The Government Accounting Standards Board gave its preliminary approval Wednesday to new standards that would force greater transparency in the accounting of health care obligations to government retirees.
The seven-member GASB voted unanimously to advance two draft proposals addressing the reporting of what are known as “other post-employment benefits,” or OPEB, including retiree health insurance.
Once passed, these measures would require governments to recognize the net liabilities of their OPEBs on the face of their financial statements.
Currently, the extent of these liabilities can be published in the notes of a financial statement. By requiring this reporting on the face of a financial report, GASB, which sets the financial reporting standards for the public sector, hopes to encourage further transparency on what it views as a vital governmental budget issue.
For decades, OPEB liabilities were never reported on balance sheets, and consequently those obligations went underfunded or even unfunded. That began to change in 2006, when GASB required cities and states to begin to report their health care liabilities to retirees.
The new OPEB reporting standards follow the same logic as the GASB’s latest pension guidance, which go into effect for goverments with effective fiscal years beginning after June 15. Those standards require state and local governments to report their net pension liability in their financial statements.
GASB cannot require cites and states to fund their reported liabilities; it lacks the authority to do so. Whether to force governments to ensure adequate funding was a question left to state and local elected officials.