New Accounting Rule Addresses Estimates of Retiree Health Costs
The Washington Post on Monday examined a new accounting rule that requires local and state governments to determine how much it will cost to provide health benefits for current and future retirees.
The rule -- sanctioned by the Governmental Accounting Standards Board, a private group -- directs governments over the next 30 years to document in their financial statements the full cost of health benefits for current and future retirees beginning at the end of 2006. Governments also must show a plan to cover such costs.
While the rule has no legal weight, Wall Street analysts and bond rating agencies watch the board's findings closely, the Post reports. Before the new rule, the long-term cost of health benefits traditionally was not accounted for in official financial statements, according to the Post.
Most governments now cover health costs each year on a "pay as you go" basis, but for many jurisdictions, it "will be virtually impossible ... to meet the requirements" of the rule under the pay-as-you-go method. As a result, many are likely to prefund their obligations by using trust funds.
Parry Young, public finance director for Standard & Poor's, said that while many governments will be able to easily handle the new requirements, others will have to make "painful decisions" between funding services now and investing in future needs (Turque, Washington Post, 1/30).