Association teams with Cavanaugh Macdonald Consultants to offer actuarial services for counties

The Association is offering a new endorsed product to help counties comply with Government Accounting Standards Board (GASB) standards 43 and 45 that require local governments to determine the costs of retiree benefits (other than pensions) and show them as expenses on financial statements.

Other than a pension, the most common benefit for retirees is health insurance. Additional benefits include dental, vision, life, disability or long-term care.

The new rules do not require advance funding of these retirement benefits – rather than pay-as-you-go – but not doing so may have a negative effect on county’s audit or credit/bond rating. Advance funding means funding the costs of the retirement benefits during the working years of the employee rather than just paying for the benefit after he or she retires.

The standards are being phased in, with the largest counties having to comply first.

Compliance deadlines

Effective dates for GASB 43:

• Phase I – Governments with total annual revenues of $100 million or more: June 30, 2007
• Phase II – Governments with total annual revenues of more than $10 million but less than $100 million: June 30, 2008
• Phase III – Governments with total annual revenues of less than $10 million: June 30, 2009.

Effective dates for GASB 45:

• Phase I – Governments with total annual revenues of $100 million or more: June 30, 2008
• Phase II – Governments with total annual revenues of more than $10 million but less than $100 million: June 30, 2009
• Phase III – Governments with total annual revenues of less than $10 million: June 30, 2010.

To help you comply with these rules, the Association has 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. In addition, the Association has negotiated a group rate with Cavanaugh Macdonald for actuarial valuations to determine the special separation allowance for law enforcement officers.

Pricing is based on the number of employees and whether the county participates in the County Health Plan.

The Association and the North Carolina 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.

GASB 43, Financing Reporting for Post employment Benefit Plans Other Than Pension Plans, “provides a framework for transparent financial reporting by governmental entities that have fiduciary responsibility for OPEB [other post employment benefits] plan assets regarding their stewardship of plan assets, the funded status, and funding progress of the plan, and employer contributions to the plan.”

GASB said the approach taken “generally is consistent with that adopted in the GASB standards for pension plans, with modifications to reflect OPEB plan differences.”

GASB 45, Accounting and Financial Reporting by Employers for Post employment 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 nonpension benefits. Collectively, these benefits are commonly referred to as other post employment benefits, or OPEB.

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, the funding policy followed, 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 would be 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.

For more information about the standards, go to www.gasb.org. To order an implementation guide for the standards, go to store.yahoo.com/gasbpubs/publications-implementation-guides.html.

About the Governmental Accounting Standards Board

GASB is the independent, not-for-profit organization formed in 1984 that establishes and improves financial accounting and reporting standards for state and local governments. Its seven members are drawn from the Board's diverse constituency, including preparers and auditors of government financial statements, users of those statements and members of the academic community. More information about the GASB can be found at its website www.gasb.org.