Copyright© 2007 by School Services of California, Inc.

                                      Volume 20                   For Publication Date: August 31, 2007             No. 19

GASB 45 Has Arrived 

Governmental Accounting Standards Board (GASB) 45 is here. This is the year that larger school agencies are required to begin reporting the Other Postemployment Benefits (OPEB) liability when preparing financial statements. The implementation timelines are as follows: 

                   *Based upon the June 30, 1999 Audit Report

 The OPEB liability refers to the amount of the agency’s liability for OPEB as determined by an actuarial study. This liability is due to a combination of: 

·                    Benefits owed to current retirees—already earned from the past and projected into the future 

·                    Benefits owed to current employees—earned as they work—a combination of that which has already been earned from the past and what is projected to be earned in the future, but which will not be received by them until after they retire 

Most school agencies are paying for postemployment benefits on a “pay-as-you-go” basis and are not setting aside additional funding for the OPEB liability. Agencies also have not been required to reflect the OPEB liability on the face of their financial statements; it is reflected in a footnote. It is this liability that GASB 45 is attempting to address.  

The unfunded liability will create more pressure on the budget over time. The “pay-as-you-go” cost will continue to increase faster than the costs for active employees on the natural. In addition, the growing liability on financial statements will weaken the agency’s financial position and make it difficult and/or costly for the agency to issue bonds or borrow for cash flow (TRANs) or other purposes. 

The OPEB liability reflects deferred compensation for current service. If this year’s budget is not paying for this year’s additional obligation for active employees, then, in the eyes of GASB, the employees have what equates to an unfunded pension plan. 

Implications for Collective Bargaining 

While employee and retiree benefits are negotiable, the decision as to how to fund them typically is not. In the absence of a collective bargaining contract that specifies deposits to trusts or other accounts to fund benefits, the school agency decides how to fund the OPEB liability.

A total compensation approach to collective bargaining should include tomorrow’s benefits as well as today’s salary and benefits. In our opinion, the discussion of funding the compensation should always include funding the OPEB liability and a sharing of the OPEB costs. 

To fund the liability, the school district must take dollars from the future years’ budgets, which leaves less funding for other priorities, such as other components of employee compensation. Because of this, it is advisable to discuss the funding of the OPEB liability with employee bargaining units. 

The bottom line is that the OPEB liability must be dealt with. You can pay up now—or pay up a lot more later.

[Posted to the Internet 8/20/07]                                   —Ron Bennett, Sheila Vickers, and John Gray