Employee Benefits:

Companies' Retiree Health Liabilities Large, Advance Funding Costly

HRD-89-51: Published: Jun 14, 1989. Publicly Released: Jun 14, 1989.

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Pursuant to a congressional request, GAO reviewed U.S. companies' liabilities for retiree health benefits.

GAO found that: (1) as of 1988, U.S. companies had total liabilities of $402 billion for retiree health benefits, of which $227 billion, or about one-fourteenth of the value of all companies' stocks in 1988, was accrued and $175 billion was anticipated; (2) most companies did not fund health benefit liabilities in advance; (3) advance funding would stabilize companies' annual expenditures and make benefits more secure, but would be very costly; (4) by 1992, the Financial Accounting Standards Board (FASB) plans to require companies to report on their financial statements the present value of their liabilities for future retiree health benefits; (5) because of rising retiree health costs and the proposed FASB reporting standards, many companies are increasingly changing their health plans to shift costs to retirees and reduce benefits; (6) many companies believe that they have the right to modify or terminate benefits for active workers and retirees and have language in their plans reserving that right; (7) recent legislation generally prohibits companies that file for bankruptcy from changing or terminating retiree health plans; and (8) Congress may wish to protect retirees' health care coverage by requiring employers to advance-fund such benefits or provide coverage that retirees can buy at group rates.

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