GASB No. 47 and ERI Plans (Revisited)
School Advisor, 2006 Issue No. 1

We wish to remind you again that GASB No. 47, Accounting for Termination Benefits is effective for the June 30, 2006 fiscal year end. What does it mean to your district? For all practical purposes, in Michigan, this new pronouncement will generally apply only to Early Retirement Incentive (ERI) plans because these plans are adopted for the specific purpose of encouraging termination of employment. GASB No. 47 does not apply to all of the other accrued benefits an employee earns while working and are paid upon separation. These would include sick and vacation pay, longevity pay, unemployment, etc. A potential “sleeper issue” could exist in some situations. That is, if the district has agreed to provide some health care or life insurance benefits over time as part of the termination, then some additional estimation might be required. In this case, the same present value rules apply. However, the district would have to estimate the cost of the benefit over the period it will be paid.

The biggest impact of GASB No. 47 to your district is the requirement to record the ERI liability on the district-wide financial statements using the discounted present value of the expected future benefit. Note, this only applies to the district-wide statement and thus has no impact on fund balance in the governmental statements.

In addition, a new footnote disclosure will require a description of the termination benefit arrangement as well as the valuation method and assumptions used in the calculation.

We intend to supply our clients with the tools necessary to make this computation as well as a footnote sample prior to June 30, 2006, so you can be ready for the year end closing.