The premise behind GASB 43-45 is uncomplicated. The problem is the Government Accounting Standards Board has long recognized that many government entities have various unfunded liabilities. Prominent among these liabilities is the promise to pay post-retirement health benefits in return for pre-retirement service. The problem is huge. Fueled by escalating health insurance costs as well as the aging of the American population, the liability is growing exponentially. To compound the problem, few if any of the governing oversight boards have even the slightest idea of what the projected financial impact of these liabilities will be.

It is for this reason that GASB 43-45 were drafted. Essentially, all government agencies are required to (with actuarial assistance) determine and post all liabilities to the entity’s bottom line. These values are therefore available for the constituents as well as bond issuing agencies to evaluate. It therefore behooves municipalities, school boards, county and state government to pursue a solution.

OPPORTUNITY
There are several solutions available to the governing bodies. Among these options:

• Pay as you go
• Certificates of deposit
• Issue bonds
• Life insurance

In many situations the option of life insurance offers what may be the best value for the governing body. A life insurance based solution would involve a fully underwritten Indexed UL policy on some or all of the current employees. The combination of cash value and death benefit are designed to satisfy the liability. The potential application of premium finance, as well as, the death benefit make this an intriguing and viable solution to many governing entities.

STEPS
The key to determining the viability of this solution is a comparison of the cash flow against the requirements of the liability. To develop a case design, an advisor must first acquire:

• The GASB projections of liability at 5, 10, 15, 20 year durations.
• A Census of current employees.