WASHINGTON May 28 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
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
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)