Over the past few years, most of my private-sector clients have been wrestling with tough decisions about post-retirement health care benefits—and awaiting relief that's taking awfully long to arrive. 

But what's gone around is about to come around. And, when it does, the end may finally be at hand. 

Playing "chicken" with retiree benefits

A few years ago, the Financial Accounting Standards Board (FASB) changed the rules for private companies that offered retiree medical coverage. Under these new provisions, employers couldn't simply finance plans on a pay-as-you-go basis. Instead, they had to recognize the potential future impact of claims – plusinflation, retiree medical trend, and a host of other factors. Worse, FASB mandated highly unfavorable actuarial assumptions – projected over the lifespan of the entire retiree group. 

In "real life," though, these overstated obligations would never materialize. Any sentient employer would modify plan design long before such outrageous liabilities were incurred. Plus, future claim costs wouldn't be payable until . . . well, the future. Over the coming decades, companies would presumably adjust benefits based on their changing business situation. It's hardly likely that an employer would just sit by passively while retiree coverage threw the organization into bankruptcy.

Still, as Tina Turner might ask, what's logic got to do with it? 

A helping hand –across the face

Let's assume FASB's intentions were good – that the board merely wanted to help secure the availability of retiree coverage. But the execution was a disaster. In essence, employers were forced to account for impossibly inflated future expenses on today's financial statements. The impact of such liabilities was devastating, especially for companies under constant pressure to be profitable. 

So they reacted as one might expect: By eliminating the source of liability.

Faced with FASB's new rules, most employers either terminated or sharply curtailed their post-retirement medical plans. They had to, since even those that could fund the coverage couldn't afford to carry the expense. In the end, FASB's rules killed off the plans they set out to protect. 

In fact, the only major group of workers today with ready access to retiree coverage is governmental employees. That's because governments haven't been subject to these accounting standards. Until now. 

Reality check

Over the next few years, the Governmental Accounting Standards Board (GASB) is requiring governments to follow rules like the ones FASB imposed on the private sector. And as absurd as the standards  are for companies, they're downright insane for governments. 

After all, governments don't produce profits. And their commitments to retirees are unfixed. As opposed to employee pensions, health plans can be reduced as necessary – so they don't affect the "bottom line."  

Moreover, governments aren't limited to the revenue on their books. A former CEO of the City of Atlanta once told local business leaders, "If my benefit costs go up, I'm not in the same boat as the rest of you." As he noted: "I can raise your taxes." 

The cavalry cometh

Whenever clients gripe about FASB, I hold out the hope that government's coming to the rescue. Once public entities are compelled to comply with GASB, I suggest, the rules will have to be changed – for three rock-solid reasons.  

1. Governments lack the flexibility of private employers to handle the instantaneous appearance of multi-million-dollar liabilities. The impact will wreak havoc with their credit ratings, and be tough to explain, let alone justify, to taxpayers.
2. Governments will have a hard time cutting benefits. There are too many retirees – and too many unions.
3. In governments, there are lots of employees with legal access to firearms. Not an ideal negotiating position.

This situation is tailor-made for employee pushback. And I can tell you that, when the moment comes, things will turn ugly in a hurry. 

Think: Which mayor or governor wants to be vilified for taking away benefits from retired schoolteachers? Who wants to turn down coverage for nurses who'd dedicated their lives to caring for others? Or deny it to 62-year-old heroes who have pulled babies out of burning buildings? 

These are headline, Eyewitness-News-type stories. Imagine endless servings of firefighters with lung cancer, but no health coverage; or retired police officers with bum knees, left to suffer after a career of chasing criminals. It won't take long for the public to have its fill.  

Eventually, rather than try to "sell" benefit cutbacks, our elected officials will be pleased to shift the blame – to the "clueless accountants" who imposed the rules in the first place. And that will mark the end of the financial straitjacket – if only for governments. But it will give private employers (at last!) a fulcrum to unwedge the bigger issue for the rest of us. 

A new day at dawn 

I'm currently working with a governmental entity to explore plan change options consistent with the GASB rules. As private employers know, the alternatives aren't pretty, and my client will certainly be facing some pain, as well as employee-relation issues. 

Of course, over time, all remaining governments will be forced to deal with these mandates. And as chickens start coming home, there'll be increased pressures on the roost. Once the affected population reaches critical mass, demand for change will become impossible to ignore.  

For once, the government may really "be here to help." Won't that be special? 

Corey Sherman (coreystrategy@bellsouth.net ) is managing partner of Strategic Planning Associates.