OPRBs and pension plans are both postretirement benefits and share
similarities in accounting principles. Accrual accounting is used for
OPRBs and pensions; expenses are recognized when they are earned,
not distributed. Both OPRBs and pension plans are required to
increase liability and expense on the balance sheet. When funds are
paid to retired employees, they decrease the liability account and
increase the expense account. OPRBs can include healthcare, dental,
vision, life insurance, and legal services. For this discussion, I am going
to be focusing on healthcare benefits.
"Healthcare benefits have the greatest measurement difficulties,
largest dollar amount, and are the most controversial" (Whalen,
2017). The controversy is that healthcare benefits don't have a legal
contract like pensions, and employers can withdraw the benefits from
the employees, so they shouldn't be treated the same. One significant
difference between healthcare benefits and pension plans is
beneficiaries. Benefits for pension plans are designated to the retired
employee, while healthcare benefits can be for spouses and
dependents on top of the employee. Another difference is that
pension plans have a fixed dollar amount paid monthly, but
healthcare benefits can fluctuate depending on the benefits used.
Lastly, pension fund contributions are tax-deductible, and healthcare
benefit contributions are not.
There are three accounting differences between pension plans and
OPRBs. One is the attribution period in the benefit formula. The
retirement date and date of full eligibility are the same for pension
plans, but the attribution process causes two different dates for
OPRBs (Whalen, 2017). When calculating interest for OPRB's
postretirement benefit expense, it is based on accumulated
postretirement benefit obligation, and for pension expense, it is
based on projected benefit obligation (Whalen, 2017). The final
difference is OPRB liabilities and pension liabilities. OPRB liabilities
are the difference between accumulated postretirement benefit
obligation and the fair value of the plan assets, and pension liabilities
are the difference between the projected benefit obligation and the
fair value of the pension plan (Whalen, 2017).
For healthcare, GAAP requires additional disclosures (Whalen, 2017).
• the assumed healthcare cost trend rates
• the effect of a 1% increase and a 1% decrease in the assumed
healthcare cost trend rates on the aggregate of the service cost
and the interest cost, as well as on the accumulated
postretirement benefit obligation for healthcare benefits.
• A description of the direction and pattern of change in the
assume healthcare cost trend rates, together with the ultimate
trend rate(s) and when that rate is expected to be achieved
• If applicable, the amounts and types of securities included in the
plan assets and the approximate number of future benefits
covered by insurance contracts
• If applicable, the cost of providing special or contractual
termination benefits provided during the period and a
description of the event
• An explanation of any significant change in the benefit
obligation or plan assts not otherwise apparent form the other
disclosures
Out of healthcare, life, and disability insurance, I would think a
company would choose to offer healthcare. Yes, it has the most
controversial when it comes to accounting principles and can be
unpredictable, but it is the most sought-after benefit. This would
attract talented employees, and studies have shown that happy
employees equal healthy employees, and hopefully, this will reduce
the cost of incidents.
Chrissi Oaf
Reference
Whalen, J. M., Jones, J. P., & Pagach, D. P. (2017).
Intermediate
Accounting: Reporting and analysis
. Boston, MA: Cengage Learning
