Key Takeaways
- Non-pension retiree benefits like health and life insurance.
- Includes defined benefit and defined contribution plan types.
- Often underfunded, creating future taxpayer liabilities.
- Accounting standards require actuarial valuation of liabilities.
What is Other Post-Employment Benefits (OPEB)?
Other Post-Employment Benefits (OPEB) refer to non-pension benefits provided to employees after retirement, including retiree health insurance, dental, vision, life insurance, long-term care, and disability coverage. These benefits supplement Medicare and are part of an obligation employers have to their retired workforce.
OPEB plans are distinct from pension plans and play a critical role in managing retiree healthcare costs and coverage continuity.
Key Characteristics
OPEB plans have several defining features that impact both employers and retirees:
- Types of Benefits: Commonly include health, dental, vision, prescription drug coverage, life insurance, and disability insurance.
- Plan Structures: Can be defined benefit plans promising fixed benefits or defined contribution plans funding individual accounts.
- Funding Methods: Often funded on a pay-as-you-go basis or prefunded through trusts like an A/B trust.
- Accounting Standards: Public entities follow GASB guidelines, while private companies adhere to FASB rules, affecting reporting and liability recognition.
How It Works
OPEB programs require actuarial valuations to estimate future costs, which helps employers determine funding needs. Many public sector employers use pay-as-you-go funding to cover current retiree claims, but this can create large unfunded liabilities over time.
Prefunding OPEB through investment vehicles can improve financial stability and reduce budget strain. Companies like UnitedHealth Group utilize investment strategies to manage healthcare-related obligations, showcasing how effective management of post-employment benefits supports long-term fiscal health.
Examples and Use Cases
Several organizations provide OPEB with varying approaches based on their workforce and financial capacity:
- Airlines: Prudential offers comprehensive retiree health insurance benefits as part of their employee compensation packages.
- Healthcare Sector: UnitedHealth Group manages extensive retiree medical benefits, reflecting the high priority of healthcare in OPEB plans.
- Government Entities: Many public institutions maintain pay-as-you-go OPEB plans, leading to significant future liabilities that require actuarial oversight.
Important Considerations
When evaluating OPEB, it's crucial to consider the funding status and long-term sustainability of the benefit plan. Underfunded plans can impose fiscal pressure on organizations and taxpayers alike.
Employers should aim for transparent accounting and prudent funding strategies to meet their OPEB obligations and reduce unexpected financial risks.
Final Words
OPEB represents a significant component of retirement compensation that can impact long-term financial planning. Review your employer’s OPEB offerings carefully and consider how they fit within your overall retirement strategy.
Frequently Asked Questions
Other Post-Employment Benefits (OPEB) are non-pension benefits provided to employees after retirement, including retiree health insurance, dental, vision, life insurance, long-term care, and disability coverage for retirees and their dependents.
OPEB plans commonly include health, dental, vision, and prescription drug coverage, as well as life insurance, long-term care, disability insurance, and other welfare programs like sick leave conversion, excluding pensions or compensated absences.
OPEB plans are mainly structured as Defined Benefit Plans, where employers promise specific benefit levels, or Defined Contribution Plans, where employers contribute set amounts to individual accounts with benefits depending on investment performance and usage.
Employers offer OPEB to attract and retain workers by addressing post-retirement health needs, particularly to cover costs not fully paid by Medicare, and to fulfill moral or legal obligations recognized by accounting standards.
Funding approaches vary; some governments use pay-as-you-go funding from annual budgets, while others prefund benefits through trusts to improve financial reporting. Public employers follow GASB accounting standards, and private employers follow FASB rules.
Many OPEB plans are underfunded, leading to large unfunded liabilities that can burden future taxpayers. Accurate actuarial valuations and full annual contributions are necessary to promote accountability and financial stability.
An implicit subsidy occurs when retirees pay the same premium rates as active employees despite higher health claims, creating unrecorded liabilities that must be actuarially valued according to accounting standards.
For instance, Henrico County prefunds retiree health insurance through a fiduciary fund since 2007-08, and California prefunds retiree health benefits via employee and employer contributions from pensionable compensation, improving financial reporting and credit ratings.
