GASB 45 — Basics


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What is GASB?

GASB is the Government Accounting Standards Board. Its statements, including GASB 43 and GASB 45, define what is considered to be generally accepted accounting principles for governmental entities. Employers subject to GASB accounting standards include state governments, local governments, school districts, public employee retirement systems, state universities, state hospitals, utility districts, public transit companies, and other governmental or quasi-governmental employers.

What do GASB 43 and GASB 45 require plan sponsors to disclose on their financial statements?

The disclosures fall into five basic categories:

  1. A description of the plan, including what the benefits are, who receives them, how many employees and retirees are covered, and a discussion of the future uncertainties associated with the benefits
  2. The actuarial methods and assumptions used to determine the plan liabilities, including the basis for determining those liabilities
  3. The annual Other Post-Employment Benefit Expense that must be recorded on financial statements, determined in accordance with the parameters set forth by GASB, as well as the basis for determining the Expense
  4. The program for the amounts and timing of contributions to be made, by whom, and how it will be financed, e.g., pay as you go or prefunding with a qualified trust, including a schedule of recent funding progress relative to annual recorded expenses
  5. A statement of the unfunded actuarial accrued liability, which must be disclosed in the accompanying notes to the financial statements

When must a plan sponsor comply with GASB 43 and GASB 45?

  • Phase I employers must implement for fiscal years beginning after Dec. 15, 2006. An employer is considered Phase I if it had revenues in excess of $100 million for fiscal years ending after June 15, 1999.
  • Phase II implementation—for employers with annual revenues between $10 million and $100 million—is for fiscal years beginning after Dec. 15, 2007.
  • Phase III implementation—for employers with annual revenues less than $10 million—is for fiscal years beginning after Dec. 15, 2008.

Although different sizes of governments must implement GASB 45 at different times, all should base their calculations on their revenues for their fiscal years that ended soonest after June 15, 1999.

How will GASB 43 and GASB 45 affect the benefits that plan sponsors provide to retirees?

GASB 43 and GASB 45 may have several ramifications. It may:

  • apply additional fiscal pressures on already tight budgets
  • attract the scrutiny of taxpayers and public officials
  • force a separation of active and retiree benefits plans
  • compel consideration of plan redesign, including potential labor negotiation issues
  • affect the entity's bond ratings
  • influence how governments decide to fund future retiree benefit obligations

The implications of GASB 43 and GASB 45 are important now

  • Learn the extent of the liabilities and costs
  • Plan to achieve the cash flow you'll need in the coming years
  • Address the question of whether or not to prefund, and what steps are needed to establish a trust
  • Examine ways in which the overall cost of providing medical benefits can be reduced, for example through use of the Medicare Part D drug subsidy
  • Evaluate the cost effects of proposed benefit changes in the context of union negotiations