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EBRI report examines new FASB standard.

A new accounting standard, recently issued by the Financial Accounting Standards Boards, focuses companies' attention on the cost of retiree health benefits, according to a report released by the Employee Benefit Research Institute. The report examines the changes some companies have made or will make to their retirement benefits in response to the new standard and to the effects of rapid health care cost inflation and an aging population.

Financial Accounting Standard 106 (FAS 106) requires most companies to record unfunded retiree health liabilities on their financial statement after December 1992. EBRI estimates that earned liabilities for current private-sector employees and retirees were $241 billion in 1988. The median annual medical cost for retirees is expected to increase from the current 1.1 percent of payroll to 6.25 percent after FAS 106 is fully adopted, according to a recent Hewitt Associates' survey of 463 medium-sized and large private employers.

To curb their future expenses, some companies are keeping their traditional plans but are limiting their dollar contributions toward these costs in retirement, capping the increase in the amount contributed or requiring a long service period before employees become eligible to receive these benefits. Other companies are creating defined contribution plans that enable employees to set aside money to pay for health benefits in retirement.
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Title Annotation:Benefits News; Employee Benefit Research Institute; Financial Accounting Standards Board
Author:Johnson, Tom
Publication:Risk Management
Date:May 1, 1991
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