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Retiree medical--round 2.

¹Hewitt Associates, Lincolnshire, IL.

Benefits Quarterly

|December 9, 1993

Summary

The second round of Financial Accounting Standards (FAS) 106 changes will reduce retiree health care costs for employers. This shift allows for lower accounting costs, preventing increases in pensions or other retiree benefits.

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Area of Science:

Accounting
Finance
Human Resources

Background:

Financial Accounting Standards (FAS) 106 mandates changes in accounting for retiree health care.
Previous implementation of FAS 106 led to significant adjustments for employers.

Purpose of the Study:

To analyze the impact of the second round of FAS 106 changes on retiree health care costs.
To assess the financial implications for employers regarding pensions and other benefits.

Main Methods:

Analysis of accounting cost structures.
Evaluation of employer benefit strategies.

Main Results:

The second phase of FAS 106 changes is expected to be less disruptive than the first.
Anticipated reduction in overall retiree health care costs for employers.
A fixed dollar benefit design is identified as a strategy to lower accounting costs.

Conclusions:

Employers can expect reduced retiree health care expenses.
The need to increase pensions or other retiree benefits may be averted.
Implementing a fixed dollar benefit design can justify lower accounting costs.

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