Governments Mostly Undecided on OPEB Funding Strategy

August 25, 2008 ( - Strategies to deal with new standards imposed by the Governmental Accounting Standards Board (GASB) have yet to be widely decided by governments, despite a compliance deadline of the end of 2009.

A study conducted by the nonprofit Cobalt Community Research found 74% of local governments that provide retiree health care are aware of the GASB 45 requirements, and 47% report that they have already calculated their retiree health care liability or the calculation is in process. GASB 45 requires states to identify the costs for other post employment benefits (OPEB) in their FY 2008 financial reports.

Among respondent governments providing retiree health care, 20% indicated they have not yet determined their approach to funding OPEB liabilities and 40% did not answer the question. More than one-fifth (21%) indicated they would continue a pay-as-you go approach to financing; 8% said they would pay the full annually required contribution (See GASB Issues Proposal on Required Contributions for OPEBs ) to prefund benefits, and 6% indicated they would partially prefund the benefits.

For approximately 20% of the respondents, the new requirement has heightened their awareness of other long-term liabilities, and they have begun planning for them. Another 14% said the experience has heighted awareness, but they have not yet started to plan.

The study shows local governments are making changes to benefit levels and exploring new investment tools to help offset obligations.

The nationwide study of more than 1,500 city, county, township, and special district governments, conducted from February to May, also found most municipalities are not employing strategies that could help control expenses. "Fewer than 30% of the respondents have made changes to co-pays or deductibles in the last two years," said William SaintAmour, Cobalt executive director, in a press release. "Fewer than 20% have implemented options such as joining purchasing coalitions or educating employees and retirees on making smart health purchasing decisions."

Health care coverage at larger local governments approaches 90% for active employees and 50% for retirees, the study found. Only half of small local governments with fewer than 5,000 residents provide health care to their employees, and only 16% provide health care to retirees.

"Nationally, local governments have been struggling with soaring health care costs for many years," said SaintAmour. "The awareness of the new liability and the requirement to disclose it has created heightened concerns regarding the affordability of public sector health care."

The full study report can be purchased from here .