OPEB (Other Post-Employment Benefits)

The Problem

Most governmental entities have failed to set aside funds for the purpose of meeting the Other Post Employment Benefit (OPEB) promises they have made.

The implications of GASB 45, which was issued in June 2004 for 2007 implementation, are enormous.

Dealing with the problem in a proactive manner will be imperative.

Retiree Healthcare Promises (i.e. OPEB)

While some employers have focused on funding pension promises, OPEB benefits have primarily been funded on a “pay-as-you-go” basis.

This situation portends a frightening future when you consider:

• Healthcare cost have been exploding at an average rate of 9.2% (Kaiser Foundation Survey)

• Employees have counted on these retiree benefits, many having accepted lower salaries in exchange for them.

• GASB 45 requires governments to value and report OPEB costs to the taxpayers beginning December 16, 2006.

• Failure to fund OPEB liabilities is likely to result in credit rating downgrades and increased cost of borrowing.

Experts predict that the new accounting requirements will likely result in tax increases, reductions in government services, or both.

Benefit reductions are likely to be especially difficult to accomplish in the government settings;

state constitutions and court systems have held that health promises made to government workers must be honored.