About GASB

OThe Governmental Accounting Standards Board (GASB) is the independent organization that establishes and improves standards of accounting and financial reporting for U.S. state and local governments. GASB is not a government entity; instead, it is an operation component of the Financial Accounting Foundation (FAF), which is a private sector not-for-profit entity. GASB is recognized by governments, the accounting industry, and the capital markets as the official source of generally accepted accounting principles (GAAP) for state and local governments.

Its standards are not federal laws or regulations and the GASB does not have enforcement authority. Compliance with GASB’s standards, however, is enforced through the laws of some individual states and through the audit process, when auditors render opinions on the fairness of financial statement presentations in conformity with GAAP.

About GASB 45

In 2004, GASB issued Statement 45, “Accounting and Financial Reporting by Employers for Post-Employment Benefits Other Than Pensions,” which requires public agencies to report their costs and obligations pertaining to health and other benefits of current and future retired employees much like they now report pension plan obligations. These other post-employment benefits (OPEBs) — including such benefits as medical, dental, vision, hearing, life insurance, long-term care and long-term disability — must be recognized as a current cost during the working years of an employee. Thus, each public agency must identify and disclose OPEBs as an expense and, to the extent not pre-funded, a liability on its financial statements. This liability must be calculated by either an actuary or by using the alternative measurement method.

The Alternative Measurement Method

When GASB issued Statement 45, they were concerned that the cost of the work would put a strain on smaller public agencies. Therefore, they created a simplified approach, known as the Alternative Measurement Method (AMM). The AMM allows public agencies with fewer than 100 plan members to comply with GASB 45 at a fraction of the cost of getting a full actuarial valuation. A plan member is defined as: 1) an employee in active service; 2) terminated employees who have earned the right to future employer-paid benefits, but are not yet receiving them (rare); and 3) retired employees and surviving spouses currently receiving benefits. (Covered dependents of living retirees do not count towards the 100 member threshold.)

While public agencies that meet the fewer than 100 plan member criteria qualify to use the AMM, it’s not right for everyone. Since the AMM uses simplified techniques, if you have a complex benefit plan it may not give reliable results. If this is the case, we recommend getting a full actuarial valuation. Contact us today so we can help you get a full actuarial valuation for a significantly lower price than most other firms.