NEW! GASB Rules 43 and 45

The Government Accounting Standards Board (GASB) has set two new accounting standards -- GASB 43 and GASB 45 - that will be required of all pension plans and plan sponsors, beginning fiscal year 2006-07 and fiscal year 2007-08, respectively. Under these new rules, pension sponsors will now have to report the annual cost of “other post-employment benefits” (OPEBs) and pension funds will now have to report the sponsors’ required contribution and funding progress.

A majority of public pension systems have been funding their OPEBs, which consist primarily of healthcare benefits, on a pay-as-you-go basis and were not calculating the total cost of these obligations over time, resulting in an eventual funding shortfall for their healthcare benefits. Under GASB 43 and 45, public pension systems and plan sponsors must now calculate and disclose the future liability (or total cost) of their healthcare benefits so that these costs are known.

The annual cost of these benefits will be based on actuarially determined amounts that, if paid on a regular basis, should provide sufficient resources to pay for them in the long run. To do this, public pension plans must:

• Calculate the total cost of supplying these benefits to employees, for both those receiving benefits currently and those who will receive them in the future,
• Determine whether the total cost of these benefits has been funded, and
• Report the outcomes of their actuarial calculations and OPEB liabilities in their annual financial reports in the same manner as they currently do for pensions.

This type of reporting is not completely new to LACERS. Since 1987, the City has been pre-funding the post-employment health benefit cost of active employees with more than 10 years of service (at which point they become eligible for a health subsidy). However, under the new rules, the liability for all active Members, even those not yet eligible for health benefits, must now be reported. As a result, the Board adopted a policy to not only report the full liability, but to also pre-fund the health benefits of all employees, regardless of years of service. Ultimately, this further strengthens our future financial position.

The inclusion of all active Members into LACERS’ calculations may cause the healthcare benefits to appear to be under-funded for the next few years. However, because LACERS has been pre-funding these benefits for the past 18 years, the impact of GASB 43 and 45 on LACERS’ OPEB liabilities is much less than other pension plans. In any event, be assured that LACERS benefits, including OPEBs, remain secure.

Although LACERS is not required to implement the GASB regulations until the fiscal year 2006-07, on October 11, 2005, the LACERS Board of Administration approved changes that bring the new regulations into effect now. The results of these new funding calculation methods appear in LACERS’ 2005 Comprehensive Annual Financial Report, which can be found at www.lacers.org.