey respondents provide healthcare to their employees, with 30 percent also providing healthcare to retirees.

Much of the report focused on local government awareness and response to GASB 45. This statement creates a national standard for the measurement and disclosure of state and local government OPEB liabilities, especially in the area of healthcare for retirees. All state and local governments are expected to disclose information about their OPEB costs and liabilities in their annual financial reports for fiscal years beginning in 2009.

For governments that calculated their OPEB liability, 40 percent plan to fully or partially prefund the liability. Roughly 52 percent plan to continue a pay-as-you-go approach.

To help counties comply with these rules, the Association negotiated for the services of Cavanaugh Macdonald Consulting, an actuarial consulting firm based in the Atlanta suburbs. This firm has agreed to conduct the necessary actuarial and valuation work necessary to comply with the new GASB rules at costs that are significantly lower than if a county contracted with a firm individually. Pricing is based on the number of employees and whether the county participates in the County Health Plan.

The Association and the N.C. League of Municipalities negotiated the discounted rates with Cavanaugh Macdonald after completing a careful selection process and receiving proposals from a number of firms. Cavanaugh Macdonald is a well-qualified firm whose staff has significant experience working with North Carolina local governments.

The study was conducted by Cobalt Community Research (www.cobaltcommunityresearch.org), a leading nonprofit research organization based in Lansing, Mich. The study was funded by a coalition of organizations: Gabriel Roeder Smith & Company, the Government Finance Officers Association, the Employee Benefit Research Institute, the International Foundation of Employee Benefit Plans, the Municipal Employees' Retirement System of Michigan, the National Conference on Public Employee Retirement Systems, and Tegrit Financial Group.

The report is available for purchase at www.cobaltcommunityresearch.org/health.

Cavanaugh Macdonald Consulting, LLC

For assistance, contact:

• Todd Green: (678) 388-1705 or toddg@cavmacconsulting.com; or
• Ed Macdonald: (678) 388-1701 or edm@cavmacconsulting.com

Cavanaugh Macdonald Consulting is located at 665 Molly Lane, Suite 150, in Woodstock, Ga.