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Thursday, May 08, 2008


An interesting article was published in a publication of actuarial consultant Milliman Inc. Entitled "The Political and Philosophical Costs of GASB 45," it covers a topic with which few people are familiar: public pension plans and other benefits.

GASB 45 is an accounting rule that will affect public entities like state governments, schools, public hospitals, and the like. They will now have to identify and disclose liabilities associated with "other post employment benefits," benefits for retired employees other than pension and termination benefits. These can include medical and drug benefits, long term care, and life insurance.

I bet you didn't know public entities could get away with not accounting for these costs now! They could even operate paying for these costs as they arise, leaving themselves open to massive future costs (and demands to raise taxes to pay for these promises). Right now, these promises could be a huge accrued liability, and until GASB 45, public entities didn't even have to think about the costs.

If public employees are going to argue that generous benefits are fair due to lower public sector salaries, then we really need to have an accurate accounting of the costs of said benefits. $40,000 in additional benefits is not justified by a $15,000 shortfall in salary.

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