The Great GASB: Solutions to Statement 45

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The Great GASB Solutions to Statement 45
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What have you heard about GASB 45?

• GASB 45 to force local governments to review
  promises Capitol Weekly 12/15/06

Unfunded Health Care Costs top 20 Billion The
Oakland Press 12/17/06
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What is GASB 45?

• In 2004, the Governmental Accounting Standards
  Board (GASB) released statement 45 concerning
  OPEB (Other Post Employment Benefits) for retired
  public employees.
• GASB 45 says that employers can no longer use a
  pay as you go accounting method for retiree
  health benefits.
• Employers must now account for the accrued OPEB
  costs they will owe.

• OPEB are Other Post Employment Benefits
• Medical benefits
• Prescription drugs
• Dental
• Vision
• Life Insurance
• Remember, OPEB do not include pensions.

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The Issue for Employers
Public employers report OPEB costs as current
expenses and fund them on a pay-as-you-go basis.
Under GASB 45, employers must now report accrued
OPEB benefits that they will eventually owe.
The budget shows sudden increase in what they
owe. This is an unfunded liability and an
employer may consider changing benefits to adjust
for this liability.
Employers will have to adjust for the future OPEB
costs that they now have to account for.
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Why should I care about GASB 45?

• Your employer may use this as an opportunity to
  cut your benefits.
• GASB 45 does not mean that you must bear the
  cost.
• It is crucial you take steps to work with your
  employer so that your retiree healthcare remains
  secure.

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Why should I care about GASB 45?

• To reduce OPEB liabilities, employers may
  propose
• Discontinue benefits for newly hired employees or
  tier benefits
• Lowering the level of retiree health care
  benefits granted
• Offering new employees or new retirees reduced
  benefit
• Placing a cap on total OPEB employer provided
  benefits
• Increase retirees co-payments, deductibles and
  co-insurance

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What can I do?

• Start by educating yourself and your local.
• Learn about how your own pension and benefit
  system is structured
• Learn what you can about GASB 45 (Start at
  www.iaff.org/gasb45)
• Contact your state association or IAFF
  headquarters
• Stay on top of news relating to other government
  entities dealing with GASB 45
• Routinely collect relevant data on your local
  governments financial status and insurance costs

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What can I do?

• 2. Form a committee or taskforce to confront the
• ramifications of GASB 45.

• Insist on labor-management discussions
• Research potential solutions
• Find out what other locals are
• using as solutions
• Create an affiliate network to assist
• each other
• Stay on top of the issues and what
• other cities are facing
• Oversee your own actuarial study

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What can I do?

• 3. Be prepared to discuss GASB 45.
• Research and discuss potential solutions that
  your employer could use instead of cutting
  benefits
• Be knowledgeable about potential solutions and
  what they mean to your locals retirement
  structure
• Discuss the best solution that works for your
  local and your employer

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What can I do?

• 4. Use political action to assist in funding
  options. Use public relations to get the word
  out about the situation.

• Use political action to protect fire
• fighters retirement healthcare
• Craft media talking points about
• GASB 45 to be ready to speak with
• reporters about the issue
• Use the IAFFs Public Relations
• Department to create a campaign
• for this issue
• Visit http//www.iaff.org/comm/start.html

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What can I do?

• 5. Have a plan to present them with so that you
  are part of the decision making process.

• Walk in with a proposal and
• possible solutions that
• outlines how your employer
• can comply with GASB 45
• without cutting benefits
• Be prepared with responses
• to your employers proposals

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Other Funding Solutions

• General revenues or reserve funds could fund OPEB
  obligations
• Use of Health Savings Accounts (HSAs) if needed
  to assist in retiree healthcare
• Medicare Part D
• Combination of any of solutions (bonds, trusts,
  pre-funding)

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IAFF Affiliate Example

• Chesterfield County, Virginia
• Employer tried to use GASB 45 to cut benefits
• The local built a coalition with police officers
  to obtain other methods to comply with GASB 45
• Local was satisfied that they were able to save
  some benefits, although the retirement age was
  changed and benefits were tiered

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IAFF Affiliate Example

• Phoenix, Arizona
• Collaborated with employee organizations to craft
  a mutual solution
• Blended rates between actives and retirees
• Provided retirees with subsidy to offset medical
  costs
• Lower future health care costs by targeted health
  benefits programs
• Current retirees and those within 15 years
  receive
• Additional funds to reduce impact of unblending
• Rate stabilization fund to address potential
  retiree rate fluctuation
• All other actives receive Post Employment Health
  accounts for future health care costs

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What is my employer planning?
Remember GASB 45 does not mandate the funding of
OPEB benefits, but how they account for and
report these funds.

• Developing a course of action to meet the
  reporting requirements
• Understanding whether the accounting standards
  apply and the legal and benefit design aspects of
  the plan
• Conducting a preliminary actuarial analysis to
  determine whether their liabilities and annual
  expense require any action or changes

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OPEB Effective Dates
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More Resources

• Visit www.iaff.org/GASB45 for
• Jobaid
• Webcast
• Resources and Downloads
• Solutions Brochure
• Or visit GASB at www.gasb.org