OPEB bodes ill for retiree health benefits
A seemingly minor accounting rule change may hasten the demise of employer-funded retirement health benefits. “Other post employment benefits” or OPEB –mainly obligations for health benefits– will have to be disclosed on companies’ balance sheets rather than in the footnotes. This will bring to light the fact that only 4 of the 290 S&P 500 companies with OPEB liabilities have fully funded their obligations. Meanwhile, large companies are funding their pension plans to a much greater degree.
One reason companies’ underfund retiree health care liabilities is that they anticipate squeezing or eliminating these plans in the future, something that is much harder to do with pensions. According to the Wall St. Journal (Health Benefits Ail as Pensions Heal)
While traditional pension plans often are contractual obligations at companies that have them, health-care benefits often aren’t. Thus, many companies are capping or trimming their postretirement health-care spending.
“You can see that there’s more flexibility for companies there, because the plans have been cut back,” says Jack Ciesielski, publisher of The Analyst’s Accounting Observer.
The cancellation of employer-funded retiree health benefits is going to increase the burden on Medicare, so we better do all we can to get that program into better shape.June 6, 2006