The new Government Accounting Standards Board Statement 45 will require large governments to apply the same accounting standards used for pension liabilities to payments and services provided for retirees other than pensions, beginning in 2008, according to a Fitch press release.
The announcement noted that amounts required to pre-fund these benefits are likely to exceed significantly the cost of benefits in the current year.
A report by Fitch Ratings, ‘The Not So Golden Years – Credit Implications of GASB45′,noted , “…the prudent accumulation of assets in a trust account outside of the general fund and well in advance of benefit cost escalations can avoid or forestall liquidity problems or tax capacity concerns that might lead to credit deteriorations.”
“F itch views GASB 45 as a positive step towards more fully illuminating governmental obligations,” the company said in the press release. “However, Fitch acknowledges the inherent tension between allocating scarce resources toward critical government services today and meeting the funding requirements for retirement benefits that might not become due for decades. Some studies predict that prefunding OPEB on an actuarial basis might entail a five- to ten-fold increase in annual outlays for these benefits.”
The Fitch report is here .