• Who is “Gadsby” and why is he messing with my retiree health care benefits?
    Updated On: Jan 15, 2017

     

    Who is “Gadsby” and why is he messing with my retiree health care benefits?

    “Gadsby” or “GASB” is an acronym for the Governmental Accounting Standards Board. GASB publishes rules that provide governments with accounting standards to use when completing their financial statements. The financial statements are called Comprehensive Annual Financial Report and are used for a number of things. In 2006 or 2007 (depending on community size) GASB started requiring local units of government to include statement 45. GASB 45 is a statement that looks at the liability that the local unit has for other post employment benefits (OPEB), most commonly, retiree healthcare.

    A bit of comparison is in order. Most locals have a Defined Benefit Pension plan. The state constitution requires that local units of government fund the cost of pensions in the year that they are accrued. For example, an actuary calculates how much the contribution rate is for pension contribution and that payment is made to the pension plan in the year that you work. Through investment earnings and regular contributions, that annual contribution (normally made on a per paycheck basis) grows and when you retire the money is there to pay the benefit you have earned. This is called pre-funding. OPEB benefits do not have the same pre-funding requirement that pension benefits do, so most communities fund them on a “pay as you go” basis. That means they are not saving today for future payments, there is no investment income, and the full cost of OPEB is paid on a regular monthly basis. Some communities have started pre-funding their OPEB, and in some cases have made significant funding progress. This is reported on a percentage basis just like pension plans, some have done some prefunding and some have done other things; some communities have 100% funded OPEB plans. Most do not.

    Here is where the problem comes in. GASB requires a community to account for the unfunded accrued liability that they have for OPEB benefits and report it. In many places this is a significant number and has led many communities to find ways to reduce that liability. With the tax limitations imposed by the state constitution, the significant cuts in state revenue sharing, and the housing market crash in 2008, most communities have much less revenue to operate today. This had brought us to where we are today. Many locals have had, through negotiated settlements or forced contract concessions, reduced or eliminated the retiree health care benefit in favor of some other plan (such as a monthly stipend into a health care savings account). This is partially why we see the action occurring at the state level such as the recent 80/20 retiree plan that we defeated this month. Likely the next two years will see the resurfacing of the state legislature trying to “fix” the OPEB liability “problem” instead of letting each community deal with it, as most are currently doing.  


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