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1 ACCOUNTING AND AUDITING UPDATES GASB STATEMENT NO. 45 — ACCOUNTING AND FINANCIAL REPORTING BY EMPLOYERS FOR POST - EMPLOYMENT BENEFITS OTHER THAN PENSIONS This statement provides new guidance on accounting and reporting for post - employment benefits other than pensions by employers when the plan is not accounted for in their financial statements. Other post - employment benefits (OPEB) refer to non - pension benefits provided after the termination of employment. One example of this type of benefit is healthcare premiums paid by employers on behalf of former employees. Governmental entities have traditionally accounted for OPEB on a pay -as- you -go basis, with only a few governments funding these benefits in advance of payment. The guidance in this statement rests on the assumption that OPEB liabilities should be accrued as they are earned by employees providing service to the entity. Under Governmental Accounting Standards Board (GASB) Statement No. 45, governments offering OPEB will recognize the cost of these benefits using a three -step approach. The government will be required to project future benefits, discount those benefits to their present value, then use an acceptable actuarial method to allocate costs to individual accounting periods. Once calculated, the difference between the present value of OPEB benefits earned by employees as the result of past service and resources set aside to pay those benefits will be considered the "unfunded actuarial liability for OPEB." Every employer will be allowed to start fresh at the time of transition to the new standard. There will be no requirement for an employer to recognize an accounting liability for underfunding prior to the implementation of the new standard. Instead, the unfunded actuarial accrued liability for OPEB at transition would be amortized over 30 years. As long as an employer funds the full amount of the actuarially determined annual required contribution (ARC) for these benefits each year, no asset or liability will be reported on the Statement of Net Assets. However, an employer will need to report a "net pension obligation" on its Statement of Net Assets as an asset or liability if it contributes more or less, respectively, than the ARC each year. Nothing in the statement is intended to alter the normal application of modified accrual accounting in the governmental funds of the entity. Thus, in governmental funds, OPEB expenditures normally would be recognized when the benefits are due and payable rather than when benefits are earned. The guidance will require that actuarial valuations for OPEB occur at least every two years for plans with 200 or more members, and every 3 years for plans with fewer than 200 members. A sole employer plan with fewer than 100 plan members has the option to apply a simplified alternative measurement method rather than obtain actuarial valuations. The statement will become effective in three phases based on the same criteria as those defined for the implementation of GASB Statement No. 34. GASB Statement No. 45 will be phased in for cities over a three -year period, which started with category one cities in the fiscal year ending December 31, 2007. GASB STATEMENT No. 47 — ACCOUNTING FOR TERMINATION BENEFITS GASB Statement No. 47 provides accounting and reporting guidance for state and local governments that offer benefits such as early retirement incentives or severance to employees that are involuntarily terminated. The statement requires that similar forms of termination benefits be accounted for in the same manner and is intended to enhance both the consistency of reporting for termination benefits and the comparability of financial statements. GASB Statement No. 47 is effective for financial statements for periods beginning after June 15, 2005, or may be implemented simultaneously with GASB Statement No. 45, depending on your circumstances. -12-