GASB 45 solutions for governments of all sizes

A government's best approach to GASB 45 compliance can vary, depending on the size and needs of the organization. GASB has staggered the compliance dates into three phases. The largest employers, with more than $100 million in revenue, needed to comply first, medium-sized employers next, and finally smaller organizations.

Milliman has assisted governments at each compliance stage, as these examples illustrate.

Phase I: A Medicare solution

A large public employer wanted to control rapidly rising healthcare costs while still providing meaningful healthcare benefits for its retirees. GASB 45 complicated the problem, as the employer’s existing healthcare plan would generate large unfunded liabilities.

Milliman guided the client in exploring ways to lower its liability burden. The solution: a switch from its traditional Medicare plan to a Medicare Advantage Prescription Drug plan. This created first-year healthcare cost savings of 25%, along with similar savings to the employer's retiree healthcare liabilities under GASB 45. The change also positively demonstrated to rating agencies that the employer was finding innovative ways to meet its commitments.

Phase II: Seeking to limit liability

A mid-sized employer paid roughly $400,000 a year in other-than-pension benefits annually for its retirees and dependents. But this annual claims cost is dwarfed by the municipality's future liability, which is more than $6.4 million.

Adding the past service liability changed the picture substantially—it's nearly $12 million more. If the employer elected not to prefund these benefits, then there would be additional liability of $36 million, because future investment income would not be available to help pay the benefits. The total liability without prefunding would be $55 million.

After Milliman presented this analysis of future liabilities, the client elected to reduce its liability by setting up an OPEB trust and prefunding benefits.

Phase III: Using GASB 45 online tool, GASBhelp

The finance officer of a small California city needed to comply with GASB 45, but did not want to pay more than $10,000 for a full actuarial valuation. He visited GASBhelp.com and discovered that his municipality qualified to use the GASB-approved Alternative Measurement Method and thus he could get a cost-effective valuation by using Milliman’s online tool, GASBhelp.

He found it was easy to use the self-help tool, which created a report with everything needed to comply with GASB 45. The tool was also affordable—the municipality spent less than 30 percent of the cost of a full valuation.