International Association of Fire Fighters

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United States Governmental Accounting Standards Board:

GASB Statement 45

Introduction

Public employers will soon be required to account for and report on the cost of providing health care and other non-pension benefits to their current and future retirees.

In 2004, the Governmental Accounting Standards Board (GASB) released Statement 45 (GASB 45) concerning health care and other non-pension benefits for retired public employees. These benefits, also called “other post-employment benefits” and retiree healthcare programs, are by far the most costly.  GASB 45 strongly encourages public sector employers to set aside funds for non-pension benefits. Instead of a "pay-as-you-go," employers are urged to fully fund retirement plans in order to show a more favorable financial statement.

The intent of GASB 45 is to bring governmental accounting standards more in line with private company standards. Though GASB has no power to change how governments fund retiree health care, pension and other benefits, it does govern the rules that auditors must follow in providing options on the reliability of governmental financial statements. Audited financial statements prepared according to GASB are scrutinized by investors in state and local bond and rating agencies that make judgments on the likelihood those bonds will be paid off as required.  

Key Facts to Know

• GASB 45 is not a law, it's an accounting rule. However, failure to follow GASB 45 could be harmful to the financial health of public employers.

• GASB 45 does not require advance funding, but it encourages public employers to set aside money for their employees' retirement in order to fund future liabilities.

• Employers will then be able to use higher investment return assumptions in determining the discount for calculating liabilities, which could help lower benefit costs.  

• For city and state governments that do not have a plan for funding their retiree benefits, the bond rating could be negatively affected, as well as result in negative credit ratings, investment returns and borrowing costs -- all of which affect union negotiations.