Other Auditor Reports 12/31/2007

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Other Post - Employment Benefits (GASB Statements No. 45) (Continued) For a defined benefit OPEB plan, the manner of funding the OPEB liability is an important consideration. - Under the new GASB standard, an OPEB liability will only be considered as funded to the extent that assets are transferred to an irrevocable trust for the specific benefit of plan members (i.e. covered employees) and their beneficiaries. Assets held in an irrevocable trust can be reported in fiduciary - financial statements and thus excluded from the employers' government -wide financial statements. Employer assets that are simply "earmarked" to provide for OPEB benefits but that could otherwise be re- directed to other uses are not considered by the GASB as funding of the OPEB liability. Therefore, these earmarked assets continue to be reported in the government -wide financial statements. Said another way, if the intended assets are not held in an irrevocable trust, the OPEB plan is considered unfunded. Recognizing the complexity of the new requirement, the GASB allowed for a phased -in implementation depending on the employers' size. For instance, the effective date for implementing the OPEB standard is for the first fiscal year beginning after December 15, 2006, 2007 or 2008 depending on whether an employer was a phase 1, 2, or 3 implementer of GASB Statement No. 34, respectively. Based on this schedule, implementation for the City would be required for the year ending December 31, 2008. - Given the time allowed before the required implementation dates, there are some important actions and considerations that employers should initiate. First, the employer will need to understand the substantive plan, and would be far the wiser to get it in writing as a formal plan agreement. Qualified and reputable attorneys may need to be engaged for this task. Second, if the OPEB benefit is structured as a defined benefit plan, as opposed to a defined contribution plan, the employer in all likelihood will need to engage an independent actuary to measure the liability. Once the attorneys and the actuaries are engaged, the employer would be wise to study several ad -hoc scenarios —for example, changing assumptions for contribution rates, discount rates, demographics of the covered employee group, duration of coverage, prospective vs. retroactive implementation, etc. —and evaluate the effects on their financial statements. While Statement No. 34 was the most significant accounting standard to be issued by the GASB in the last 20 years, Statement No. 45 is a close second. However, the GASB has allowed a generous amount of time before the required implementation date. Use it wisely! Accounting for Termination Benefits (GASB Statements No. 47) The Governmental Accounting Standards Board (GASB) has issued Statement No. 47, Accounting for Termination Benefits, to provide accounting guidance for state and local governmental employers regarding benefits (such as early- retirement incentives and severance benefits) provided to employees that are terminated. Statement No. 47 requires recognition of the cost of involuntary termination benefits in the period in which a government becomes obligated to provide benefits to terminated employees, which is not necessarily the same period as when the benefits are actually provided. The Statement requires recognition of the cost of voluntary termination benefits when the termination offer is accepted. The Statement provides an exception to the general recognition requirements for termination benefits that affect defined benefit post employment benefits, such as pensions or retiree healthcare. Those termination benefits should be accounted for in the same manner as defined benefit pensions or other post employment benefits, although any increase in an actuarial accrued liability associated with a termination benefit is required to be separately disclosed. (10)