Fall 2006 issue of Horizons

The standard also:

• Results in reporting the estimated cost of benefits as an expense each year during the years employees are pro- viding services to the government and its constituents. • Clarifies whether the amount a government has paid or contributed for OPEB during the report year has covered its annual OPEB cost. Generally, the more annual OPEB cost that a government chooses to defer, the higher will be (a) its unfunded actuarial accrued liability and (b) the cash flow demands on the government and its taxpayers in future years. • Provides better information to report a government's unfunded actuarial accrued liabilities (the difference between total obligation for OPEB and any assets set aside for financing the benefits) and changes in the fund- ed status of the benefits over time. Statement 45 establishes standards for accounting and financial reporting. How a government actually finances ben- efits is a policy decision made by government officials. However, the standard will cause governments to come under pressure to act upon the information. If it is ignored, it may have a negative impact on how users of the financial statements view or rate the government's financial health. State and local governments will not have to recognize the full liability upon adoption of Statement 45 because the state- ment does not require immediate recognition of the unfund- ed actuarial accrued liability (UAAL) as a financial statement liability. Governments may apply Statement 45 prospective- ly. At the beginning of the year of implementation, nearly all governments will start with zero financial statement liability. From that point forward, a government will accumulate a lia- bility called the net OPEB obligation, if and to the extent its actual OPEB contributions are less than its annual OPEB cost, or expense.

Statement 45 does, however, also require the disclosure of information about the funded status of the plan, including the UAAL, in the notes to the financial statements, as well as the presentation of multi-year funding progress trend information as a required supplementary schedule. GASB Statement No. 45 will result in more complete, inform- ative and accurate financial reporting for those state and local governments that sponsor OPEB plans as the existing economic reality is prospectively included in financial report- ing. Due to the potential impact on net assets and fund bal- ance, elected officials and management may consider obtaining estimates of these future costs and implementing them in their long-term strategic plan.

Questions? Contact Jeff Winter, CPA Partner-in-Charge, Public Sector Services Group 314-290-3408 jeff.winter@rubinbrown.com or Rodney Rice, CPA Partner, Public Sector Services Group 314-290-3403 rodney.rice@rubinbrown.com

54 • summer 2006 issue