Retired Government Worker Benefits Finally Accounted
How much do state governments and municipalities owe in promised retiree benefits? It is a good question, which is not easily answered.
However, with the new Governmental Accounting Standards Board Statement 45, commonly known as GASB 45, state governments must now calculate and publish the cost of those benefits. The accounting changes establish greater transparency for taxpayers and potential creditors. Additionally, these accounting changes provide a greater understanding of a state’s financial health.
Most private sector retirement benefits have been transformed to a defined contribution system. In such a system a set amount is deposited into a 401k and a set amount is allocated for health insurance premium costs.
Government employment contracts buck the defined contribution trend. Instead of employers setting a fixed rate for retirement benefits, state governments write contracts with defined benefits. Defined benefits result in an open-ended expense because the contracts dictate benefits regardless of how much they cost. These contracts leave taxpayers exposed to enormous future benefit costs, which before GASB 45, were only known to a few insiders.
For Maine the number is a staggering $3.3 billion, an increase of more than $2 billion from the 2003 projection. The figure represents a cost of $100 million annually.
The GASB 45 accounting changes provide taxpayers with a much needed transparency and understanding of the fiscal challenge that retirement benefits pose. With the increased knowledge policymakers will be able to better plan for future retirement expenses.
Editorial: Gasp! Begin better numbers
Governmental Accounting Standards Board