The National Retirement Planning Coalition has designated April 11-15 as the 2016 National Retirement Planning week. In celebration, each day this week Watkins Ross will share some fast facts and planning tips on the various types of retirement plans we service. Friday’s focus: Other Post-Employment Benefits (OPEB).
WHAT IS AN OPEB?
FAST FACTS
- Large firms offering retiree health coverage dropped from 66% in 1988 to 28% in 2013.*
- Forty-five percent of all retirees age 55-64 had retiree health coverage in 2012.*
- Nearly one in three Medicare Beneficiaries have a retiree health plan that supplements Medicare.*
- Of employers providing retiree health coverage support, 40% require retirees age 65 and older to pay a full premium, 14% do not require retirees to pay a portion of the premium.*
* Information from The Henry J. Kaiser Family Foundation
PLANNING TIPS
RETIREE MEDICAL COST CONTAINMENT STRATEGIES
- Increase retiree contribution to employer
- Limit or restrict participation
- Increase deductibles and co-pays
- Utilize HRA’s and health exchanges brought about by the Affordable Care Act
OPEB ACCOUNTING
- Recognize the cost and liability of future benefits when earned (not when paid) on the employer’s balance sheet.
- Net periodic expense (P&L) and accumulated other comprehensive income.
- Accounting changes required by Governmental Accounting Standards Board (GASB) statements 74 and 75 (for public employers) effective for years beginning after June 15, 2016 and June 15, 2017 (respectively).
RETIREE HEALTH CARE DEVELOPMENTS
- Cost sharing changes under Medicare Parts A and B
- Reduced payments to Medicare Advantage plans
- Development of Health Annuities
- Increasing Medicare eligibility age is being considered
REPORTING REQUIREMENTS
Private employers subject to GAAP accounting and public sector employers are required to expense these benefits on an accrual basis during the period of an employee’s active service, and to report a liability for the “accrued” portion of these benefits on their balance sheets. Because these are actuarial calculations, companies providing these benefits need to retain an actuary qualified in these specialized calculations.
