EBRI Issue Brief

Retiree Health Benefits: Issues of Structure, Financing, and Coverage

Mar 1, 1991 25  pages


  • 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.