What is a Post-Employment Benefit?

Most organizations and employees can agree that post-employment benefits are an important consideration.

This article will provide a comprehensive overview of what post-employment benefits are, their significance, and key strategies for managing them effectively.

You'll learn the definition of post-employment benefits, see examples, understand their financial reporting and accounting, as well as best practices for sustainably funding and administering post-employment benefit plans.

Introduction to Post-Employment Benefits

Post-employment benefits refer to the compensation and benefits provided to employees after their employment has ended. Common examples include pensions, retiree health insurance, and deferred compensation plans. These benefits are an important part of many employees' overall compensation package.

Understanding Post-Employment Benefits: Definition and Examples

Post-employment benefits provide income and benefits to former employees after they have retired or otherwise left the company. Some of the most common types of post-employment benefits include:

• Pensions: Employer-sponsored retirement plans that provide monthly payments to retired employees. Pensions can be defined benefit (based on salary and years of service) or defined contribution (based on investment returns).
• Retiree health insurance: Health insurance coverage provided to former employees after they retire, sometimes extending to spouses and dependents. This helps retirees pay for medical expenses.
• Deferred compensation plans: Allow employees to set aside money on a pre-tax basis to be paid out after retirement. Common plans include 401(k)s and 403(b)s. The money grows tax-deferred until withdrawal.

These plans help provide financial security and stability for employees in their post-work years. They are viewed as a significant employee benefit by many job seekers.

The Significance of Post-Employment Benefits

Post-employment benefits are important for both employers and employees for several reasons:

• They help employers attract and retain talent by enhancing the overall compensation package. Workers highly value retirement plans and retiree health insurance.
• They give employees peace of mind knowing they will have income and health insurance after retiring from their career. This provides major financial security.
• They help workers save and invest for retirement in a tax-advantaged way through plans like 401(k)s and pensions.
• They recognize employees' years of service and dedication to the company. Retirement plans reward loyalty and hard work.

Overall, post-employment benefits play a major role in compensation, financial planning, recruitment, and retaining top talent. They carry great significance for employers and staff alike.

What is the meaning of post benefits?

Post-employment benefits refer to the benefits that employees may receive after their employment has ended. Some common examples of post-employment benefits include:

• Pensions: Pensions provide retired employees with a monthly payment for the rest of their lives. Employers contribute funds during an employee's working years, which are then invested and paid out after retirement.
• Retiree health insurance: Some employers offer health insurance coverage to retired employees. This allows retirees to continue receiving health benefits even after leaving the company.
• Deferred compensation: Some compensation plans allow employees to set aside money from their salaries tax-free until retirement. This money is invested and then paid out after an employee retires.

So in summary, post-employment benefits are forms of compensation that employees receive after retiring or leaving a company. They are an important part of retirement planning and financial security for many employees. Key accounting standards like the Governmental Accounting Standards Board's (GASB) Statement No. 45 provide guidance on properly reporting and budgeting for post-employment benefits like pensions.

What are postretirement benefits other than pensions?

Postretirement benefits other than pensions refer to benefits, excluding pension payments, that are provided to retired employees. These can include:

• Health insurance: Companies may allow retired workers to remain on the company health plan by paying a monthly premium.
• Life insurance: Some companies provide retired employees with a basic life insurance policy.
• Deferred compensation plans: These plans allow employees to set aside money tax-free until retirement. The company may provide matching contributions.

Some key things to know about postretirement benefits other than pensions:

• They are considered a type of postemployment benefit offered as part of a compensation package.
• The Governmental Accounting Standards Board's (GASB) Statement No. 45 established guidance on how to account for and report postretirement benefits other than pensions.
• Companies are required to calculate the liability for future postretirement benefits and record them on their balance sheet. This is an accrued liability that grows over time as employees earn these benefits.
• Postretirement benefits can be a significant liability for companies. According to the Government Accountability Office, state and local governments face nearly $1 trillion in unfunded liabilities for other postemployment benefits.

In summary, postretirement benefits other than pensions provide employees with continued benefits into their retirement years. Companies must account for these liabilities, which can be substantial, in order to provide transparency into their true benefit obligations.

What is a post-employment plan?

