What is an implicit rate subsidy?
GASB 43 and GASB 45 require that the true cost for retiree benefits be identified. Currently, many employers provide benefits for actives and retirees under one rating structure. Because retirees use benefits at a greater rate than the active population, the active employees are “implicitly” subsidizing the retirees’ cost of the plan of benefits. GASB 43 and GASB 45 require that an employer utilize actual experience or actuarial adjustments in order to calculate the present value of retiree benefits. GASB 43 and GASB 45 require that the implicit rate subsidy be recognized in calculating the OPEB liability. This means that even if retirees pay their own way for benefits, there will most likely still be an OPEB liability for them.
