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WASHINGTON, May 28 (Reuters) - U.S. state and local governments would have to dramatically change how they account for their "other post-employment benefits" under new standards proposed on Wednesday, including listing retiree health insurance and various other payments as liabilities on the front of their financial statements.
The Governmental Accounting Standards Board, which sets the financial reporting standards for the public sector, has already approved sweeping changes to accounting for pensions that become effective June 15.
Under the proposal unanimously approved by the seven-member board on Wednesday, similar standards would apply to accounting for other retiree benefits, namely healthcare, that are not often scrutinized or quantified as rigorously as pension benefits.
The benefits are "a very significant liability for many state and local governments, one that is magnified because relatively few governments have set aside any assets to pay for those benefits," said GASB Chair David Vaudt in a statement.
"It is vital, therefore, that taxpayers, policy makers, bond analysts, and others receive more and better information about these benefits so that they can better assess the financial obligations and annual costs."
State and local pensions were $1.1 trillion short of the $5 trillion in entitlements at the end of 2013, according to Federal Reserve data. The size of the gap for other retiree benefits remains a mystery. In 2012, Pew Charitable Trusts estimated that states had only 5 percent of the funds needed, and noted 17 states did not set aside any money for retiree healthcare.
GASB is also proposing governments discount their OPEBs along the same lines for pensions. If a government could not meet its projected rate of return - leading to a future funding shortfall - then it would have to switch to a rate based on a 20-year tax-exempt high-quality general obligation bond. That could make a liability appear larger than before.
Governments would also have to immediately recognize OPEB expenses, instead of spreading them over many years, and would have to provide more extensive notes in their disclosures.
GASB will hold public hearings in September on the proposal. (Reporting by Lisa Lambert; editing by Matthew Lewis)