Other post-employment benefits (OPEB) are benefits, other than pension distributions, that employees may begin to receive from their employer once they retire. These can include life insurance, health insurance, and deferred compensation.

Some key things to know about post-employment benefits:

• They are separate from pension plans and are provided in addition to pensions. Common examples are retiree health insurance and dental plans.
• The Governmental Accounting Standards Board (GASB) issued Statement No. 45 in 2004 to create accounting rules and reporting standards for OPEB plans. This improved transparency into the often significant liabilities governments take on with these benefits.
• Accounting rules require governments to quantify and disclose the future costs they face to provide OPEB benefits earned by employees. This allows the public to assess the long-term impact.
• Funding these benefits is complex because costs are difficult to predict. Many state and local governments have faced large unfunded liabilities, putting strain on budgets.

In summary, post-employment benefits like health insurance are earned retirement benefits that create long-term obligations for governments. Accounting standards aimed to improve measurement and transparency around these liabilities. However, funding the benefits adequately remains an ongoing challenge.

What are the postemployment benefits other than pensions?

Postemployment benefits other than pensions (OPEB) refer to benefits earned by employees during their employment, but are not paid out until after their employment ends.

OPEB typically includes:

• Post-employment healthcare benefits such as medical, dental, vision, hearing, etc., whether provided through a pension plan or separately
• Other benefits such as death benefits, life insurance, disability, long-term care, etc. when provided separately from a pension plan

These benefits are considered a form of deferred compensation, as employees earn them over the course of their career but do not receive them until after retiring or separating from the organization.

For public sector employers, the Governmental Accounting Standards Board (GASB) provides guidance on how OPEB should be measured and reported. GASB Statement No. 45 establishes standards for accrual-basis measurement and recognition of OPEB expenses and related liabilities or assets.

Proper accounting and reporting of OPEB is important to provide transparency into the true costs of employment and enable organizations to plan for funding these future obligations. Without proper OPEB accounting, the full compensation costs and long-term obligations would not be reflected on financial statements.

Comprehensive Overview of Post-Employment Benefits

Post-employment benefits refer to compensation and benefits provided to employees after their employment ends, usually upon retirement. Some of the most common types of post-employment benefits include:

Pensions as a Primary Post-Employment Benefit

Pension plans are one of the most well-known forms of post-employment benefits. They provide retired employees with monthly payments to help cover living expenses after ending their career. Pensions are usually funded through contributions from both the employer and employee. Key details include:

• Defined benefit vs defined contribution pension plans
• Vesting schedules that determine eligibility
• Calculations to determine the payment amounts based on salary and years of services
• Oversight from the Governmental Accounting Standards Board (GASB) through statements like GASB No. 45

Employer-sponsored pension plans help provide retirees with steady income, making them an important post-employment benefit.

Post-Retirement Healthcare and Insurance

Many companies also provide retired employees access to healthcare and insurance benefits after they finish working. This can include extending medical, dental, vision, prescription drug, and life insurance coverage to retirees.

Retiree healthcare plans help offset potentially significant medical costs often incurred later in life. This coverage is usually more affordable than obtaining individual private insurance. Post-retirement benefits provide continued health security and financial protection for retirees.

Exploring Other Post-Employment Benefits

Some other examples of post-employment benefits could include tuition reimbursement for college courses taken after retirement and discounts on company products/services after retiring from that organization.

These less common post-employment benefits help retirees pursue educational opportunities or save money through corporate discounts in retirement.

Other Long-Term Employee Benefits

In addition to the post-employment benefits above focused on retirees, some other long-term benefits are provided to employees that extend past their active employment. A few examples:

• Severance pay
• Extended health insurance through COBRA
• Compensation for unused paid time off
• Bonus payouts after termination

These benefits provide employees with some income/coverage for a transitional period after leaving the company. While not solely for retirees, they do represent forms of long-term compensation earned during employment.

In summary, post-employment benefits like pensions and retiree healthcare plans provide organizations with meaningful ways to continue supporting former employees after retirement. They play an important role in attracting and retaining talent while also allowing retirees to cover significant living costs.

