The University of Tennessee, Knoxville

Tennessee County Municipal Advisory Service

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GASB Statement No. 45

Reference Number: MTAS-741
Tennessee Code Annotated
Reviewed Date: November 16, 2017
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As an incentive to attract and retain qualified employees, state and local governments often augment the compensation packages they offer employees by including postemployment, or retirement, benefits. Postemployment benefits may include some type of retirement income plan and/or other noncash benefits, such as group insurance coverage.

Obviously, employee compensation packages must be funded by the organization offering them. Organizations fund current compensation liabilities for employees and retirees through annual appropriations. But how does the organization account today for liabilities for the benefits promised to retirees in the future?

Since 1984, the Government Accounting Standards Board (GASB) has shouldered the responsibility of establishing consistent financial reporting standards for state and local governments. In the past, GASB Statement No. 27, Accounting for Pensions by State and Local Governmental Employers, adopted reporting standards for state and local governments to account for the liability associated with government pension plans. Newer GASB Statements No. 67, 68, 71 and 73 revised the previous Statements and address new reporting requirements and other related topics. GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, requires state and local governments to formally recognize the full cost of retirement promises made to employees, in addition to pensions, related to their retirement. GASB Statements No. 74 (effective for fiscal years beginning after June 15, 2016) and No. 75 (effective for fiscal years beginning after June 15, 2017) revise previous Statements and address new reporting requirements and other related topics. These newer Statements should be studied carefully and implemented in a timely manner.

The cost of retirement benefits continues to grow. Over the past few years, health costs have experienced double digit inflation, escalating the costs associated with promises of postemployment benefit plans other than pensions. The intent of this statement is to address and quantify the total amount of liability associated with employee retirement benefits accumulating with each passing year.

 The Government Finance Officers Association Committee on Pension and Benefit Administration has a number of best practices on this and other topics and can be accessed at: