In December 1990, the Financial
Accounting Standards Board approved Statement No. 106,
requiring many companies to record a liability for
retiree health benefits on their balance sheet in order
to comply with generally accepted accounting standards,
beginning with fiscal years after December 15, 1992.
Employers can provide full retiree
health benefits in retirement, make a contribution toward
these benefits, or provide a contribution during
employment that can be used by employees to pay for the
retiree benefits.
Currently, employers have few
options for tax-favored prefunding of retiree health
benefits. Some options are 401(h) accounts, 501(c)(9)
trusts, 401(k) options, corporate-owned life insurance,
and employee stock ownership plans. Each of these
involves significant limitations.
Though there are some legal
restrictions on changing a retiree health plan, some
companies have done so.
In 1988, 43 percent of all people
aged 40 and over had retiree health coverage through
their own or their spouse's current or former employer.
Coverage is more prevalent among men, those working or
having worked for a large employer, and those with higher
incomes.
Medicare is by far the largest
public health care financing program for the elderly.
However, between 1984 and 1988, Medicare financing
decreased from 46 percent of the elderly's total health
care costs to 44 percent.
No congressional action is expected
on the retiree health issue. Allowing firms to prefund
retiree medical liability for current and future retirees
would lead to a loss of $37 billion in one year to the
federal government, according to the EBRI Tax Estimating
and Analysis Model.
