United States:
Accounting for pensions and other post-retirement benefits 1998
Watson Wyatt has surveyed over 600 of the largest industrial and service companies in the United States to analyse their disclosures under the Financial Accounting Standards Board (FASB) Statements 87 and 106 (FAS 87 and FAS 106) in their most recent annual reports or financial statements. The survey’s results are contained in Accounting for Pensions and Other Post-retirement Benefits 1998, which summarises the assumptions used in calculating pension expense and obligations under FAS 87, and disclosures on post-retirement benefits other than pensions, primarily health and life insurance benefits.
The survey revealed that retiree health plans at America’s largest companies remain largely underfunded. 83% of the industrial and 61% of the service companies provided health benefits for retirees in 1997. However, only 20% of them pre-funded their post-retirement plans. These liabilities were funded at a level of 25% of the accumulated obligation in 1997, only marginally higher than in 1996 (24%). The general lack of funding for retiree health plans is in stark contrast to pension funding: in 1997, these were funded at a level of 111% by industrial firms and 114% by service companies.
This contrast reflects differences in the tax implications of pre-funding and in employer attitudes to the benefits themselves. Companies should be reviewing the pay-as-you-go funding of retiree health plans in light of new funding vehicles and their own cash flow position. With the advent of Medicare+Choice and with healthcare costs rising, this is the right moment to ensure funding choices reflect current business goals and newly available funding vehicles.
To obtain further details of the study, contact your usual Watson Wyatt consultant or send an email to Rosemary Scott
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