Dryden Cost Containment Group-OPEB Funding, LLC (DCCG), a member of the Dryden Companies, is an advanced funding consulting firm. DCCG’s Special Products Division is committed to developing and implementing programs that enable our clients (large employers) to accurately predict, manage and fund their health care expenditures over a long term period.

Our flagship program, the Advanced Funding Model, is a ten year proven, proprietary program designed as an effective risk management tool to help companies and governmental entities across America better manage their most volatile expense, i.e., their health and medical care liabilities. Aaa rated by Moody's and AAA rated by Standard & Poor's, this turnkey solution uses a nontraditional approach combining risk management, actuarial sciences and finance to convert volatile costs into a more manageable and “budgetable” item that may also yield significant savings.

Our original Advanced Funding Model, developed in 1995, uses its proprietary software design to help eliminate uncertainty by projecting and implementing a fixed health care cost for an employer’s active employees for the next three years, while alleviating under-funded liabilities and compliance issues.

In either a self-funded or fully-insured environment, the volatility of health care costs is eliminated, and the money used to pay either claims or premiums for the next three years becomes available immediately at funding (the beginning of the first month) through a unique financing transaction. Formerly unknown and unpredictable costs are converted into a current fixed-cost obligation, with future health care costs becoming a defined “budgetable” line item for the next 36 months.

In order to meet the demands of the ever-changing marketplace, DCCG has taken the “core” product and enhanced its base components to meet today’s challenges that are distinctly different from 1995, not only for active employees, but now for OPEB (other post employment benefits) mandates, as well.

The extraordinary growth of health care and heath insurance costs over the last five years has created significant budgeting challenges for state and local governments. Double digit cost increases are the norm and are one of the fastest growing components of a government’s cost base. At the same time, numerous agencies have under funded their health care risk reserves and/or have drawn them down to extremely low, unworkable levels to compensate for a general decline in municipal revenues over the past business cycle. Unfortunately, future growth in health care costs is expected to increase the financial burden for local governments and the impact of GASB 43/45 will only add to this burden.

GASB 43/45 Overview

GASB 43/45 is the governmental sector counterpart of FAS 106. GASB has determined that “Other Post-Employment Benefits (OPEB) is accruing cost, similar to pensions that should be reflected in a governmental unit’s financial statements.

Retiree health care benefits represent the largest component of OPEB and when promised in the form of a defined benefit , OPEB includes post employment health care benefits. According to a 1998 GFOA Study, the vast majority of state and local governments provide some form of retiree health care benefits. Governments with over 100 million in annual revenues are required to implement GASB 43 for the fiscal years beginning after December 15, 2005, and for governments with annual revenues of 10-100 million the deadline is December 15, 2006. GASB 45 must be implemented one year later.

GASB 43: Describes financial reporting for OPEB Plans that are pre-funded or administered through a separate trust. In brief, the plan needs to calculate the Annual Required Contribution (ARC) and include a schedule in the financial report that shows whether or not it is receiving contributions at that level.

GASB 45: Describes financial reporting for sponsors of OPEB Plans. In brief, the sponsor needs to report a record of the cumulative under funding or over funding with respect to the ARC in its financial statements.

Governments that do not follow GASB standards will have this noted in the auditor’s opinion that is included with their annual financial reports.

Impact of GASB 43/45

Of the governments that provide retiree health care benefits, the financial impact of GASB 43/45 is likely to be significant. No longer will a government entity be able to fund only the current year’s cost for retiree coverage without causing a negative effect on their financial statements.

Bond rating agencies have already indicated that attention will be paid to the mismatch between liabilities and assets. This comes at a time when many local governments are experiencing difficulty in retaining their ratings. Few government employers have calculated their OPEB costs and have yet to determine the impact of GASB 43/45 on their financial operations. For many, the unfunded annual required contribution will pose additional stress for already strained budgets.

The advent of GASB 43/45 will force government employers to re-evaluate how they are reserving, and more importantly, how they are funding their OPEB liabilities. Although the financial impact of GASB 43/45 will be a gradual one, advanced funding of retiree health care benefits will become critical in the future. Astute issuers will want to be in front of this curve.

Fortunately, Dryden Cost Containment Group-OPEB Funding, LLC has a unique and proven solution that addresses the issues associated with becoming GASB 43/45 compliant. Through our experience, DCCG has dedicated turnkey strategies and template documents that will guide the process as it relates to data collection and interpretation, as well as identified negotiating positions and strategies when implementing the Program. The way in which the Dryden Model is constructed makes this proposition the only answer to the mandated requirements of GASB 43/45 that grants the employer a funding vehicle that is rated Aaa by Moody’s and AAA by Standard & Poor’s.

Note: the Dryden OPEB Advanced Funding Model utilizes a fully collateralized trust that is an off balance sheet transaction which will not adversely affect the employer’s credit rating for any general obligation borrowing.