by Other post-employment benefits (OPEB) are the benefits, other than pension distributions, that employees may begin to receive from their employer once they retire. Other post-employment benefits can include life insurance, health insurance, and deferred compensation. These benefits are also referred to as “other post-retirement benefits.”
Postretirement benefits are various types of assistance given by an employer to its retirees. These benefits may be promised through a standard benefits package, or via a union agreement.
Businesses and other organizations that may provide benefits to employees after they retire include private sector companies; state, county, and municipal governments; and religious and educational institutions. Although these benefits are mostly employer-paid, retired employees may have to share a portion of the costs through copayments and deductibles, as well as making contributions to the plan back when they were still working. Labor unions may also provide other post-employment benefits to their members.
Examples of postretirement benefits are health insurance, legal services, life insurance, and a pension plan.
Life insurance
Like health insurance, the life insurance that employers may provide to retirees is typically part of a group plan and generally comes in the form of term life insurance.
Health coverage
Retiree health insurance is generally provided as part of a group plan, much as it probably was when the employee was still working. The group plan may be the same one offered to current employees, or it may be a separate plan just for retirees.
In many cases, if the retiree has enrolled in Medicare, the retiree coverage will be secondary. That is, Medicare will pay its portion of medical bills and the retiree coverage will pick up some part of the remainder. But terms can vary widely from plan to plan, so retirees should check their employer’s Summary Plan Description (SPD) for details.
Deferred compensation
Deferred-compensation arrangements, which are also considered a post-employment benefit, pay the employee a salary or lump sum at some predetermined time, typically after they retire. These plans come in two distinct types qualified and non-qualified but serve the same basic purpose, which is to defer taxes while the employee is still working and provide income in the future, ideally when that person is in a lower marginal tax bracket.
Other Post-Retirement Benefits and Compliance
The rules governing how companies report pension costs and obligations, as well as the disclosure of pension assets and obligations, are covered under Accounting Standards Codification Section 715 (ASC 715), formerly called the Statement of Financial Accounting Standards Nos. 87/88/158. The American Society of Pension Professionals & Actuaries (ASPPA) provides a guide on how to manage the ASC 715 process, which describes the disclosure information for a client’s financial reports, as well as lists the methodology used to complete the required actuarial calculations.
Other Post-Retirement Benefits and Cost
Direct contributions that pay for any post-employment benefits can expose an employer to certain risks and liabilities. For example, take the example of a former worker who is granted health insurance coverage at the cost/premium rates as current employees.
Typically, a retired worker will be older than the average current employee, and will, therefore, be more likely to incur higher medical expenses. There is also the potential that the health insurance coverage they are offered will not cover the costs of their care, possibly leaving gaps in coverage.
As with other forms of retirement compensation, other post-retirement benefits can come with stringent reporting requirements due to their costs to an organization, as well as for the overall return on investment compared to the value of the work employees have performed before retirement.
