by Larry Jones
April 10, 2006

Under rules issued by the Government Accounting Standards Board (GASB), city employers who provide their retirees post-employment benefits (OPEB) other than pension benefits, are required to follow new accounting and reporting standards. The new rules require that all outstanding financial obligations for OPEB such as health/medical benefits, prescription drug benefits, dental benefits, vision benefits and life insurance be listed in a city employer’s financial statement in the same manner as pension benefits.

Unlike pension benefits, most OPEB are currently financed on a pay-as-you-go basis and financial statements generally do not report the financial effects of OPEB until the promised benefits are paid. Issued by GSAB in 2004, Statement No 43 (Financial Reporting for Postemployment Benefits Plans Other Than Pension Plans) and Statement No 45 (Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pension) require that the liabilities and expenses for these benefits be accounted for on an accrual basis.

Actuarial evaluations of the amount to be listed annually must be determined in order to insure that a sufficient amount of resources are available to compensate retirees when the benefits are due. This actuarial valuation is required at least every two years for OPEB plans with 200 or more participants and every three years for OPEB plans with fewer than 200 participants. Participants include all employees in active service, terminated employees who have accumulated benefits but are not yet receiving them and retired employees and their beneficiaries currently receiving benefits.

According to GASB, the new rules will improve the relevance and usefulness of financial reporting by requiring systematic, accrual-basis measurement and recognition of OPEB cost; and by providing information about actuarial accrued liabilities associated with OPEB and whether progress is being made in funding these plans.

The rules are being phased-in over a three-year period based on a city’s total annual revenues. First, city employers will be required to comply with the uniform reporting standards as follows:

• Phase 1 city employers or those with total annual revenues of 100 million or more must comply with the new standards for all fiscal years starting after December 15, 2005.

• Phase 2 city employers or those with total annual revenues between $10 million and $100 million must comply with the new standards for all fiscal years starting after December 15, 2006.

• Phase 3 city employers or those with less that $10 million in total annual revenues must comply with the new standards starting after December 15, 2007.

  Next, city employers will be required to comply with uniform accounting standards as follows:

• Phase 1 city employers or those with total annual revenues of 100 million or more must comply with the new standards for all fiscal years starting after December 15, 2006.

• Phase 2 city employers or those with total annual revenues between $10 million and $100 million must comply with the new standards for all fiscal years starting after December 15, 2007.

• Phase 3 city employers or those with less that $10 million in total annual revenues must comply with the new standards starting after December 15, 2008.