DEFINITION of 'Legacy Costs'

The costs involved with a company paying increased healthcare fees and other benefit-related costs for its current employees and retired pensioners. It is believed that escalating legacy costs can be a very large contributing factor towards limiting a company's competitiveness.

BREAKING DOWN 'Legacy Costs'

Typically, it is the larger, older and more established companies that have problems with spiraling legacy costs, because they have the most pension and healthcare liabilities. In the face of these costs, many companies are taking measures to lower legacy costs as much as possible. One example of this can be seen by the trend of companies changing their employee retirement plans from defined-benefit plans to defined-contribution plans.

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