In July 2004, the Governmental Accounting Standards Board (GASB) implemented GASB 45 due to growing concern over the potential long term obligations of government employers for post-employment benefits. According to GASB 45, government employers were required to measure and report the liabilities associated with postemployement benefits which could include medical insurance and other benefits that are not associated with a pension plan.
For the city of Davis, the result of this new accounting practice showed that the city had a $40 to $60 million unfunded liability in its retirement health care benefits. As a result the city of Davis is now taking steps to insure full funding of retiree medical benefits. The process will take roughly thirty years at around a $4 million annual cost over and above the cost to fully fund the current year.
According to their release, “The purpose of the document is to obtain comments from constituents on those views before developing more detailed proposals for changes to existing accounting and financial reporting standards.”
“The project to improve postemployment benefits accounting was launched by the GASB, in part, in response to feedback from users of state and local government financial reports who feel that current standards do not provide them with the information they need to adequately understand the cost and liability for benefits promised to active and retired employees,” states GASB Chairman Robert Attmore.
“Following considerable staff research and review of financial reports prepared under existing standards, the Board has tentatively determined that changes are needed to improve the transparency, consistency, and comparability of reported pension information. We urge constituents to review and provide comments on the Preliminary Views on ways to increase transparency in financial reporting; enhance the decision usefulness of reported pension information; and better assist financial statement users in assessing the impact of the policy decisions and the commitments governments have made to their employees related to pension benefits.”
The Preliminary Views is part of the Board’s overall project to consider improvements to the existing standards of accounting and financial reporting for postemployment benefits. The GASB periodically reviews its standards to determine whether they continue to effectively meet their objectives.
“The approach presented in the Preliminary Views would move governmental pension accounting and reporting away from the funding orientation that now exists,” the statement read, it would “instead introduce recognition and measurement standards that would be based on the GASB’s conceptual framework, including information that would help financial statement users better assess the degree to which interperiod equity has been achieved. “
There are quite a few different approaches right now to pension reform. Last week of course was a crucial announcement that four of the biggest state employee unions had agreed to what will be a two-tiered system that includes lower pension rates and higher amounts of employee contributions. That is a good start.
But part of the concern and what we learned from GASB 45 is that without a good accounting system to determine long-term liabilities, we do not have a good idea on what the true fix is. What should the rate be, what should the contribution rate, what should we expect in terms of a typical return on investment. Will a new GASB directive help with these key questions? It is unclear.
—David M. Greenwald reporting
Is the GASB federal or state?
Quoting from “Facts about GASB” found on their website:
The Governmental Accounting Standards Board (GASB) is the independent organization that establishes and improves standards of accounting and financial reporting for U.S. state and local governments. Established in 1984 by agreement of the Financial Accounting Foundation (FAF) and 10 national associations of state and local government officials, the GASB is recognized by governments, the accounting industry, and the capital markets as the official source of generally accepted accounting principles (GAAP) for state and local governments.
Accounting and financial reporting standards designed for the government environment are essential because governments are fundamentally different from for-profit businesses. Furthermore, the information needs of the users of government financial statements are different from the needs of the users of private company financial statements. The GASB members and staff understand the unique characteristics of governments and the environment in which they operate.
The GASB is not a government entity; instead, it is an operating component of the FAF, which is a private sector not-for-profit entity. Funding for the GASB comes in part from sales of its own publications and in part from state and local governments and the municipal bond community. Its standards are not federal laws or regulations and the organization does not have enforcement authority. Compliance with GASB’s standards, however, is enforced through the laws of some individual states and through the audit process, when auditors render opinions on the fairness of financial statement presentations in conformity with GAAP.
to rrichard63: Thanks for the info!