Q. How do FASB and GASB affect my clients?
Financial Accounting Standards Board (FASB) statement 106 requires private-sector companies to accrue the cost of Other Post Employment Benefits (OPEB) like retiree medical coverage and to record a liability for unfunded retiree medical costs explicitly on their financial statements. Public-sector entities are subject to similar guidelines set forth by the Governmental Accounting Standards Board (GASB).
To respond to these standards, some companies and organizations have eliminated retiree benefits altogether. But this drastic change may not be necessary. Organizations can address FASB and GASB by switching to a Group Medicare Advantage plan, which may be less expensive. Also, they can modify benefits by adding age and service requirements, or migrating to a defined contribution health benefit.
Also, one or more of these financial strategies may help your clients address FASB and GASB requirements:
- One-time charge - Taking a one-time charge against earnings on their financial statements
- Amortizing - Amortizing the cost of the transition to the new accounting statement over time
- Prefunding - Prefunding the liability with tax-advantaged accounts such as IRC Sec. 501(c)(9) - also known as Voluntary Employees' Beneficiary Associations (VEBA) - trusts and Section 115 trusts
