Do you get lost when listening to your public officials discuss how they will adapt to the new accounting standard and how it will affect you? Here’s a cheat sheet to take to budget public hearings so you can keep track of the alaphabet soup:
OPEBs: Other Post-Employment Benefits. This includes health, life, vision and dental insurance, along with perscription drug benefits, long-term care insurance and disability insurance. These are benefits that local governments offer their employees above and beyond what the state plan offers.
Pay as you go: The preferred method of most cities and counties for paying their retirees OPEBs. It means the city or county paid the claims on a yearly basis and did not set aside money to pay for future retirees.
GASB: The Governmental Accounting Standards Board. This board sets the standards for local government accounting practices. Local governments have to do what they say or risk being ostracised by the financial world, mainly anyone who loans the city money for parking garages or streetscaping projects.
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GASB 45: A new accounting standard that requires local governments to set aside money to pay for all of their retirees health insurance. This amounts to a multi-million debt that local governments have 30 years to pay off.
Normal Cost: How much it cost to pay for one employee’s retirement health insurance. The normal cost for a local government’s OPEB plan is the sum of the normal cost for every person on the plan.
Actuarial Accrued Liability: The estimated cost of all expected future benefit payments a local government must make to pay for its retirees health insurance.
Unfunded actuarial accrued liability: The same as above, just in the past. It is the sume of all benefit payments an employee has earned since the start of his or her career. Because most local governments use pay as you go funding, all of the local government’s actuarial accrued liabilty is unfunded.
ARC: Annual Required Contribution. The amount local governments must pay to per year to pay off their unfunded actuarial accrued liability.
Net OPEB Obligation: If a local government does not pay all of its annual required contribution, the Net OPEB Obligation is how much is left over. This money accumulates every year, with interest, and increases the city’s debt.
Irevocable trust: A special bank account that cities can put money in but can’t take money out. GASB considers this an acceptable way for cities to pay off their debts. As the city pays into the trust, it also lowers their net OPEB obligation.
S.C. Orbit: The South Carolina Other Retirement Benefits Investment Trust. This is an irrevocable trust set up by the South Carolina Muncipal Association for cities to contribute their ARCs and, hopefully, lower their net OPEB obligations.