Account for other postretirement benefits

Harbor Light pays retiree medical claims. Its controller records claims paid as postretirement benefit expense. That cash-basis answer omits benefits earned through employee service before retirement.

Start with the promise

Document:

• eligible employees and dependents;
• service and age requirements;
• benefit coverage and limits;
• participant premiums, deductibles, copays, and caps;
• Medicare coordination, subsidies, and other recoveries;
• amendment, termination, or cost-sharing rights;
• funded trust or insurer arrangements;
• attribution period;
• demographic and healthcare assumptions; and
• measurement and reporting dates.

A stated right to amend or terminate a plan is relevant but does not by itself make the existing obligation zero. Apply the plan terms and current guidance with legal and actuarial support.

Move from EPBO to APBO

EPBO is the actuarial present value of expected future benefits for current participants. APBO is the portion attributed to employee service through the measurement date. The attribution period follows the plan's service and full- eligibility pattern under current guidance.

Do not recognize EPBO and APBO as two liabilities. APBO is the obligation used in funded status; EPBO supports attribution.

Reconcile the APBO

Harbor Light's supplied schedule is:

The $250,000 claims paid reduce APBO because they settle attributed benefits. They are not a second $250,000 expense after accrual accounting has recognized service and interest cost.

Reconcile funded assets separately

Funded status is $2.27 million - $8.5 million = a $6.23 million liability. If benefits are paid directly by the employer rather than a trust, the cash and asset rails differ; apply the supplied facts rather than forcing pension symmetry.

Compute periodic postretirement benefit cost

Assume supplied expected return of $100,000 and $50,000 of recognized amortization:

$500,000 service cost
+ 450,000 interest cost
- 100,000 expected return
+ 50,000 amortization
= $900,000 net periodic postretirement benefit cost

ASU 2017-07's service-cost presentation and capitalization boundary also applies to net periodic postretirement benefit cost.

Control the healthcare trend assumption

A healthcare cost trend rate affects expected claims before participant cost sharing, caps, subsidies, and plan changes. Preserve the initial rate, decline pattern, ultimate rate, year reached, covered cost base, and actuarial model.

A one-percentage-point sensitivity supplied by the actuary is conditional. It does not mean all medical costs or APBO move by 1 percent, and it is not a forecast confidence interval.

Compare without cloning pension accounting

Pension PBO can depend on compensation and service. APBO can depend on healthcare utilization, trend, eligibility, participant cost sharing, and government-program interaction. Both use obligation, plan-asset, cost, OCI/AOCI, funding, and disclosure rails. The actual measurement inputs are not interchangeable.

Keep defined contribution and multiemployer routes outside

A retiree health promise can coexist with a defined contribution pension and a multiemployer arrangement. Do not aggregate their obligations or apply the APBO model to contribution-only plans. Report each route under its own guidance and disclosures.

The OPEB file closes when benefit terms, attribution, APBO, any plan assets, cost, OCI/AOCI, cash payments, trend assumptions, funded status, and note amounts reconcile without treating current claims as the entire cost.