Perspective and Issues

A convergence of economic and political factors in the US has had a profound impact on the tools and techniques used by businesses and their employees to plan for and fund retirees' postemployment income.

Consider the demographics of the aging “Baby Boom” generation, the resulting financial uncertainties surrounding the financial health of the Social Security retirement system, the low savings rate, and the standard of living they currently enjoy. These conditions have necessitated the establishment of a private, supplemental system for providing pension and postretirement health benefits for retirees. The growth of this system has been promoted by the generous income tax benefits available to enterprises that provide employees with such benefits and to employees for voluntarily contributing portions of their earnings to individual retirement accounts or to employer retirement plans that accept such contributions.

This chapter focuses on accounting for postretirement benefits including single‐employer and multiemployer plans, defined benefit pension plans, defined contribution pension plans, and postretirement plans other than pensions that help fund retiree costs of health care benefits.

FAS 87 specifies the accrual basis of accounting for pension costs. At the time of its narrowly‐endorsed issuance in 1985, FASB stated that it was not likely to be the final step in the evolution of pension accounting, which it characterized as being in a “transitional stage.” ...

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