Post-Employment Benefits Accounting and Financial Reporting

Accounting Standards for Post-Employment Benefits

Post-employment benefits refer to the benefits that employees receive after their employment ends, usually in the form of pensions, health insurance, or other retirement benefits. Key accounting standards that apply to reporting these benefits include:

• Governmental Accounting Standards Board (GASB) Statement No. 45: Issued in 2004, this standard governs how state and local governments should measure and disclose post-employment benefit liabilities, such as pensions, retiree health insurance, etc. It aims to standardize measurement and improve transparency.
• GASB Statement No. 75: Issued in 2015, this updated previous pension standards by requiring governments to report net pension liabilities on their balance sheet, providing more visibility into these long-term obligations.
• FASB Accounting Standards Codification 715: Provides guidance on accounting for post-employment benefits in the private sector. It covers measurement, recognition, and disclosure rules for defined benefit pension plans and other post-retirement benefits.

Measuring and Disclosing Post-Employment Benefit Liabilities

Under GASB guidelines, governments must quantify post-employment benefit obligations using actuarial valuations. This involves making assumptions about future salary increases, mortality rates, healthcare trends, and other economic factors. The total liability is then discounted back to its present value and recorded in the financial statements.

GASB standards also require substantial disclosures about post-employment liabilities in the footnotes and required supplementary information (RSI) sections. This supplementary data helps inform financial statement users and provides added transparency into the government's obligations and risk exposure.

The Influence of Post-Employment Benefits on Financial Statements

Post-employment benefit liabilities can significantly impact a government's balance sheet, as net pension and OPEB liabilities often amount to billions of dollars for large governments. Recording these previously unreported liabilities frequently leads to deficit net positions.

On the income statement, annual service and interest costs on post-employment benefit liabilities result in higher personnel expenses for governments. And as with debt, increases in these long-term liabilities signal elevated financial risk and reduced fiscal flexibility.

So in summary, proper measurement and disclosure of post-employment benefit obligations has major implications for governmental financial statements and key financial indicators.

Strategies for Managing and Funding Post-Employment Benefits

This section looks at considerations and strategies for administrating and financing post-employment benefit plans.

Designing Sustainable Post-Employment Benefit Plans

When structuring a post-employment benefit plan, key factors to consider include:

• Eligibility Terms: Set clear criteria for which employees qualify for benefits post-employment. Common terms are minimum years of service (e.g. 5 years) and minimum retirement age (e.g. 55 years). More restrictive terms can help control costs.
• Benefit Calculations: Use a formula to calculate benefits that balances costs and value for employees. Formulas based on salary and years of service are common. Consider caps on maximum benefits.
• Vesting Schedules: Vesting determines when benefits are nonforfeitable. Shorter vesting periods cost more but aid retention. Graded vesting scales up over time.
• Indexing for Inflation: Determine if retirement benefits will increase to offset inflation. While this protects purchasing power, it also increases plan costs over time.

By carefully designing plan parameters, organizations can provide meaningful benefits while optimizing sustainability.

Investment Strategies for Post-Employment Benefit Funds

Effective investment approaches for funding post-employment benefit obligations include:

• Asset Allocation: Structure a portfolio across stocks, bonds, real estate and other assets to balance risk and returns. This can help grow investments to cover future liabilities.
• Diversification: Invest across a wide variety of assets and markets to reduce risk exposure. This stabilizes returns over the long run.
• Alternative Investments: Allocate a portion to alternative assets like private equity, hedge funds or commodities. Though complex, this can improve risk-adjusted returns.
• Liability-Driven Investing: Structure the investment portfolio to match the cash flow needs of future post-employment payouts. This strategy directly supports funding obligations.
• Rebalancing: Periodically adjust allocations back to targets as market values shift. Rebalancing realizes gains and maintains target exposures.

Thoughtful investment strategies that balance risk management, return generation and liability coverage are key to funding post-employment benefit promises.

