GASB 43 and GASB 45 Overview | Self Insured Plans LLC

GASB 43 / 45 Overview - GreatGASB Solutions

great-gasbEmployees of State and local governmental entities are compensated for their services in the form of salary but also may be compensated in the form of post retirement benefits. While the most common post retirement benefit is pension, other post employment benefits (OPEB) may include health, dental, vision or life insurance benefits. Typically, these OPEB benefits are funded on a “pay as you go” basis, with the governmental entity paying only an amount each year equal to the benefits claimed in that year. Unfortunately this “pay as you go” methodology results in the governmental entity understating and not fully reporting the full cost of the OPEB benefits earned by their employees each year.

The Governmental Accounting Standards Board (GASB) establishes accounting standards for governmental agencies, but has no enforcement power. Entities that fail to follow GASB can be subject to audits and could suffer damage to their bond ratings.

In 2004 GASB issued two statements; GASB 43 and GASB 45, which outlined the accounting, reporting and disclosure requirements for post employment benefits other than pensions (OPEB’s). GASB 43 dealt with plans that provided OPEB’s through trusts and GASB 45 outlined the OPEB reporting and disclosure requirements for governmental employers. These GASB statements will substantially increase the expenses and liabilities reported on the financial statements of many governmental entities.

According to GASB, the “pay as you go” approach does not reflect the governmental entity's true OPEB liabilities since it does not reflect the cost of the OPEB’s earned by active employees during their working years. GASB's new statements seek to recognize OPEB expenses when the benefits are earned (accrual based accounting) rather than when they are paid out (cash basis).

The GASB Statement deals exclusively with issues of disclosure and financial reporting and does not require that the liability be pre-funded. Governmental entities are free to continue funding their OPEB's on a pay as you go basis. However, reporting a substantial unfunded liability on the income statement may have a substantial impact on credit and bond ratings. While it is impossible to predict the public’s perspective of a published, large unfunded OPEB liability, it can reasonably be assumed that the public may have a jaundiced opinion of the scope of the unfunded liability and the entire issue of broad based governmental retiree OPEB benefits. Therefore, it is recommended that most governmental entities should develop liability mitigation strategies.

The following chart outlines the GASB implementation schedule. (Annual Revenues are based upon your Fiscal Year immediately following 6/15/1999.) Smaller employers with less than 100 employee’s are subject to the GASB statements, but may utilize an alternative or “express” method for calculating their liability.

Annual Revenues First Fiscal Year After: First Fiscal Year After:
GASB 43 Plans GASB 45 Employers
$100 Million + 12/15/05 12/15/06
$10 to $100 Million 12/15/06 12/15/07
Under $10 Million 12/15/07 12/15/08


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