Joanne Fontana pens an article in Accounting Today looking at lessons learned after more than three years of providing GASB 45 valuations to small employers. Here is an excerpt capturing the difficulty of these smaller valuations:
We’ve learned that, while smaller government employers may have fewer OPEB [other post-employment benefit] plan members, their OPEB plans are by no means simple. In fact, we’ve seen significant variation in how employers using the AMM [Alternative Measurement Method, which is well-suited for small employers] handle contribution methods and levels toward retiree health premiums, eligibility requirements for OPEB, and the structures of the OPEB plans themselves. Some states provide funding toward retiree premiums in addition to those provided by the employer, which must be accounted for in the valuation. Others use age-banded rating for their OPEB premiums. Still others are required to use community-rated premiums.
All of these variations have implications on how to correctly calculate the OPEB liability, whether using the AMM or a traditional valuation. None are directly addressed in the GASB standard, but are nonetheless expected to be properly considered by the individual completing the valuation. So, again, it is imperative, even when using the AMM, to have someone who understands these complexities and can expand the basic AMM approach to appropriately calculate the liability.
The Connecticut Mirror looks at Connecticut’s cost for state employee retiree healthcare benefits as the state moves toward a pay-as-you-go approach to funding such benefits. The pay-as-you-go approach is tied in with GASB 45, which requires public employers to calculate the value of “other post-employment benefits” (OPEB). Here is an excerpt from the article:
State officials recently got their first glimpse of the cost of escaping a pay-as-you-go health insurance program for retired workers, and it wasn’t pretty.
But on a long-term basis, the state’s health care consultants said, it’s far less expensive the the current practice of paying the bills out-of-pocket.
A preliminary analysis issued last week to the Post Employment Benefits Commission projected that annual spending, which currently approaches $500 million, will rise on the pay-as-you-go plan so that the average cost over the next 28 years will be $1.9 billion–a total outlay in excess of $53 billion.
If the state adopts a longer-term plan for funding the costs, the annual outlay would jump immediately to $1.2 billion, according to Milliman Inc. of Windsor, which provides health care consulting and actuarial services for the state comptroller’s office–but then stay relatively stable over 28 years, for a total outlay of roughly $34 billion.
News out of Palo Alto, CA today is indicative of a challenge facing municipalities all over the country:
The projected cost of medical benefits for retired Palo Alto city employees has ballooned even as the city’s trust fund for paying those benefits has lost millions, a new report shows.
The actuarial study by Milliman, Inc. estimates the total cost of health benefits for current and future retirees at $130 million, up from $102 million in 2007. It’s a 28 percent increase in just two years.
The big jump comes partly from a surge in retirements in the city: 115 employees have stepped down in the two-year period, more than twice as many as the city had projected. Rising medical costs and interest account for the rest of the increase.
Last year, Palo Alto got off to a good start in offsetting some of those future costs, putting $33.8 million in a CalPERS trust fund expected to grow at a healthy rate. Instead, however, the fund has been hit hard by the recession, losing 36 percent of its value as of March 31, when it stood at $21.7 million.
Public employers are now required to calculate the liability associated with their retiree medical benefits, the result of a rule passed in 2004 called GASB 45.