Liabilities - Post-Retirement Obligations

Post-retirement benefits include all retiree health and welfare benefits other than pensions and can include:

  • Medical Coverage
  • Dental coverage
  • Life insurance
  • Group legal services

These benefits are much more difficult to estimate than pension obligations. Under SFAS 106, employers have some latitude in making these estimates. The expected post-retirement benefit obligation is computed by taking the present value of expected post-retirement benefits.

Accounting for post-retirement benefits

  1. Accounting for post-retirement benefits is, to the extent it is possible, the same as for pension benefits.
  2. While the accounting methods are similar, the latitude described above is due to the dynamic nature of these types of benefits in general. For example, pension fund accounting uses industry standard actuarial assumptions, discount rates and long-term market assumptions. While the treatment of pension funds is quite mature, methods under SFAS 106 are evolving and the expected future costs of these benefits are more fluid.
  3. The main difference from an accounting perspective is that post-retirement healthcare benefits usually are "all-or-nothing" plans in which a certain level of coverage is promised upon retirement, and the coverage is independent of the length of service beyond the eligibility date. Cost is unrelated to service and is attributed to the years from the employee's date of hire to the full-eligibility date.

Elements of post-retirement benefit cost:

  • Service cost
  • Interest cost
  • Return on plan assets
  • Amortization and deferral
  • Amortization of unrecognized prior service cost
  • Amortization of transition asset and liability

SFAS 106 permits the amortization of the transition liability over 20 years, versus the average remaining service period of active employment found under pension plans.

Effects Of Debt Issuance


Related Articles
  1. Retirement

    A Primer On Defined-Benefit Pension Plans

    Most of us will rely on a pension plan in the future, so it's best to know the details of the various plans before signing up.
  2. Retirement

    The Investing Risk Of Underfunded Pension Plans

    Determine the risk to a company's EPS and financial condition resulting from an underfunded pension plan.
  3. Financial Advisors

    How to Advise Clients with Frozen Pensions

    Financial advisors are on the front line in advising clients impacted by a frozen pension. Here's what they need to consider.
  4. Retirement

    How Safe Is Your Pension?

    A 2014 law permits some private pension plans to reduce benefits. How to figure out if your retirement income is endangered.
  5. Retirement

    Pension Plans: Pain Or Pleasure?

    Employees have a love/hate relationship with this retirement option.
  6. Retirement

    How Pensions, Social Security Differ

    Both pensions and Social Security provide an income stream to retirees, but they differ widely on how they're structured and funded. Here's the lowdown.
  7. Retirement

    Top 7 Signs Your Pension Fund Is In Trouble

    How to tell if your company’s pension is being depleted - will there be anything left for you?
  8. Retirement

    7 Signs Your Pension Fund Is In Trouble

    Even if you're lucky enough to have a pension plan, you can't assume it'll pay out.
  9. Retirement

    The Pros And Cons Of Pension Maximization

    Pension maximization can be an effective solution to the single versus joint life payout dilemma that many retirees face. But, there are several factors, such as tax and investment matters, that ...
  10. Term

    What are Pension Funds?

    A pension fund is a company-sponsored fund that provides income for employees in retirement.
RELATED TERMS
  1. Other Post-Retirement Benefits

    Benefits, other than pension distributions, paid to employees ...
  2. Accumulated Benefit Obligation

    An approximate measure of a company's pension plan liability. ...
  3. 419(e) Welfare Benefit Plans

    A type of employer-sponsored employee welfare benefit plan. 419(e) ...
  4. Pensionable Service

    The period of service, expressed in a yearly figure, for which ...
  5. Pension Benefit Obligation - PBO

    An accounting term used to describe the amount of money a company ...
  6. Actuarial Gain Or Loss

    Gain or loss arising from the difference between estimates and ...
RELATED FAQS
  1. Are Canadian Pension Plans inflation-protected?

    Learn about the Canada Pension Plan and how it adjusts its contributions and benefits each year for changes in inflation ... Read Answer >>
  2. The company I am receiving my pension plan from has just filed bankruptcy. Could ...

  3. On which financial statements does a company report its long-term debt?

    Discover which financial statements are used to report a company’s long-term debt, as well as how a company uses debt to ... Read Answer >>
  4. Are my Social Security Benefits reduced if I receive extra pensions from different ...

    Understand the effect collecting a pension can have on your Social Security benefits, depending on whether you were employed ... Read Answer >>
  5. Who is eligible for Canada Pension Plan benefits?

    Learn more about the Canada Pension Plan, who contributes to the plan and who can receive standard, disability, early retirement ... Read Answer >>
  6. What can you do with your pension if you leave the employer and can you borrow money ...

    I am planning to leave my job that I have worked at for 8 plus years and I just received a notice about a pension that I ... Read Answer >>
Hot Definitions
  1. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  2. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  3. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  4. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  5. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  6. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
Trading Center