Retiree Flashcards
Retiree - challenges of communicating
-Harder to communicate with them because they do not come to work
-Many have family physicians that they have been seeing for a long time, making it uncomfortable and difficult to change providers
-some move away from where they worked, and it is difficult to physically meet for a company-sponsored event
-retirees have difficulties to access/understand/use new technologies (e.g. emails, mobile apps) which makes it harder to promote new programs to them
Describe how supplemental plans integrate with Medicare;
list the features of the standard Medigap plan designs
Supplemental plan pays expenses for which the primary plan does not pay, including member coinsurance and copays.
-this approach is possible only when the secondary plan has advance knowledge of the primary plan design
Features:
-Part A member coinsurance
-Part B member coinsurance
-First 3 pints of blood
-Part A Hospice coinsurance
Funded status
Net Periodic Postretirement Benefit Cost
APBO(EOY)
Funded Status = APBO - Fair Value of Plan Assets
NPPBC = Service Cost + Interest Cost - Return on Assets + Amortization of Unrecognized Amounts (Transition Obligations, Prior Service Cost, Net Gain/Loss)
APBO(EOY) = APBO(BOY) + Service Cost - Benefit Payments + Interest Cost + Prior Service Cost - Settlements + Curtailment (Gains)/Losses + Actuarial (Gains)/Losses)
Service Cost
Interest Cost
Increase in APBO due to service in current year; 0 for retirees and actives past the full eligibility date
=EPBO/Attribution period
Increase in APBO due to interest over time
=i*[APBO(BOY) + Service Cost - (Benefits/2) ]
Prior Service Cost
Change in APBO due to plan amendments
-Can increase or decrease APBO
-if decrease, then negative PSC
Amortized over average remaining service to full eligibility
-if retirees only, over average expected lifetime
Measured at the date the event occurs
Actuarial (Gains)/Losses
Change in APBO from changes in assumptions or difference between actual experience and expected experience
-Gain reduces APBO
Amortization = Gain/loss above 10% corridor/average remaining service (lifetime if retirees)
10% corridor = 10%*max(APBO, Assets)
Settlements
Transactions that eliminates all future obligations of a plan (i.e. lump-sum to members to buy-out the benefits owed); Reduce APBO
Maximum gain/loss to recognize is unrecognized gain/loss plus any remaining unrecognized transitional assets.
If entire APBO settled, maximum amount shall be recognized; if portion of APBO settled, recognize a pro rata portion
Measured at the date of the event
Curtailments
Events that significantly reduce the years of future service for active plan members or eliminate the benefit accrual for some or all future service
-Impact is accelerated recognition of any prior service cost and recognition of change in APBO
=Unrecognized PSC associated with years of service no longer expected to be rendered (this is a loss) + Change in APBO (decrease is a gain)
-If gain from change in APBO exceeds any unrecognized net loss, it is a curtailment gain and vice versa
–Unrecognized transitional obligations are treated as unrecognized net gains for curtailment purposes
-Measured:
–gain when related EEs terminate or plan amendment is adopted
–loss when it is probable that a curtailment will occur and effects can be estimated
Transition Obligations
Arises when organization first applies ASC 715
=Difference between APBO as of data of initial application and amount previously recognized
Amortized over average remaining service of if retirees, over average expected lifetime
Using premiums to calculate APBO and considerations
Premiums provided are combined active/retiree. All retirees are Medicare eligible and their associated costs are must lower. Using premium will overstate the liability.
-If not involved in development of the plan premium, you don’t know what assumptions were used (true costs of plan? demographic mix)
Considerations:
Recommend a funding vehicle
I recommend a VEBA which would best address the concerns about tax implications. The money contributed by the ER is tax deductible, the funds grow tax-free, and the money can be taken out tax free as long as it is used for qualified medical expenses.
Less traditional funding vehicles
-incidental accounts under a profit-sharing plan
-EE-purchased group annuities
-EE stock ownership plans with a money purchase plan account
-Qualified retirement trust funds (pension plans or 401(k) profit sharing plans)
Accounting standards that apply to retiree plans
FAS 106 and ASC 715
-requires accelerated recognition of plan costs, increasing current costs for ERs
-requires special additional assumptions
-best estimate assumptions for future events that may affect the APBO
GASB 43/45 is patterned after FAS 106 but applies to public-sector and state/local government
FASAB no. 5
-gives a specific actuarial method for reporting accrual costs for U.S. federal agencies
IAS 19
-accounts for benefits during working lifetimes
-less ability to smooth unexpected plan experience/plan design changes
Reasons to/not to pre-fund
Reason to pre-fund: GASB 75 permits the use of a higher discount rate than for unfunded liabilities
Reason not to pre-fund: employer believes the internal rate of return outweighs the returns from prefunding
