What Are Other Post-Employment Benefits (OPEB)?

Other post-employment benefits (OPEB) are the benefits that an employee will begin to receive at the start of retirement. This does not include pension benefits paid to the retired employee. Other post-employment benefits that a retiree can be compensated for are life insurance premiums, healthcare premiums, and deferred-compensation arrangements.

Key Takeaways

  • Other post-employment benefits (OPEBs) refer to non-pension benefits (i.e., retirement income) paid to a retiree.
  • OPEBs may include health insurance coverage, life insurance, or deferred compensation to a retiree.
  • Because they are not tax-deductible, private employers do not typically offer OPEBs except to key employees or management, but OPEBs are more common for public-sector or unionized workers.

Understanding Other Post-Employment Benefits

Life insurance and healthcare premiums that a retired employee earns after retirement will most likely continue to be a taxable benefit. This will increase the retiree's total income tax payable for any given year.

A deferred-compensation arrangement is a salary agreement wherein the employee, based on their work history or performance, is paid a salary for some predetermined time after retiring. The tax consequences for such an arrangement are often unattractive to the company, as payments are not usually tax-deductible.

Local and federal government agencies, along with private-sector jobs, may offer other post-employment benefits. State, county, and municipal governments, as well as colleges and schools, might make such benefits available to their retiring workers. These benefits might be paid for in full or in part by the employer, the retiree, or a combination of the two. Making direct contributions to such benefits can expose an employer to certain liabilities—for example, if a former worker is offered health insurance coverage at the same premium rates as current employees.

How Other Post-Employment Benefits Are Managed

Typically, a retired worker will be older than the current employees and will have a greater probability of incurring higher medical expenses. There is the potential that the health insurance coverage they are offered under OPEB will not cover the costs of their care, possibly leaving gaps in coverage. As with other forms of retirement compensation, other post-employment benefits can come under scrutiny for their cost burden on the organization, and the overall return on investment in relation to the work employees perform before they retire from the organization.

Depending on how they are structured, changes might be made to other post-employment benefits. This might be done particularly if an organization wants to ease its expenses paying these ongoing costs these plans incur. Making such changes, however, can require an extensive process due to the potential impact on retirees who rely on such benefits. Organizations might establish trusts to help pay for the growing costs of providing these benefits. Furthermore, some organizations may be required by government regulators to report their liability for providing such benefits.