Other Post-Retirement Benefits: Meaning, Benefits, Cost

What is Other Post-Retirement Benefits?

Other Post-Retirement Benefits (OPEBs) are employer-provided benefits given to retired employees beyond traditional pensions, primarily including healthcare, life insurance, and wellness programs. These benefits help support retirees' financial and health needs after leaving the workforce, complementing core pension plans with additional non-pension perks like ongoing medical coverage and insurance.

OPEBs differ from pensions by focusing on non-salary-related support, often creating long-term obligations for employers that require careful accounting and funding strategies.

Key Characteristics

Understanding the main features of OPEBs helps you recognize their role in retirement planning and employer costs.

• Healthcare Coverage: The most common OPEB, covering medical, dental, and vision expenses to offset rising retiree healthcare costs.
• Life Insurance: Subsidized post-retirement policies that provide continued coverage beyond active employment.
• Financial Supplements: Monthly stipends or benefits that supplement pension income for living expenses.
• Funding Status: Plans may be funded or unfunded, impacting employer liabilities and accounting treatment.
• Accounting Considerations: Employers must estimate future costs and often report OPEBs separately from pension plans, affecting financial statements.

How It Works

OPEBs function by providing retirees with benefits that extend beyond fixed pension payments, typically funded through employer contributions made during an employee's working years or on a pay-as-you-go basis. Employers may establish trust funds to pre-invest assets, reducing the immediate fiscal impact and smoothing future expenses.

Unlike defined contribution pension plans where investment risk falls on employees, many OPEBs resemble defined benefit structures, with employers bearing the investment and longevity risks. This requires actuarial assumptions to estimate costs and liabilities accurately, similar to how Prudential Financial manages retirement-related obligations.

Examples and Use Cases

OPEBs are common in various industries where companies seek to retain talent and provide comprehensive retiree support.

• Healthcare Sector: Johnson & Johnson offers extensive post-retirement medical and dental coverage as part of its employee benefits.
• Insurance Industry: UnitedHealth Group includes wellness programs and life insurance supplements to enhance retiree benefits packages.
• Transportation: Airlines like Delta and American Airlines provide retirees with healthcare plans and monthly stipends, ensuring financial and health security well into retirement.

Important Considerations

When evaluating OPEBs, consider the long-term financial impact on both employers and retirees. These benefits can significantly increase an employer's deferred acquisition costs and ongoing liabilities, requiring robust funding strategies and transparent accounting.

For retirees, understanding the scope and limitations of offered OPEBs is crucial, as healthcare inflation and policy changes can affect coverage. Employers often balance these benefits with other incentives like paid-up additional insurance to maintain competitive benefits while managing costs.