Alternative Measurement Method (AMM) - We will calculate for you! We provide personal (hands on approach) service for your questions - call us!
Cost: Typical small employer $950.
WHAT IS GASB 45?
In 2004, the Governmental Accounting Standards Board (GASB) issued Statement No. 45 Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. This statement established the accounting, reporting and disclosure requirements for other postemployment benefits (OPEB) including medical, dental, vision, life and long-term disability.
WHAT IS THE IMPACT OF GASB 45?
Most governmental entities fund the cost of OPEB on a “pay-as-you-go” basis and expense only the current year costs. This approach does not reflect the governmental entities true OPEB cost or liabilities. GASB requires you to accrue OPEB liabilities as they are earned by active employees as well as the earned but unpaid OPEB liabilities for active and retired plan members. This will substantially increase the expenses and liabilities reported on the financial statements of most governmental entities.
WHEN DO I HAVE TO COMPLY?
Fiscal year 2009/2010 is the final year of implementation so it needs to be included in your June 30, 2010 financial statements. The implementation of GASB 45 occurred in three phases based on the revenues of the governmental entity for the year ended June 30, 2000 as follows:
Revenues Date of Implementation
$100 million + June 30, 2008
$10 million to $100 million June 30, 2009
Under $10 million June 30, 2010
HOW IS THE OPEB AMOUNT CALCULATED?
A certified actuarial valuation is required to determine the OPEB liability and Annual Required Contribution (ARC). These actuarial valuations must be completed every two or three years depending on the number of participants in the plan. Employers with 200 or more plan participants must have an actuarial valuation every two years. Employers with less than 200 plan participants must have an actuarial valuation every three years.
SOUNDS EXPENSIVE...WHAT ARE MY OPTIONS?
If you have 100 or less plan participants, GASB allows you to use the Alternative Measurement Method. Using this method you can comply with GASB 45 for a fraction of the cost of a certified actuarial valuation. You can attempt the calculation yourself using GASB 45 guidance or you can hire a financial consultant like us to do it for you. This option can be 70% - 80% less than an actuary.
RETIREES PAY 100% OF THE PREMIUM...DOES GASB APPLY?
Most likely, yes. If active and retired plan members are blended together in the same plan, the cost of this blended plan is likely lower than the cost of a stand-alone retiree plan. GASB refers to this as an implicit rate subsidy, which is a cost that is part of the OPEB liability.
DO WE HAVE TO FUND THE LIABILITY NOW?
No, the pay-as-you-go funding method is still allowed. GASB 45 only requires you to calculate, disclose and report the OPEB liability in your financial statements. However, this can be a substantial liability that will continue to grow unless develops a long-term plan using a variety of options, which we would be happy to discuss with you.
CAN WE FUND ONLY A PORTION OF THE OPEB LIABILITY?
Yes, the Board can designate amounts over and above the pay-as-you-go cost in order to reduce the liability recorded on the statement of net assets.
DO I NEED TO ESTABLISH A TRUST FUND?
No, GASB 45 does not require you to establish a trust fund. What type of fund you set up and how much you pay into those funds, will have varying effects on how you expense the ARC and the liability recorded on the balance sheet. We would be happy to discuss the different options and the impact on your financial statements.
HOW DO I GET STARTED?
While these complicated GASB compliance requirements may have your head spinning, there are a few simple steps that financial managers should take now to ensure compliance by the deadline.
1. Determine if your organization offers Other Postemployment Benefits.
2. Determine if your organization qualifies for the Alternative Measurement Method (AMM).
3. Assess the cost of using AMM relative to the cost of a traditional actuarial valuation.
4. Set a timeline to complete the valuation prior to year-end closing.
5. Begin to gather the information needed for the valuation.
WHAT CAN JAMES MARTA & COMPANY DO TO HELP?
We are here to help you any way we can. We can help you assess your current situation and provide you with the various options available to you. If you qualify for the Alternative Measurement Method, we calculate your OPEB liability and provide you all the information necessary for accounting and reporting purposes at a fraction of the cost of a traditional actuarial valuation.
If you're ready to get started or just have questions, please give us a call today.
Contact either James Marta or David Becker at (916) 993-9494 or e-mail us at jmarta@jpmcpa.com or dbecker@jpmcpa.com.
