Local Governments Begin Establishing Trust Funds For Unfunded Retiree Health Care Liability As Accounting Rules Deadline Approaches

Main Category: Health Insurance / Medical Insurance
Also Included In: Seniors / Aging
Article Date: 06 Nov 2006 - 14:00 PDT

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Some local governments are placing money in trusts to prepare for a federal rule that will require disclosure of retiree health benefit obligations in governmental budgets beginning July 2007, according to a recent survey by Mercer Health & Benefits, the Washington Times reports (Lopes, Washington Times, 11/2). Under new rules imposed by the Governmental Accounting Standards Board, public agencies will have to report the current and future costs of health care and other benefits -- such as dental, vision and life insurance -- for the nation's estimated 24.5 million public employees. GASB, a not-for-profit organization that establishes accounting standards for public agencies, created the rules in 2004 and allowed governments several years to put them in place. Under the rules, states must pay their liabilities over a 30-year period. If state officials choose not to earmark funds to cover the payments each year, the liabilities will count against the state's net assets (Kaiser Daily Health Policy Report, 9/25). Although the new rule does not require the governments to devise a plan as to how they will pay for future health costs, a "failure to do so would hurt their bond and credit ratings, limiting their ability to borrow at favorable rates," according to the Times (Washington Times, 11/2). The Mercer survey of 58 public-sector and academic employers found that 31% said they are likely or very likely to place money in trusts to prepare for the rule's implementation, while 21% are likely or very likely to increase retiree contributions (Mercer release, 10/25).

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