What Are Other Post-Employment Benefits (OPEB)?
Other post-employment benefits (OPEB) are the benefits, other than pension distributions, that employees may begin to receive from their employer once they retire. Other post-employment benefits can include life insurance, health insurance, and deferred compensation. These benefits are also referred to as "other post-retirement benefits."
- Other post-employment benefits (OPEBs) are benefits, other than pension distributions, that some employers provide to retirees.
- OPEBs can include paid health insurance, life insurance, and deferred compensation.
- OPEBS are not guaranteed unless plan documents specifically state that the employer cannot change or discontinue them.
Types of Other Post-Employment Benefits
Here are three types of OPEBs that retirees may receive from their employers.
Retiree health insurance is generally provided as part of a group plan, much as it probably was when the employee was still working. The group plan may be the same one offered to current employees, or it may be a separate plan just for retirees.
In many cases, if the retiree has enrolled in Medicare, the retiree coverage will be secondary. That is, Medicare will pay its portion of medical bills and the retiree coverage will pick up some part of the remainder. But terms can vary widely from plan to plan, so retirees should check their employer's Summary Plan Description (SPD) for details.
Like health insurance, the life insurance that employers may provide to retirees is typically part of a group plan and generally comes in the form of term life insurance.
Deferred-compensation arrangements, which are also considered a post-employment benefit, pay the employee a salary or lump sum at some predetermined time, typically after they retire. These plans come in two distinct types—qualified and non-qualified—but serve the same basic purpose, which is to defer taxes while the employee is still working and provide income in the future, ideally when that person is in a lower marginal tax bracket.
Other "other" benefits
In addition to those other post-employment benefits, some employers may provide their retirees with dental and vision care, legal services, and tuition reimbursement, among other benefits.
Which Businesses Offer Other Post-Employment Benefits?
Businesses and other organizations that may provide benefits to employees after they retire include private sector companies; state, county, and municipal governments; and religious and educational institutions. Although these benefits are mostly employer-paid, retired employees may have to share a portion of the costs through copayments and deductibles, as well as making contributions to the plan back when they were still working. Labor unions may also provide other post-employment benefits to their members.
How Are Other Post-Employment Benefits Taxed?
Whether retirees must pay income taxes on their OPEB depends on the type of benefit. Health insurance coverage is generally not taxable. Employer-paid life insurance premiums may be partially taxable if the death benefit exceeds $50,000.
Deferred compensation arrangements come in many different permutations, in part depending on whether the employer is a for-profit business or a government or not-for-profit entity. Either way, the income from such an arrangement is generally taxed in the year that the retiree receives it.
Most employers require that people who are 65 or older and eligible for retiree health benefits enroll in both Medicare Part A and Part B, according to the Centers for Medicare & Medicaid Services.
Are Other Post-Employment Benefits Guaranteed?
Retirees who receive other post-employment benefits should note that unless there is a clear and specific agreement in writing, their employer can often change or eliminate those benefits at its discretion, according to the U.S. Department of Labor (DOL). For that reason it's worth checking the Summary Plan Description the employer or plan administrator must provide to see exactly how it refers to other post-employment benefits, such as health coverage.
"If your employer has reserved the right in the SPD or controlling plan document to change the terms of the plan, you may lose coverage at any time during your retirement," the Department of Labor says. "If your employer made a clear promise that you will have specific health care benefits for a definite period of time or for life, and did not reserve the right to change the plan in any formal written plan document, you should be covered."
Implications for Employers
Other post-retirement benefits can be expensive for employers to fund and administer. As with many forms of retirement compensation, they also involve stringent reporting requirements.
Among other useful resources, the rules governing how companies should report pension costs and other post-employment obligations are covered by the Financial Accounting Standards Board in Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20). The American Society of Pension Professionals & Actuaries (ASPPA) also offers advice for actuaries and others on how to comply with the required disclosure process.