October 10, 2005
UEA Member Alert: Post-Retirement Benefits Under Attack
Funding of post-retirement benefits is a critical issue that will have a long-term impact on school employees. The potential threat to benefits will be fought over many years. The Utah Education Association is committed to be out front in protecting those benefits for teachers.
What in the world is GASB??
- GASB is the acronym for the Governmental Accounting Standards Board, a private non-profit organization that establishes standards of financial accounting and reporting for state and local governmental entities.
- GASB issued new accounting standards for public agencies (includes school districts) that take effect in 2007 and later as a result of growing concern that public agencies like corporate entities in the 1990s were not recognizing in their annual financial statements the total cost of promised post-employment retirement benefits for employees and thus not assessing the potential impact of these growing liabilities on future cash flow.
- GASB standards are not enforceable by law but failure to comply with them could affect governmental entity bond ratings.
How will GASB affect school districts?
All school districts in the State of Utah, coordinated by the State Office of Education, will be conducting actuarial studies to determine the actuarial accrued liability (cost) for providing post-retirement benefits to their employees.
- Currently, most governmental employers, including school districts, report post-retirement benefit costs as current expenses/expenditures for accounting purposes and finance them on a pay-as-you-go basis. Most employers have not reserved funds to pay for future benefit costs.
- GASB treats post-retirement benefits as deferred compensation meaning that the cost of retiree benefits should be accrued while employees are working, not when they retire or as the benefit is paid. The cost of the retirement benefits must be allocated over years of the employee's service. This is a significant accounting change for school districts. They will need to have more money in reserve than they have in the past.
- The State Office of Education will be reporting to the legislature the progress made by school districts to fund their post-retirement benefit liability. A report to the legislature is not required by GASB but something the Utah Legislative Auditor General has recommended in its recent audit.
- Some districts will have more financial liability than others-depending on the type of benefits offered, the demographics of district employees, the number of retired employees and the number of employees who will be retiring in the next several years, and utilization levels of healthcare, etc.
What benefits may be affected?
- Utah school districts offer three types of post-retirement benefits to employees: stipend payments (many stipend payments may be considered termination benefits and therefore would not be counted as a financial liability under GASB), health insurance premium payments to age 65, and supplemental health insurance premium payments beginning after age 65.
- Each of the 40 school districts in the state offer different post-retirement benefit packages. As a result of the different post-retirement benefit packages, each district will be impacted uniquely with the new GASB requirements.
The good news.
- The accumulation of reserve by school districts to fund post-retirement benefits is not something that needs to happen overnight. They have thirty years, according to GASB, to amortize or mortgage their accrued liability. In other words, school districts need not come up with their increased reserve amounts to cover their liabilities overnight.
Recent findings from the public education post-retirement benefits audit.
- The Utah Legislative Auditor General recently conducted an audit of public education retirement benefits. He has recommended the legislature require school districts and the State Office of Education "to modify or eliminate post-retirement benefits to a level that is affordable, sustainable, and more comparable with the State's costs."
- He recommends the legislature require districts and the Utah State Board of Education to develop plans to deal with the cost of post-retirement obligations by modifying or eliminating benefits instead of requesting additional funding from the Uniform School Fund or local taxpayers and without negatively impacting educational services."
- The Auditor General further recommends that the legislature "consider fiscal sanctions or other appropriate measures if the progress reported by public education during the 2007 legislative session is not satisfactory."
Why may the Utah State Legislature get involved?
- Post-retirement benefits were on the Legislature's mind last legislative session. House Bill 213 modified sick leave conversion to post-retirement health insurance benefits for State employees.
- After modifying the state employees post-retirement benefits the legislature commissioned an audit of public and higher education employee post-retirement benefits.
- GASB may be used by the Utah legislature to force rapid and dramatic changes to retirement benefits for public education employees through legislation because they do not want funding they allocate for education used to fund these benefits.
The bottom line
- The new GASB standards may result in some school districts' desire to modify post-retirement benefits. However, UEA feels strongly there is no need for modifications to be extreme or for implementation to take place immediately.
- The UEA along with local leaders and staff will be working with school district officials to ensure that radical and thoughtless modifications to post-retirement benefits do not occur.
- The UEA lobby team is closely monitoring legislative action related to post-retirement benefits and will notify members of any breaking developments.
A Call To Action
- Get Informed!! Find out what post-retirement benefits are offered in your school district.
- Get Informed!! Make yourself aware of how your district is addressing GASB this year.
- Read the Utah Legislative Auditor General's Report on public education post-retirement benefits at http://www.le.state.ut.us/audit/05_07rpt.pdf.
- Stay tuned!! The UEA will keep you updated with the most recent information.
- Please feel free to contact Courtney White, Director of Research and Bargaining, Vik Arnold, Director of Government Relations and Political Action, or Mike McCoy, UEA General Counsel, all at (801)266-4461 if you have questions or concerns.