Cost Control Techniques for Post-Employment Benefits

Suggestions for controlling post-employment benefit plan costs include:

• Benefit Reductions: Cut back or eliminate certain benefits to lower costs. This reduces future obligations but can impact employee retention.
• Employee Contributions: Require employees to contribute toward the cost of their post-employment benefits. This offsets expenses but decreases take-home pay.
• Funding Caps: Set limits on annual employer contributions, such as capping at 20% of payroll. Caps create predictability but may force benefit reductions.
• Risk Transfers: Use insurance products to transfer payout risk to a third party. This reduces volatility but involves paying risk premiums.
• Plan Changes: Alter plan design parameters like eligibility, vesting periods or benefit formulas to control expenses. Existing employees may be grandfathered in.

With thoughtful design and prudent management, organizations can provide post-employment benefits in a financially sustainable manner over the long term.

Government and Regulatory Perspectives on Post-Employment Benefits

Post-employment benefits refer to the compensation and benefits provided to employees after their employment ends, typically in the form of pensions, health insurance, and other retirement benefits. Governmental entities and regulations play a major role in shaping post-employment benefits practices.

The Role of the Government Accountability Office in Post-Employment Benefits Oversight

The Government Accountability Office (GAO) serves a critical oversight function for post-employment benefits. Specifically, the GAO:

• Conducts audits and investigations into post-employment benefit programs to identify waste, fraud, abuse, and mismanagement
• Monitors pension plans to ensure legal compliance and fiscal responsibility
• Publishes reports and testimonies to Congress on key issues and challenges related to post-employment benefits
• Provides recommendations to improve the effectiveness and sustainability of post-employment benefit programs

By conducting non-partisan oversight, the GAO aims to promote accountability, integrity, and transparency around post-employment benefits at the federal, state, and local levels of government.

Navigating the List of GASB Statements for Post-Employment Benefits

The Governmental Accounting Standards Board (GASB) issues statements to establish standards for accounting and financial reporting for government entities. Several key GASB statements apply to post-employment benefits:

• Statement No. 43 sets standards for reporting post-employment benefit plans other than pensions, such as medical, prescription drug, life insurance, long-term care, disability, and long-term sick leave.
• Statement No. 45 establishes guidance for accounting and financial reporting for post-employment healthcare benefits, including measurement and recognition guidelines.
• Statement No. 74 sets revised standards for reporting pensions, including calculation methods for pension liabilities and expenses.

When managing post-employment benefits, governmental entities must understand and correctly apply relevant GASB statements to remain legally compliant and provide accurate financial reporting. Consulting the full List of GASB Statements can help clarify specific accounting and reporting rules.

Conclusion and Key Takeaways on Post-Employment Benefits

In closing, we will summarize the must-know points about post-employment benefits and their implications for employers.

Recap of Post-Employment Benefits and Their Importance

Post-employment benefits refer to the compensation and benefits provided to employees after their employment has ended. The main types of post-employment benefits are:

• Pensions - Monthly payments made to retired employees based on salary and years of service.
• Retiree health care - Health insurance provided to former employees after retirement.
• Deferred compensation - Benefits accrued but not paid out until after employment ends.

Properly accounting for and funding post-employment benefits is critical for organizations for several reasons:

• They represent significant long-term liabilities that must be reflected on financial statements.
• Underfunding these benefits can negatively impact an organization's fiscal health.
• Changes in accounting standards (e.g. GASB 45) have increased transparency requirements.

Strategic Financial Planning for Post-Employment Benefits

Organizations need robust long-term plans to fund post-employment benefits such as:

• Establishing pension trusts and estimating future pension obligations.
• Setting aside dedicated pools of assets to cover expected costs of retiree benefits.
• Developing a timeline for paying down unfunded benefit liabilities.

Careful monitoring and risk analysis are also key to ensure sufficient assets and cash flows to meet future benefit payouts. Establishing a comprehensive strategy reduces uncertainty and demonstrates fiscal responsibility.

Final Considerations on Post-Employment Benefits

In summary, post-employment benefits are a significant but often overlooked aspect of compensation planning. Failure to properly account for these liabilities can severely impact an organization's financial health. Developing a clear understanding of the obligations, accounting treatment, and long-range funding strategies for post-employment benefits is essential for employers seeking to control costs and plan for the future.

Related posts

• What is Hedge Accounting?
• Pension Fund Manager Salaries Explained
• What is Pension Plan Accounting?
• Post-Employment Benefits: Pensions and More