Managing the Challenge of OPEB: The Solution Gwinnett County, Georgia, Developed for Implementing GASB Statement No. 45 Permits It to Continue Providing Affordable Benefits for the Foreseeable Future

By Pickens, Roger | Government Finance Review, December 2009 | Go to article overview

Managing the Challenge of OPEB: The Solution Gwinnett County, Georgia, Developed for Implementing GASB Statement No. 45 Permits It to Continue Providing Affordable Benefits for the Foreseeable Future


Pickens, Roger, Government Finance Review


Gwinnett County, Georgia, won a 2008 Government Finance Officers Association (GFOA) Award for Excellence in Government Finance for its OPEB funding plan.

Gwinnett County, Georgia, wanted to ensure a smooth implementation of Governmental Accounting Standards Board Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. To that end, a five-person team of managers from the Department of Financial Services sat down to develop a sustainable plan for funding retiree health care. What they came up with was a comprehensive approach to managing other postemployment benefit (OPEB) liability that, according to judges of the GFONs Awards for Excellence in Government Finance, "will likely become the 'classic' strategy that many jurisdictions will use to resolve their OPEB challenges"

Gwinnett County's plan meets new accounting requirements, minimizes cost increases for retirees, and does not degrade the county's outstanding AAA credit ratings. The managers' persistence also led to new state legislation that makes it possible for Georgia counties to establish trust funds to meet this need.

THE CHALLENGE OF OPEB

In 1984, the Financial Accounting Standards Board required private businesses to disclose their accrued unfunded OPEB liabilities in their financial statements. These are generally post-retirement health and life insurance benefits. As a result, more than half of all companies that had been providing retiree health benefits have subsequently dropped their programs.

When a similar rule (GASB Statement No. 45) became applicable to governmental entities in 2007, Gwinnett County wanted to avoid a similar result. There were several problems, however. First, when actuaries calculated the county's annual required contribution (ARC) under the new standards, funding retiree health care would have cost more than $34 million a year--nearly 10 percent of the county's annual general fund budget--an unaffordable and unsustainable amount. Second, county management wanted to protect the county's outstanding AAA credit ratings.

The challenge was to make policy and benefit-plan design changes that would:

* make ARC payments affordable,

* allow the county to continue providing health benefits for its retirees, and

* keep both the monthly county and retiree contributions affordable.

DEVELOPING THE OPEB FUNDING POLICY

The director of financial services wanted to find a fair and reasonable way to meet the seemingly incompatible goals of providing high quality health care for retirees while also funding the new required annual contribution. To tackle the problem, she appointed a five-person team, consisting of middle- and executive-level managers with expertise in areas relating to OPEB (see Exhibit 1).They studied numerous plan designs, sought funding sources, and eventually championed new state legislation that authorized cities and counties to establish OPEB trust funds.

The risk management division, which administered county health and retirement benefits, worked closely with an outside actuary to develop the necessary numbers for various plan designs. The same actuary also did a valuation of the county's defined benefit pension plan and was able to use much of that data in calculating the value of the proposed OPEB trust. Setting the actuarial assumptions was a cooperative process that was very helpful in ultimately deciding on a funding strategy

In addition to educating and fully informing the County Board of Commissioners about GASB Statement No. 45, the director of financial services also wanted to make sure the county's other department directors understand the basics of the statement. In addition to being personally concerned about the future of their own retiree health benefits, department directors provide a communication channel to employees. Their understanding of the developing OPEB policies would be a key to ultimately achieving employee acceptance of funding changes. …

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