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Public Employers Prepare For Health Accounting Shift

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Many government employers seem to be hazy about how they will cope with new rules for managing retiree health benefit obligations.

Consultants in the consulting arm of Aon Corp., Chicago, come to that conclusion in a summary of results from an informal survey of 118 city, state and county employers that will be affected by new Government Accounting Standards Board rules.

In the past, most government employers used a “pay as you go” approach to funding retiree health benefits.

Now, government employers are supposed to include estimates of non-pension retirement benefit obligations as expenses in annual statements.

Government employers that use formal investment instruments or other formal arrangements to fund retiree health costs can use a lower discount rate when coming up with retiree health obligation estimates, Aon consultants say.

The new standards began applying to government employers with more than $100 million in annual revenue Dec. 15, 2006.

The standards will apply to government employers with $10 million to $100 million in annual revenue Dec. 15, 2007, and the standards will apply to government employers with annual revenue under $10 million Dec. 15, 2008.

Only 63% of the government employers surveyed said they are thinking about making significant changes in funding strategies to cope with the new GASB rules, and 66% of the participating employers said they will not consider changing plan designs to reduce “other postemployment benefit costs,” Aon consultants report.

The employers that are thinking about adopting new OPEB funding strategies are considering use of voluntary employee benefits associations, health reimbursement accounts and Section 115 trusts, Aon consultants report.

Some government employers also are thinking about issuing bonds, increasing assessments or pushing for tax increases, the consultants say.

Plan design changes under consideration include revisions in eligibility requirements, increases in retiree cost-sharing percentages, elimination of coverage for future hires and shifts to defined contribution plans.


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