GASB 45: Pre-Funding Opeb Obligations Can Help Governments Cope, Says Sage Advisory

Across the U.S., state and local governments are scrambling to determine how they will deal with the future costs of employee healthcare and other non-pension benefits under the new Government Accounting Standards Board (GASB) Statement No. 45 rules. It?s clear that the pay-as-you-go strategy currently in use is a recipe for disaster, according to national investment management and financial advi

Pre-funding OPEB Obligations Can Help Governments Cope with GASB 45 Standards, Says Sage Advisory

AUSTIN, Texas ? March 21, 2007 ?Across the U.S., state and local governments are scrambling to determine how they will deal with the future costs of employee healthcare and other non-pension benefits under the new Government Accounting Standards Board (GASB) Statement No. 45 rules. It?s clear that the pay-as-you-go strategy currently in use is a recipe for disaster, according to national investment management and financial advisory firm Sage Advisory Services. However, pre-funding those obligations may offer a real solution.

?Today, GASB 45 OPEB (other post-employment benefit) liabilities may total in excess of $1 trillion across the United States,? says Robert G. Smith, Sage Advisory president and CIO, ?and most of them are unfunded.

Retiree healthcare programs typically represent more than 90 percent of the costs of non-pension benefits. As healthcare costs rise and retiree populations expand, the financial ability to fund obligations on a pay-as-you-go basis will lead to enormous costs on the back end, easily double or triple today?s expenses.?

?Pre-funding OPEB obligations now allows funds to earn interest and investment returns that can be used to offset future retiree costs,? he explained.

In 2004, when GASB issued Statement No. 45, it required state and local government employers that provide healthcare to account for and report the cost of OPEB annually, as well as related outstanding obligations and commitments. The largest employers are required to meet this standard beginning this year. Medium-sized employers are given a one-year extension.

For employers with unfunded OPEB obligations, this disclosure requirement threatens to damage their bond rating and reputation among potential investors.

?GASB 45 doesn?t require that OPEB obligations be pre-funded, but by taking this step, public entities may benefit front the ability to apply higher discounts valuation rates and report lower liabilities,? says Smith.

For more information on the GASB 45 issue, Sage Advisory Services offers a webcast titled "Gasping Over GASB 45" on its website at http://www.sageadvisory.com/r_e/w ebcasts/index.php. The password is ?irving.?

About Sage Advisory Services

Founded in 1996, Sage Advisory Services is a national investment management and financial advisory firm that provides institutions and high-net-worth individuals with customized products and services including fixed-income and equity portfolio management, asset/liability analysis and structured portfolio solutions designed to minimize financial risk and increase returns. Sage is one of the fastest growing companies in Central Texas, with an AUM (assets under management) growth rate of 20 percent per year over the past five years. Its consistently high performance record is a result of its proprietary investment process, as well as its dedication to offering clients exclusive representation by senior-level managers with global expertise.

Sage?s investment management strategy employs a top-down approach to market analysis, taking into account broad domestic, international and economic trends when applying portfolio management strategies. And while most investment management firms have limited experience with exchange-traded funds, Sage offers an in-depth understanding of ETFs and a highly successful five-year performance record managing ETF portfolios.

Reflecting its commitment to providing education and transparency, Sage provides frequent access to up-to-date information on investment fundamentals, market trends and economic issues affecting client investments, and 24-hour real-time access to information about investment activity.

For more information, visit www.sageadvisory.com.

CONTACT:
Laura P. Wright
Blabbermouth PR
512-461-5777
laura ( @ ) blabbermouthpr dot com

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Contact Details

Company Name: Laura P. Wright, Blabber mouthpr
Issued By: Laura P. Wright
Phone: 512-461-5777
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by Laura P. Wright (few years ago!)

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