GASB 45 requirements recently enacted presented challenges to a government employer. It needed to understand future liabilities for its retiree healthcare benefits and form a strategy to manage them. The employer then needed to inform its board of directors on the ramifications of implementing GASB 45 as well as take this information to upcoming union negotiations. The employer turned to Milliman to advise it on strategy and a plan.

Examining future liabilities to identify best options

Our experience has demonstrated that when employers are shown the scope of their future liabilities, they are better able to identify the best options for sustainable future benefits and communicate those options to stakeholders. We conducted research, prepared a report, and advised the staff to discuss GASB 45 issues with the union as soon as possible—rather than waiting until the next scheduled negotiation.

Establishing the issue and educating union members on possible benefit changes that were due to GASB 45 would put the employer in a better position to negotiate, both in the upcoming and future meetings.

Education gives decision makers information to act upon

The employer agreed to the recommendation and Milliman then prepared educational and presentation materials tailored for both the board of directors and union members.

The board presentation included:

• an overview of GASB 43 and GASB 45
• a 10-year comparison of GASB 45 Annual Required Contribution (ARC) versus pay-as-you-go costs, which addressed the issue of cost volatility
• a demonstration of how the employer might effectively phase in full funding of the ARC to minimize cost impacts
• a list of potential benefit design changes in the event that current benefits were not affordable
• a recommendation to meet with the union leaders in order to explain the current healthcare benefits situation and notify the leaders that changes in the benefit program might be necessary
• a list of the advantages and disadvantages of funding the benefits, including an estimate of the significant reduction in the GASB 45 ARC if the benefits are funded
• a recommendation to seek legal advice regarding reducing benefits

The union presentation, to be made after the board reached its preliminary decisions, included:

• an overview of GASB 43 and GASB 45
• a 10-year comparison of GASB 45 ARC versus pay-as-you-go costs
• a summary of the board’s preliminary decisions regarding funding
• a discussion of the board’s position regarding the importance of holding staff and union meetings, in which Milliman would explain what would drive the costs and potential plan design changes

Building a platform for future union negotiations

The presentation to the board was made, and, as a result, the board engaged a law firm to examine the possibility of reducing benefits. Although legal counsel’s survey of existing statutes and employee communications material concluded that benefits could be reduced, the board decided to keep existing benefits intact for the present time.

The board made a preliminary decision to fund the ARC.

Finally, the staff was prepared to meet with the union to present the opportunity of learning about the importance of benefit plan design and to set the stage for future negotiations.