ACCOUNTING FOR POST RETIREMENT BENEFITS Abstract
Postretirement healthcare and insurance benefits is deemed critical for the overall coexistence and welfare of older adults. The primary element in dealing with this framework is inclined to its accounting perspectives. This paper therefore seeks to unearth various aspects concerning accounting for postretirement health and insurance benefits. It dwells with the act of making concrete comparison and contrast of the current and early historical accounting for postretirement health care and life insurance benefits. This is followed by recommendation of changes to the guidelines for improving financial accounting and reporting of postretirement health care and life insurance benefits. The final part is based on prediction of the future of postretirement health care and life insurance benefits of accounting based on potential changes in political and business climate, as well as the scenarios enhancing the anticipated changes.
The critical analysis of early and the current historical accounting for postretirement healthcare and life insurance benefits shows the existence of similarities and differences with regards to the guiding rules and regulations. The early medium necessitates the employers providing the pension plans to enhance the disclosure of the prevailing pension schemes. It encompasses the disclosure the defined benefit plans, disclosure of comprehensive assumptions, pension obligation accounts, pension asset schedules, and the disclosure of net funding status.
Additionally, for both mediums, the asset or liability of pension should be booked as mere assets and liabilities, and changes in liabilities or assets that fail to be booked into the concrete income should rather be booked other forms of comprehensive incomes (Amir, 1993). The retirement benefits inclined to pensions are usually upheld by unknown contract terms. It is therefore a challenging framework because of unknown contract terms. At the same time, the accrued benefits are also dependent on the prevailing healthcare costs.
Furthermore, the current employers that account for pensions firms tends to disclose both projected benefit obligation plans and the values for the pension plan assets. The only distinct element is that it fails to disclose them on the balance sheets. In this case; the unrecognized obligations and transitional assets from initially adopted pronouncement, unknown previous service costs, as well as the deferred losses and gains from the plan asset performance and actuarial experiences collectively equals the funded pension plan ratio.
Finally, the aspect of accounting for the Stock-based Compensation gives adopters room for selecting the aspect of footnote exposure and recognition of the financial statements regarding the new accounting techniques. Based on the new framework, the firms are necessitated to utilize accrual expense and accounting perspectives earned via the employees. The past situation required the Companies to choose between a one-time charge and deferred recognition as two primary adoption options.
Recommended Changes to the Guidelines for Improving the Financial accounting and Reporting of Postretirement Health Care and Life Insurance Benefits
As reviewed above, it can be ascertained that financial accounting and reporting of life insurance and postretirement healthcare benefits is one of the most critical aspects necessitating for intensive scrutiny and significant adjustments to enhance its essentiality (Amir, 1993). The primary objectives backing up the recommended changes is to enhance the usefulness and transparency of postretirement benefits such as pensions, and the accounting data and information for creditors, investors, employees, and retirees, among users.
The ultimate recommendations involve the act of aligning the above stated objectives into two phases. The first phase should encompass the improvement in understandability, transparency, as well as representational realism of sponsoring the balance sheet of an employer. The second phase of this recommendation should comprise the aspect of subjecting the recognition of liability (net funded asset) and footnote disclosure of postretirement benefit into a thorough evaluation process. It should be guided by the question of whether the disclosed data or information in footnotes is supposed to be recognized in the organization’s balance sheet. The highlighted recommendations tend to enhance the users’ ability to understand the effects and extent of subsequent employer’s undertaking of providing postretirement benefits to the employees through disclosure of relevant data and information regarding the cost and obligation of postretirement benefit plan, as well as the measure of such amounts.
Prediction of the Future of Postretirement Health Care and Life Insurance Benefits of Accounting Based on Potential Changes in Political and Business Climate
From the review of the current progress and advancements, postretirement healthcare and retirement benefits are expected to storm the future with great vigor. There is a great expectation that GASB is will issued contemporary and innovative standards necessitating the governmental units to recognize and measure liabilities and expenses inclined to postretirement benefits. This will be a great advancement from the currently known governmental entity recorded based on pay-as-you-go basis or simply cash basis (Arnold & Oakes, 1998). The anticipated standard will push the local and start governments to realize a huge amount on their subsequent balance sheets. This will duly be guided by the prevailing political and economic climate. It will observe the political and financial pressures that may probably emerge due to awareness of the issue.
The predicted frameworks will reduce the enduring or sharp nature for the companies, investors, and their employees. This form of accounting will be updated into conformity courtesy of the sensible and new attitudes regarding the transparent nature of corporate disclosures. The big issue, in this case, may set basis on the competitiveness of the U.S. firms and their workers’ quality (FASB, 1984).The entire stakeholders will only be urged to avoid the acts of making accounting an immediate rod for satisfaction or dissatisfaction with the expected trends in postretirement benefits and corporate pension offerings. What will matter most will be the conflicting Company perspectives encompassing the competitiveness, employees’ obligations, treasury concerns, the Company’s financial statements, as well as the effect of changes on the share prices and reputations.
Scenarios in which Postretirement Health Care and Life Insurance Benefits change
There are various scenarios whereby changes occur in types of postretirement life insurance and healthcare benefits. The provisions established through legislation of health care reforms may also influence the aspect of accounting for the postretirement health plans. For instance, actuarial assumptions regarding the rates of plan participation can change due to the new individual necessities for maintaining minimum postretirement health care cover. Changes in costs of offering postretirement health care and insurance benefits tends to be accounted for just like actuarial losses or gains, including the changes in subsequent actuarial assumptions such as the assumption of health care cost trend rate (Arnold & Oakes, 1998). In this case, changes that result from the plan amendments can be accounted for as credits or prior service costs.
In some other cases, instead of changing the cost-sharing provisions of various plans, the plan sponsor can anticipate the act of transforming benefits or even the aspect of future plan elimination in response to consequent excise tax. For instance, a plan sponsor might intend to eliminate or reduce future benefits such that the valuation of postretirement health care benefits does not surpass the tax threshold excise. In this situation, the future changes regarding postretirement health benefits should be duly accounted for after adopting the plan amendments, provided such amendments are clearly communicated to the intended participants.
Argument Supporting Proposed Changes
The proposed changes can be supported by various perspectives. As discussed above, the expected changes regarding the provisions on cost-sharing may have a diverse effect on measurement of benefit obligation as compared to the anticipated changes. The plan sponsors might not be conversant with the extent or nature of certain benefit changes necessary for reducing the impact of tax excise. In this case, lack of certainty often makes the authorities to take into consideration the manner the anticipated cost of excise tax will be mutually shared amongst the participants (FASB, 1984). The responsible Chief Financial officer should therefore note that any form of changes in cost-sharing policy has to be evaluated carefully to determine if mutual understanding of planned changes prevails between the plan participants and the sponsor such that change effects might be depicted in the process of measuring postretirement benefit obligations.
- Amir, E. (1993). The market valuation of accounting information: The case of postretirement benefits other than pensions. Accounting Review, 703-724.
- Arnold, P. J., & Oakes, L. S. (1998). Accounting as discursive construction: the relationship between statement of financial accounting standards no. 106 and the dismantling of retiree health benefits. Accounting, Organizations and Society, 23(2), 129-153.
- Financial Accounting Standards Board. (1984). Proposed statement of financial accounting standards: Disclosure of postretirement health care and life insurance benefits information. Stamford, Conn: FASB.
