Discuss the various FASB rulings associated with retiree health insurance Answer

  • Discuss the various FASB rulings associated with retiree health insurance.
  • Financial Accounting Standards Board (FASB), a nonprofit company responsible for improving standards of financial accounting and reporting in companies, implemented FASB 106 in 1990 and FASB 158 in 2005. FASB 106 is a rule that changed the method of how companies recognize the costs of nonpension retirement benefits, including health insurance, on financial balance sheets. This rule effectively reduces the amount of a company’s net profit amount listed on the balance sheet by listing the costs of these benefits as an expense. The FASB’s view is that benefits such as health care coverage establish an exchange between the employer and the employee. In exchange for the current services provided by the employee, the employer promises to provide, in addition to current wages and other benefits, health and welfare benefits after the employee retires. In other words, postretirement benefits are part of an employee’s compensation for services rendered. Since payment is deferred, the benefits are a type of deferred compensation. The employer’s obligation for that compensation is incurred as employees render the services necessary to earn their postretirement benefits.For example, FASB established 132(R), Employers’ Disclosures about Post-retirement Benefit Plan Assets. The FASB decided to amend FASB Statement No. 132 (revised in 2003), Employers’ Disclosures about Pensions and Other Post-retirement Benefits, to include additional reporting requirements. In 2005, FASB 158 established requirements to enhance further transparency through accounting practices for other postretirement employee benefits.
  1. References: Joseph J. Martoccio. (2014). Employee Benefits: A Primer for Human Resource Professionals. McGraw-Hill Irwin. Fifth Edition. pp. 167.

    In 2003, FASB instituted FASB 132, which requires that companies disclose substantial information about the economic value and costs of retiree health care programs. The FASB maintains that health care benefits are probably as significant to current employees and retirees as are defined benefit plans. Other FASB rules require clear disclosure of economic resources and obligations related to defined benefit plans. Thus, FASB 132 requires similar disclosure. As a result, companies without sufficient current assets to maintain retiree health care programs are less likely to continue offering these benefits.