How does the retiree healthcare issue relate to pensions?
Retiree health benefits, like pension benefits, are a form of deferred compensation, or compensation earned by employees during their working years, but paid to individuals after they retire. Pension systems typically are funded by governments paying normal costs each year, as employees earn this type of deferred compensation, and the funds are invested so that they generate returns and grow until required to be paid to the employees after retirement. This is known as pre-funding, and pension accounting standards focus on how well retirement systems are pre-funded.To the extent that funds set aside each year (with assumed, future investment earnings) are insufficient to cover projected benefit costs, the system has an unfunded liability. Retiree health programs will now have accounting standards that are very similar. GASB 45 will result in calculation of an unfunded liability for retiree health programs similar to the comparable figure for pension systems. The liabilities for retiree
Retiree health benefits, like pension benefits, are a form of deferred compensation, or compensation earned by employees during their working years, but paid to individuals after they retire. Pension systems typically are funded by governments paying normal costs each year, as employees earn this type of deferred compensation, and the funds are invested so that they generate returns and grow until required to be paid to the employees after retirement. This is known as pre-funding, and pension accounting standards focus on how well retirement systems are pre-funded. To the extent that funds set aside each year (with assumed, future investment earnings) are insufficient to cover projected benefit costs, the system has an unfunded liability. Retiree health programs will now have accounting standards that are very similar. GASB 45 will result in calculation of an unfunded liability for retiree health programs similar to the comparable figure for pension systems. The liabilities for retiree
