When the city of Glendale, Calif., created its employee healthcare benefits, it allowed retirees to remain on the plan while still paying the same premium as active employees. The active employees were essentially subsidizing the retirees’ premium. This “hidden subsidy” or “implicit subsidy” as it’s known, however, created a massive unfunded liability of $250 million.
New reporting provisions mandated by the Governmental Accounting Standards Board spurred Glendale to take action. Released in June 2015, GASB statements 74 and 75 require government entities to report all unfunded Other Post-Employment Benefits liability as an expense on their financial statements.
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